Verizon’s wireline business is undergoing a structural decline
In a previously published article, Wireless segment drives growth at Verizon, we learned that the wireline business contributes only 32% to Verizon Communications Inc.’s (VZ) overall revenues. That’s because the wireline business is undergoing a structural decline.
As the chart below shows, within the overall wireline segment, only the consumer retail business is showing revenue growth. This business is mainly driven by the growth of Verizon’s FiOS business, which we covered in the first few parts of this series. The company’s small business, global enterprise, and global wholesale business, however, continue to decline.
Competitive pricing pressures causing decline in most of Verizon’s wireline business segments
During the 3Q14 earnings call, Verizon’s management suggested that its enterprise business is declining mainly because of the decline in its legacy transport services and CPE (customer premise equipment) business. The CPE business includes routers, switches, video conferencing systems, etcetera. In comparison, Cisco Systems, Inc. (CSCO) and Juniper Networks, Inc. (JNPR) are both showing growth in switches, but a decline in the routers business.
For Verizon, the CPE business also provides services for data centers, and looks after the cloud and security needs of enterprises. Management noted that the competitive pricing pressures it’s facing in this segment is causing the enterprise business to decline.
Similarly, its global wholesale business is undergoing a decline due to pricing pressures and technology migration. Verizon’s wholesale business provides voice, data, and broadband services to other carriers that use Verizon’s facilities to provide customer service.
Verizon also provides broadband services to small businesses. According to management, wherever its FiOS service is present, it’s gaining share, but where it’s old copper technology is present, it’s losing share. This is the main reason why revenues from its small business also fell.
Similar to Verizon, the respective wireline businesses of AT&T, Inc. (T) and Sprint Corporation (S) are also struggling. For AT&T, it’s the legacy voice and data businesses that are in worst shape. For more on this, read Why do AT&T’s wireline business margins continue to decline? Meanwhile, Sprint is facing an even more difficult time with its wireline business. To understand more, read Why Sprint might sell its Wireline segment.