Verizon’s enterprise and wholesale segments
Earlier in this series, we learned that revenues of Verizon’s (VZ) wireline wholesale and enterprise segments decreased in 4Q14. We also learned that these sub-segments were responsible for the year-over-year decline in the wireline division’s revenue growth during the quarter. Now, we’ll analyze these segments’ performance.
Enterprise revenues declined due to shrinking legacy services in 4Q14
Verizon’s wireline enterprise division caters to customers such as medium and large enterprises and government entities. The wireline sub-segment has two divisions: Core and Strategic services.
Core services are the traditional data and voice services for enterprise customers. This is a declining segment for wireline telecommunication companies such as Verizon, AT&T (T), CenturyLink (CTL), and Windstream (WIN). Verizon’s wireline division’s core services revenues declined by ~13.3% year-over-year in 4Q14.
In Strategic services, the company offers services such as cloud, voice, and data over IP (Internet protocol) storage and security. It also includes M2M, or machine-to-machine, services for enterprises to manage their operations remotely.
Strategic services’ revenues grew—albeit marginally—by ~1.5% year-over-year in 4Q14. According to Verizon, this slower rate of increase was due to pricing pressure that the company faced in IP-based services. Stiff competition was one reason for pricing pressure on these services.
On the positive side, these services are gaining significance in Verizon’s enterprise segment. Strategic services benefit wireline telecommunication companies. They have sticky customers. Their contracts are usually for longer tenures. As you can see in the chart above, the contribution of revenues of Strategic services in the enterprise segment continued to grow in 4Q14. Revenues from these services represented ~62.7% of Enterprise revenues in 4Q14 compared to ~58.9% in 4Q13.
Verizon’s wireline wholesale segment shrinks in 4Q14
In the wholesale wireline business, telecommunication companies largely rent out their facilities to other carriers for voice and data services. Verizon’s wholesale wireline segment continued to decline in 4Q14. Like the enterprise wireline segment, the segment faced similar challenges of losses from shrinking legacy voice services.
Wholesale revenues decreased by ~5.8% year-over-year to ~$1.5 billion during the quarter. According to the company, pricing pressure from competition was also one of the reasons for the year-over-year decline in the segment’s revenues during the quarter.
You can take on diversified exposure to the company by investing in the iShares Russell 1000 Growth ETF (IWF). The ETF held ~1.8% in the company on March 19, 2015.