Verizon's Capex Unfazed By Net Neutrality Repeal, Tax Cuts

Advertisement
Advertisement

The investments Verizon is planning to make throughout 2018 won't be impacted by the recent net neutrality repeal and the massive corporate tax cut approved by the Congress, as suggested by the company's consolidated financial report for the final quarter of 2017. The telecom giant is estimating its capital expenditures to surpass $17 billion over the course of this year, thus being close to $17.2 billion it spent last year. At most, the firm will repeat its 2015 capex which amounted to $17.8 billion but isn't planning to exceed it, the report says.

Stimulating investments in the wireless industry has been one of the main arguments used by FCC Chairman Ajit Pai for repealing the Title II regulations, commonly referred to as the net neutrality rules. According to Mr. Pai, the directive put into place under former FCC Chairman Tom Wheeler unnecessarily burdened the telecom sector and discouraged investments, thus slowing down innovation and job growth in the field. Despite the looming prospect of 5G, Verizon isn't seeking to boost its overall investments in a significant manner in the next 12 months and will instead offset any such financial commitments by saving on other aspects of its operations, as suggested by its latest financials. Should the repeal of the net neutrality protections be confirmed by courts, wireless carriers will be allowed to prioritize traffic based on where it's originating from and discriminate domains by doing so. In practice, that ability would either see them sell multiple tiers of Internet content bundles, i.e. charge consumers extra to let them access all websites equally fast, or request additional payments from Internet companies to prioritize or not deprioritize their traffic. The latter scenario is much more likely in the medium term as it isn't expected to lead to as much public backlash as the former.

The recently enacted tax cut provided Verizon with a one-time $16.8 billion boost to its bottom line. The telecom giant intends to take advantage of the development "primarily to strengthen" its balance sheet, though it also promised some extra stock awards to employees. The tax reform will improve its operating cash flow by between $3.5 billion and $4 billion in 2018. Wireless carriers are largely domestic businesses and hence aren't able to benefit from the new tax legislation as much as U.S. companies with a strong international presence are, with the reform being largely targeted at encouraging tech giants such as Google, Apple, and Qualcomm to repatriate some of their hundreds of billions of dollars stored in overseas tax havens.

Advertisement