For a behemoth,
has a surprising spring in its step.
The nation's largest local telephone company is cutting its core network-equipment spending by $2 billion from last year's levels. While on first blush that sounds like more cold porridge for top suppliers such as
, it actually spares the vendors of purported Verizon growth business such as wireless, data and long-distance gear. In the gloom of the current telecom recession, that silver lining is positively glimmering.
Moreover, smaller-than-expected spending cuts could signal optimism on Verizon's
outlook for the year. Merrill Lynch analyst Adam Quinton wrote a note Thursday indicating that he was "encouraged" by Verizon's modest cuts, as they may "indicate an improved cash flow." Verizon fell 13 cents to $45.95.
Some industry observers had forecast deeper cuts across the board, on the thinking that Verizon would mimic rival telcos in limiting its spending budget to 20% of projected revenue. The big players' return to spending sanity neatly coincides with the exit of heavily leveraged, highly speculative network building outfits like
, which filed for bankruptcy earlier this week. Meanwhile, Global Crossing lookalikes such as
have been flogged by the market as liquidity worries mount.
Verizon's 2002 capital budget of $15 billion to $16 billion marks a mere 11% reduction from 2001 levels and represents about 22%-23% of this projected 2002 revenue.
, on the other hand, has brought its capital plan to a scant 17% of projected revenue.
Verizon also gave its fans a mildly sunny outlook for the year on a conference call Thursday. Though sales will continue to slump in the first and second quarters, the company expects the old second-half snapback to bring total revenue to $70 billion, or about 4% above last year. Similarly, EBITDA, a measure of cash flow that excludes charges like interest, depreciation, taxes and amortization, is projected to grow 8% in 2002.
Verizon expects its primary growth to come from its wireless, long-distance and digital subscriber line, or DSL, operations. The company also expects its core local phone service business, which lost 2% of its total active lines to competitors last quarter, to slow those declines this year.
President and co-CEO Ivan Seidenberg told analysts on the conference call that in 2003 Verizon's will reach "critical mass" in areas like DSL and wireless, presumably meaning that those businesses will begin to show solid returns.
The company took a fourth-quarter goodwill impairment charge of $1.7 billion related to its investments in
, a data service provider, which was spun from the merged Bell Atlantic and GTE.
Asked by an analyst if Verizon saw any opportunities to scoop up network assets on the cheap in the wake of several telecom collapses, Seidenberg said the failed $800 million agreement to buy network systems from defunct DSL provider NorthPoint last year has scared him away from the junk heap.
"We want to make sure we don't dabble in this area again until we understand that these assets have come back down to the true value," Seidenberg said on the call. "As long as the capacity is available for us to purchase, we have less need to go out and make any moves to acquire these companies."
Clearly, those sentiments support the increasing belief on Wall Street that the tech revolution, led by a slew of next-generation optical-Internet upstarts, is fast being quelled by dinosaurs like Verizon, SBC and
, which despite widespread predictions to the contrary are still roaming the land.