Verizon, the prominent U.S. telecom company, is set to face a substantial financial impact in the fourth quarter with a $5.8 billion value reduction. In a strategic move, the telecom giant decided to devalue its declining wireline business, leading to a significant write-down.
Verizon’s Financial Alteration in the Fourth Quarter
The latest decision follows a comprehensive five-year review, during which the company adjusted its financial projections for the Business unit to benefit businesses and government clients. This segment constitutes over 20% of Verizon’s total revenue.
Meanwhile, the wireline business, encompassing traditional voice and data services, has been grappling with challenges such as fierce competition, economic uncertainties, and a widespread transition to wireless services.
After the write-down, the goodwill balance for the unit as of December 31 was $1.7 billion, according to Verizon’s report.
This move has already impacted the company’s shares, causing a decline of more than 1%. Notably, the third quarter results for Verizon Business indicated a 4% reduction in revenue, primarily attributed to lower wireline and wireless equipment revenue.
Investors and industry watchers are keenly awaiting Verizon’s fourth-quarter results, which are scheduled to be disclosed on January 23.
The results will be supportive in gaining insights into the overall financial implications and the company’s strategic adjustments in response to the developing areas of the market.
Verizon to Cut Down Capital Spending by 23%
Besides the plans to take a $5.8 billion write-down in Q4, Verizon is also shaping up to reduce its capital spending by 23% in 2024. This achievement is significant as it marks a strategic shift following the completion of its 5G network buildout.
With a focus on driving sales growth and cash generation, the company’s Chief Executive Officer, Hans Vestberg, revealed plans for a $17 billion spending budget in 2024, down from the previous year’s estimated $22 billion that was primarily allocated to the accelerated 5G expansion.
Vestberg, speaking at a Citigroup Inc. investor conference, emphasized that by 2024, Verizon aims to achieve “the lowest capital intensity in the industry, in the world,” relative to revenue.
Notably, the reduction in capital spending comes as the company concludes its 5G buildout, during which expenses for network upgrades had surged as a percentage of revenue.
While Verizon has faced challenges in subscriber growth compared to competitors, the company closed the fourth quarter with a net gain in wireless customers, according to Vestberg.
Primarily, Verizon’s key priorities include enhancing cash generation, increasing average revenue per user, and cost reduction in the coming year.
Notably, the company is concentrating on the sales of wireless home internet service, a burgeoning segment that has impacted traditional cable companies’ broadband business.
This strategic move suggests that Verizon could be a good investment in 2024, particularly because of its resilience, strategic position, and financial stability in a developing mobile market.