Analysts Seem Skeptical Of Verizon's Merger Talks

Although Verizon CEO Lowell McAdam expressed his openness to merge with another entertainment company to augment its wired and wireless business, analysts are skeptical that such a deal may become reality. "We think chatter of a potential M&A [merger and acquisition] is overblown, although we believe Verizon will opportunistically assess its options if the wireless business does not improve," Wells Fargo analyst Jennifer Fritsche said. Earlier this week, McAdam said he would be open to a merger with Comcast, which owns NBCUniversal, Disney or CBS, a move that would mirror rival AT&T's move to marry its telecommunications business with content owner Time Warner. In a highly competitive wireless market, chatter of a Verizon merger may have been spurred by the carrier's loss of 289,000 subscribers during the first part of the year, a number that could have been worse if Verizon had not re-embraced unlimited data plans.

However, despite its poor financial performance, MoffettNathanson analyst Craig Moffett claims that Verizon shouldn't feel pressure to merge with a cable or content company. Analysts also believe that Verizon does not have the capital to acquire Charter or satellite provider Dish for its spectrum, and even though McAdam had downplayed Verizon's interest in Comcast, claiming it wasn't the right fit at the moment, analysts are also skeptical of that deal.

While Verizon remained focused on handset exclusives, its second largest competitor, AT&T, is focusing on diversified services to attract and retain customers. AT&T leveraged its DIRECTV asset to bring more value to its customers, allowing them to stream DIRECTV content without using their data. AT&T is also offering free content from HBO, a subsidiary of Time Warner, to customers on some of its pricier unlimited data plans, a move signaling the carrier's bullish outlook on its deal with Time Warner closing. In contrast, Verizon made smaller acquisitions through its buyout of AOL and Yahoo. These businesses will help Verizon build up its advertising business. Like AT&T, Verizon also offers data-free streaming on its Go90 video service.

As a bright spot for Verizon, the company continues to post strong growth with business, fiber and Internet of Things (IoT) customers. Verizon recently hired former Ericsson CEO Hans Vestberg to lead its fiber business. And even though its $1.8 billion acquisition of XO Communications may not have an immediate impact on attracting new customers, the spectrum that Verizon gained could help the carrier grow its network as it looks towards 5G connectivity and connect more IoT devices. If Verizon makes the move to merge and enter the content business, XO's spectrum could give it the bandwidth to exploit content and distribution.

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