Would Verizon Contemplate Selling All its Fixed Network Assets?

Many have speculated over the years that Verizon would--if it could--exit the fixed network business entirely. In recent years it has sold many of its rural and non-contiguous assets. On the other hand, Verizon recently has argued that coming 5G networks will require a much-denser network of backhaul facilities that are best exemplified by an extensive fiber-deep network.

So it seems unlikely Verizon would contemplate a complete exit from the fixed network business. But which assets might it prefer to use? That is among the questions raised by the rumors about a purchase of Charter Communications.

Some of us think merger approval would be difficult, at best. The rumored Time Warner merger with Charter Communications likely would be viewed as a horizontal merger, not a vertical merger, as AT&T proposes with its acquisition of Time Warner. That is going to be a tougher sell, to regulatory and antitrust authorities, without huge asset dispositions.

Charter passes 48 million homes. Verizon passes some 27 million homes, with significant overlap in New York, Maine, Massachusetts, New Jersey, Virginia, Pennsylvania, Rhode Island, Connecticut and Delaware. In other words, asset dispositions across most of the Verizon footprint would be expected.

Assume there are a total of about 135.7 million total U.S. homes. Charter passes about 35 percent of U.S. homes, arguably at the limit of traditional antitrust thinking (roughly 30 percent has been a rule of thumb for any single provider). Assuming only half the Verizon homes overlap, that still leads to a Verizon-Charter homes passed count somewhere in the neighborhood of 61.5 million homes, or about 45 percent of total.

It is hard to see antitrust authorities approving that large a footprint. Or, of course, Verizon might contemplate spinning off its entire telco footprint, relying on the hybrid fiber coax network for fixed network access. That would be a huge change for Verizon, but is possible, in principle.

Among other practical issues, Charter arguably has customer satisfaction performance far below what Verizon touts. AT&T, when it purchased Tele-Communications Inc., at that time the largest U.S. cable TV operator, found the facilities far less robust than it anticipated. Verizon likely would encounter some of those same issues.

On the other hand, Verizon could, if it were to sell its fixed networks, also be able to deal with its union labor issues, as Charter is non-union.

So does Verizon sell its telco assets, and keep the Charter assets, or sell the cable assets, which are said to be the reason Verizon wants Charter in the first place?

In other words, does Verizon contemplate (and who would buy) divestitures of most of its texlo fixed network, and replace it with the Charter hybrid fiber coax network? And will telcos once again arguably be shown to be the “greater fools,” at the hands of cable companies?