Challenges faced by Verizon’s Global Enterprise segment
In the previous part of this series, we learned that FiOS—Verizon’s (VZ) fiber-based offering—is a key growth driver of the wireline segment. Also, that Verizon’s wireline segment revenue is declining despite the robust growth of FiOS. The biggest contributor to the decrease in the segment’s revenue has been the Global Enterprise sub-segment.
During the recent Bank of America Merrill Lynch 2015 Media, Communications & Entertainment Conference, John Stratton, Verizon’s Global Enterprise and Consumer Wireline business, talked about the challenges faced by Verizon’s enterprise subsegment.
During the conference, Stratton noted, “One is just the continuing secular decline of the core copper network and we know that. We’re dealing with that as we go forward. We see technology displacement to fiber, to ethernet solutions and the like. IP networking right now—and I think this is more temporal, but we have seen for the last 18 months or so some pretty significant compression on the rate per bit, if you will, the retail rate per bit for IP networking.”
Performance of Verizon’s Global Enterprise segment
Global enterprise segment’s revenue continued the declining trend in 2Q15. It dropped by ~6.4% YoY (or year-over-year) to reach ~$3.2 billion during the quarter. This subsegment made up ~34.2% of the wireline segment’s revenue at the end of 2Q15.
There are two components of the Global Enterprise subsegment: strategic services and core services. Core services are the usual traditional data and voice services for enterprise clients. The revenue from these core services declined ~12.7% YoY to ~$1.2 billion during 2Q15.
Meanwhile, the revenue of strategic services decreased at a lower rate by ~2.2% YoY to reach ~$2.0 billion during the quarter. In strategic services, Verizon provides services such as cloud, voice, and data over IP (Internet protocol), storage, and security. It also includes M2M, or machine-to-machine, services.
You may take a diversified exposure to Verizon by investing in the iShares US Telecommunications ETF (IYZ), which held ~10.4% in the carrier on August 31, 2015. IYZ held a total of ~22.3% in AT&T (T), CenturyLink (CTL), and Frontier Communications (FTR) on the same date.