How Verizon’s CEO Change Could Impact Cisco, T-Mobile, Google and Others

As many others have pointed out, Verizon’s (VZ) decision to make former Ericsson (ERIC) chief Hans Vestberg its new CEO could lead Big Red to prioritize network and telecom service investments relative to its oft-questioned online media efforts.

Given Verizon’s size and reach, such a strategy change could impact a very long list of companies, from telecom rivals to equipment suppliers to online ad firms to startups and smaller companies that Vestberg and his team think could help Verizon achieve its goals.

To recap: Verizon announced on Friday morning that long-time CEO Lowell McAdam will be stepping down at the end of July, and would be replaced by Vestberg. The company also announced John Stratton, its President of Global Operations, will be retiring at year’s end.

The move comes just a little over a year after Vestberg was hired by Verizon to be its CTO and President of Global Networks. Before that, he was Swedish mobile infrastructure giant Ericsson’s CEO from 2010 to 2016.

Ericsson’s shares, it should be noted, fell over 20% during the six-plus years that Vestberg was CEO. Nonetheless, Verizon investors don’t collectively seem bothered by the CEO change: After opening lower on Friday, shares managed to close up 0.4%.

Here are a few possible effects of the adoption of a telecom-first strategy under Vestberg, and their implications for Verizon and others.

Capex could rise

Verizon’s capital spending has been effectively flat since 2014, fluctuating between $17.2 billion and $17.8 billion (true to form, the 2018 capex budget is currently at $17 billion to $17.8 billion). It would be surprising to see Vestberg, who has often gushed about 5G’s long-term potential while at both Ericsson and Verizon, to sign off on capex hikes. Major Verizon equipment suppliers such as Cisco Systems (CSCO) , Juniper Networks (JNPR) , Nokia (NOK) , Ericsson and Ciena (CIEN) certainly wouldn’t mind.

Mobile rivals could face tougher competition…. 

Verizon’s mobile network quality and coverage has long been a major selling point, and the company could double down on its attempts to make its network a competitive strength under Vestberg. The company could also step up its investments in rolling out IoT services for consumers and businesses, a field where it has some catching up to do relative to AT&T (T) . Whereas AT&T claimed 41.7 million connected device subscriptions at the end of Q1, Verizon had about half as many, and has been indicating on earnings calls that its connected device net adds (much lower than AT&T’s) predominantly consist of wearables.

….But T-Mobile and Sprint might not complain too much

T-Mobile US (TMUS) has been gaining share for years, making large network and spectrum investments and producing healthy amounts of free cash flow (FCF). All of that has led many (including yours truly) to be skeptical of the company’s claims that it needs to merge with Sprint (S) to effectively compete against Verizon and AT&T. If Verizon, whose wireless revenue base is still much larger than T-Mobile’s, was to significantly up its network and service investments, it could give T-Mobile and Sprint a talking point with regulators.

5G broadband investments could rise

Though the technology appears to still be a few years away from primetime and could ultimately be more effective in suburban areas than urban ones, Verizon has already shown a lot of interest in using 5G to deliver fixed-wireless broadband services to homes and businesses (initial service launches are set for the second half of 2018). Vestberg could step up Verizon’s efforts to roll out 5G fixed-wireless services — both in terms of radio and fiber infrastructure investments. That could spell tougher competition from cable and telco ISPs that are in the crosshairs.

Online ad rivals could take (more) share

McAdam bet big on turning Verizon into an online media and ad giant during his reign, inking 10-figure deals to buy AOL and Yahoo and also rolling out new digital media offerings such as the go90 mobile video service. However, the results have at best been mixed. If Vestberg decides to de-prioritize Verizon’s online media efforts, that could make life a little easier for Alphabet/Google (GOOGL) , Facebook (FB) and independent ad tech firms such as The Trade Desk (TTD) and AppNexus. That said, Google and Facebook are already doing quite well for themselves.

Verizon could buy more telecom and IoT software/services firms

Ericsson bought over 20 companies — largely telecom and pay-TV software and services providers — during Vestberg’s stint as CEO. It wouldn’t be surprising if Verizon stepped up its non-digital media M&A activity under Vestberg as well, particularly given its need to strengthen its IoT position. Though the AOL and Verizon deals got more attention, Verizon also spent close to $4 billion during McAdam’s tenure to buy a trio of telematics firms (Hughes Telematics, Fleetmatics and Telogis).

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