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Verizon’s Potential Colossal Blunder

If a recent Reuters’ article is correct at all about Verizon considering the sale of its enterprise business (which the operator has called “speculative” and “baseless”), we anticipate that by the service provider pulling the trigger on such a strategy, it would go down as one of the biggest mistakes in corporate history. No other portion of the country has even close to as many Fortune 1000 customers actually based in its incumbent territory. While it may make sense to take less aggressive actions, such as the divestment of its data center business, there is no adequate value that can placed on, in effect, ridding itself of serving these large companies.

It is curious that Verizon waited several days to respond to the story put out by the historically reliable news organization, and not right away because one would think that the carrier would want to alleviate customer concerns immediately. Reuters also talked specifically about an advisory company and a former interested buyer. At the very least, Verizon appeared interested in the industry’s reaction to the piece.

Verizon’s current leadership needs to overcome its discomfort level in just about everything that is not wireless – and realize that more of a consumer-based concentration is likely to have disastrous consequences. A market crash that is worse than what happened in 2007 is probably inevitable because both major political parties in the United States “kicked the can down the road,” and did not allow for the required cleaning process of allowing banks to fail. During such a major crisis, a sufficient number of big enterprises will have large cash reserves (not necessarily stashed in the US), and there will be many that will continue to benefit from corporate welfare programs.

On the other hand, most consumers would obviously be lacking much discretionary income during a market collapse. Depending on the actual timing, Verizon’s future 5G network could become a white elephant indefinitely as 4G transmission would be deemed more than adequate in such a situation.

Even if there is not economic turmoil in the foreseeable future, there is always the risk that in moving to the next-generation of wireless technology, it allows an opportunity for competitors to take share away from the market leader. At least in the past, this fear by the Verizons in the States has been the biggest reason why operators internationally have tended to lead the way on developments in this arena. Putting all of its eggs in one basket and giving up the diversification that its geography uniquely provides to the company in offering services to huge conglomerates makes no sense.

As the US has increasingly moved away from free market principles, a large portion of the money tends to reside in Washington, DC. While it is unclear whether Verizon would give up transporting traffic for the federal government under such a scenario, how does the firm just nonchalantly walk away from businesses that are directly serving these departments and agencies, which for the most part, have budgets that are politically impossible to cut, and are more than likely to keep getting higher?

So, the logical response to any notion surrounding its enterprise accounts is to find a way to make it work. Again, one does not give up these assets. The original Bell Atlantic understood their value back in the 1980s, and planned even back then that if it ever received sufficient regulatory relief, as happened in 2003, it would aggressively go after these businesses. (As we noted in the past, FiOS was really about passing major enterprises with fiber – not just providing fiber to homes.)

In short, despite protestations to the contrary, Verizon may still need a wakeup call. Otherwise, it is destined to become one of the most notorious cases studied at business schools.

[written by Mark Lutkowitz]

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