Verizon CEO: Next-Gen Technologies, Oath Media Business Set Up Carrier To Compete

Lowell McAdam, Verizon's chairman and CEO, made a rare appearance on the carrier's fourth-quarter 2017 earnings call Tuesday morning to discuss the impact of tax reform on the telecom giant's position in the market.

Verizon has long supported tax reform, and McAdam told investors to expect a positive impact to cash flow in 2018 by about $3.5 billion to $4 billion due to the recently passed Tax Cuts And Jobs Act. But the Basking Ridge, N.J.-based carrier has been "disciplined" in its spending, and tax reform won't change that, he said.

"We've always been focused on keeping our network the gold standard, while strengthening our balance sheet … this will continue to be the driving force behind the use of cash savings from tax reform," McAdam said.

[Related: Sources: Verizon Tightens Channel Management Team Following XO Integration]

Verizon's competitors, including AT&T and Comcast, announced $1,000 bonuses for many of its employees after the tax reform bill was passed. Verizon hinted to plans to invest in employees during the call, and then on Tuesday afternoon, the carrier announced it will give employees -- other than top management -- 50 shares of restricted stock. The prices of the restricted shares will be set Feb. 1, according to Verizon.

Verizon will rely on its next-generation technologies and its Oath media business, the combination of its AOL and newly acquired Yahoo assets, to compete in the telecommunications market, according to McAdam. The carrier isn't currently eyeing any blockbuster acquisitions at the moment, he added.

"We won't be drawing the line in a different place," McAdam told investors. "Our focus is to use the assets that we have today to be competitive in ways the others can't compete. We see much more opportunity to be innovative versus using tax reform to bring our prices down."

Verizon's Wireline Division, which includes its Enterprise Solutions, Partner Solutions, Business Markets segment and consumer markets, reached $7.62 billion during fourth-quarter 2017, up from $7.61 billion in the year-ago period, said Matt Ellis, Verizon executive vice president and CFO, during the earnings call.

Revenue for Verizon Business Markets climbed 7.7 percent during the quarter to $885 million in revenue, up from $822 million in the fourth quarter of 2016, excluding the recently acquired XO Communications business unit.

Enterprise Solutions saw a modest 0.4 percent increase to $2.29 billion in revenue during the quarter, compared with $2.28 billion in fourth-quarter 2016. Partner Solutions revenue reached $1.21 billion in fourth-quarter 2017, up 0.3 percent from $1.20 billion in the year-ago period. Excluding Verizon's XO Communications business unit, however, Enterprise Solutions revenue declined 4.1 percent, and Partner Solutions revenue decreased 5.8 percent during the quarter. Ellis attributed the drop to a decline in legacy telecom services.

"Strong demand for fiber access is a growth opportunity for this market," Ellis said. "We are competing and winning with our fiber-based products, but we continue to see declines in our legacy technologies."

Verizon's telematics business unit, however, saw an impressive 8 percent bump year over year. For the quarter, the unit brought in more than $230 million. Verizon's Oath business unit generated revenue of about $2.2 billion in the fourth quarter, according to Verizon.

Wireless operating revenue rose 1.7 percent to $23.77 billion during the fourth quarter, Verizon's first positive year-over-year growth in two years, according to Ellis. That's compared with $23.38 billion in fourth-quarter 2016.

The carrier posted postpaid net additions of 2.1 million for the full year, which included 1.8 million smartphones, Verizon’s highest total since 2015. It also included 31,000 tablets and 1.3 million other connected devices, the company said.

The carrier reported adjusted earnings per share of 86 cents on consolidated operating revenue of $33.96 billion, a 5 percent bump compared with adjusted earnings per share of 86 cents and revenue of $32.34 billion in fourth-quarter 2016.

Verizon will continue to invest in fiber and its media platform to meet the needs of its customers moving forward, according to McAdam.

"We are breaking into one of the most exciting times that I've seen in my career," he said. "We [are seeing] smart city applications and changes in the medical [industry] as well as transportation and education, all fueled by a strong telecommunication infrastructure. I look forward to sharing results and successes as we move forward this year."