Verizon — Two Major Wins and One Temporary Setback

Full Transcript

Don Kellogg 0m10s

Hello, and welcome to the two hundred and seventy ninth episode of The Week with Roger, a conversation between analysts about all things telecom, media, and technology by Recon Analytics. I'm Don Kellogg, and with me as always is Roger Entner. How are doing, Roger?

Roger Entner 0m23s

I'm great. How are you?

Don Kellogg 0m25s

Good. We've got a lot of topics for today, but they all somehow involve Verizon. Hope that's okay with folks, but there's just a lot going on in the news. Let's start out with the outage. There was an outage the other day Yep.

Don Kellogg 0m37s

For Verizon. Why don't you tell us about that?

Roger Entner 0m39s

So last week, when was it? Wednesday at around noon or slowly cascading through the network, about one and a half million customers lost access to the Verizon network. Typically newer devices like iPhone fourteens and newer. When you look at it from the outside, and we haven't talked with Verizon, and so this is me being a doctor on television trying to diagnose somebody in a different country. Right?

Roger Entner 1m9s

From what this looks out from the outside is there was a minor software change update that went wrong. Somebody had fat fingers, and it was involved the five g standalone core. That's what it looks like from the outside. Now, why am I saying this? One is if it would be a major upgrade, this would happen at two to 4AM in the morning.

Roger Entner 1m35s

There are no major upgrades where they do this In the middle of the day, yeah. In the middle of the day. They're smarter than that. So, this was something small, and it was only an isolated location. And so, Verizon is rolling out five markets, and they connect this to the newest devices.

Roger Entner 1m56s

So since the old devices were not affected that are on the four gs packet core, it means it was only on the five gs packet core. So something went wrong on the five gs standalone core. Somebody had fat fingers, and it was cascading it through the network.

Don Kellogg 2m13s

Right. And out out of 90,000,000 odd subs, right, roughly one and a half million folks seem to

Roger Entner 2m18s

be been updated. Yeah. The problem is it was the wrong one and a half million people. It was on the East Coast. It was like the people who are a columnist for The Wall Street Journal, an editor there, you name it.

Roger Entner 2m34s

It just touched the wrong people in the wrong place and made them painfully aware of how dependent they are on their technology. And so that's why this blew up. And after a couple of hours, they got it, right? And they were criticized for not contacting their customers. And I think you have to also give them we need to protect them because they probably figured out, oh, we're gonna catch this, and they didn't catch it.

Roger Entner 3m0s

And by the time it ran away and cascaded through the network, then they contacted like corporate communications. Because you also always have to have this judgment call of, like, I have a minor outage. Do I really sound the horns of Jericho? Right? And this is a massive disaster.

Roger Entner 3m20s

It was just touching the wrong people. Now, if we take the lessons from other outages by other companies or by security breaks, and here, you know, this is a Mexican standoff. Right? Things like this happen with everybody. And so the best thing is mea culpa, mea maxima culpa, here's a make good, and then move on.

Roger Entner 3m45s

For the good and bad, this country has the attention span of a goldfish. And if you stop talking about it, they forget it. So my advice to our friends at Verizon, you did the right thing. You did your mare kopra. You're giving the affected people $20.

Roger Entner 4m1s

Shut up. Move on. And for the other guys to point fingers at them, you know, wait long enough, it's gonna be you. Right? It's gonna come around.

Don Kellogg 4m10s

Well, whether it's a security breach or network outage, I mean, eventually, you know, these things come for everybody. Right?

Roger Entner 4m15s

Yeah. Treat the other guys like you would like to be treated would be my recommendation. You know, what comes around goes around.

Don Kellogg 4m22s

That was a little bit of a down note for Verizon, but they recovered pretty quickly.

Roger Entner 4m25s

And then it got better.

Don Kellogg 4m26s

And then it got better. One thing I think that also happened last week that was pretty positive for Verizon was a ruling that the FCC made. Can you tell us about that?

Roger Entner 4m36s

Oh, yeah. That was a major win. Verizon bought in 2007 Spectrum in the 700 d block that was associated with net neutrality and sixty day unblocking policy. Nobody wanted the spectrum, so Verizon got the spectrum for really, really cheap, like billions of dollars cheap. But, you know, it was a poison chalice, right, because it came with a sixty day unlocking and nefarious people were taking advantage of it and were stealing phones blind.

Don Kellogg 5m9s

Well, so the issue here is if, let's say, you go into Verizon, you finance a phone, you might finance that over a period of two years. And while it's kind of like a car or like your house, right, like, well, while you're still paying it off, the carrier wants to make sure that you don't skip town with the device, and so they lock it so it's not operable on other networks. That's a reasonable thing to do with finance devices. But what this ruling did was force them to unlock every device after sixty days.

Roger Entner 5m36s

After sixty days, financing or not, and there are criminals in this country, I know it's a shocking surprise, that are then selling these devices for a bargain online, unsuspecting people buy them, try to activate them, and the criminal ran away with the money, and the consumer has a phone arguing with the carrier, why don't you activate this, Right? I bought this on the Internet. Why are you horrible people? You know? I own this, clear.

Roger Entner 6m11s

And they said, like, yeah, but it's a stolen device. This is locked.

Don Kellogg 6m14s

Well, and to be clear, this is not, like, the standard for the industry either. Right? So Verizon was existing in a in a regime where they were forced to unlock earlier than a lot of other folks in the industry.

Roger Entner 6m26s

Yes. Because they bought the spectrum for cheap. So they had a benefit from buying spectrum for billions of dollars less than anybody else. Everybody else stayed away from this and said like, no, I'm not going to touch this with a 10 foot pole. Verizon touched it and got electrocuted.

Roger Entner 6m45s

And congratulations for getting a get out of jail card. Right? In a way

Don Kellogg 6m49s

Many, many years later, but finally. Right?

Roger Entner 6m51s

Twenty years later. Twenty years later, they got out of jail, and now they are following the voluntary guidelines from the CTIA that they did a couple of years ago, which means, you know, when you pay off your phone, we'll we'll unlock the device, which is standard practice, which is, I think, is fair. Now, other people are crying foul, the cable companies, MVNOs, because they rely on unlocked phones, because a lot of their customers come with BYOD, and any amount of friction in that system is making their life harder, because the policy at T Mobile is that when the phone has been paid off, they automatically unlock the phone. At AT&T, you have to call in and it takes a couple of days, and that kind of friction is a churn inhibitor, plain and simple.

Don Kellogg 7m49s

So Verizon now gets to play the game by, you know, at least similar rules to the rest of the folks on the board. And and, you know, I mean, I would say from a BYOD perspective, Verizon is the one that paid for that device that the users is paying off. And so I think it's perfectly fair for them to lock that unless people wanna pay off the device, and then they can bring it over anyway. Right? So I don't view it as being consumer unfriendly in the sense that it's like if you bought a car and paid off half of it and then wanted to take it home without paying off the rest of it.

Don Kellogg 8m17s

Right?

Roger Entner 8m17s

Yeah. Exactly. Absolutely. It now brings it in line with everybody else, which should over time help Verizon's churn. It doesn't help it tomorrow because, you know, if you bought a device two weeks ago, it's still in.

Roger Entner 8m32s

It might help churn relatively soon, right? So we'll see. And then they were able to put a square peg in a round hole, or is it the other way around? They got approval from the federal government a while ago by abolishing DEI and things like that, and now they got approval from California, which had biometric requirements. And so they were able to figure that out.

Roger Entner 9m0s

They got approval.

Don Kellogg 9m1s

And this is for the Frontier acquisition.

Roger Entner 9m3s

And this is for the Frontier acquisition.

Don Kellogg 9m5s

Which is a funny story because some of that network they actually built and then sold to Frontier, and now they're buying it back. So tell us a little bit about that.

Roger Entner 9m13s

Well, and by the way, Frontier is almost like a baby Verizon. So when you look at it, Frontier over time bought a lot of the DSL. Verizon, as of like a month ago or so, did not have any DSL lines because it sold all the DSLs to smaller companies like SharePoint, Frontier, you name it. They had all the DSL. Also, when was that about ten years ago, Verizon sold its Fios markets that were not in the Northeast, which means in California, in Texas, near Dallas, Cala, Texas is one of the markets, and in Florida, they sold that to Frontier.

Roger Entner 9m56s

Last time, when there was a leadership change, it was between John Stratton and Hans Besberg, who would succeed Lowell McAdam. As we all know, Hans won before he lost, and John Stratton became the executive chairman of Frontier. He helped them go through bankruptcy and laughed away all the way to the bank.

Don Kellogg 10m18s

Just in a couple of years or two or three years ago, right? Mean, recent.

Roger Entner 10m22s

Relatively recently, John reformed Frontier. He brought a lot of people from Verizon over. For example, John Haurabin, who was a CMO at Verizon at the time, was then the CMO at Frontier. He's now the CEO at Kinetic. And a lot of other people, to a certain extent, Frontier turned, like, almost into mini

Don Kellogg 10m44s

Yeah. They were colonized by Verizon execs, essentially.

Roger Entner 10m48s

Which made now the integration a lot easier because they all know if they're still there, how the old mothership ran. Even the color of Frontier was like almost indistinguishably red from Verizon, so even they felt home when it came to the collateral. So now they put Humpty Dumpty back together again, and Verizon has now the frontier markets, and here comes the convergence story. I would expect in the next couple of earnings calls that convergence, especially the upsell opportunity by selling Frontier customers, upselling that to Verizon Wireless service to be one of the good stories.

Don Kellogg 11m31s

Right. So I mean, we've seen with AT&T that the, you know, kind of fiber plus wireless bundle does quite well. It's a winner. Right? And up until this point, Verizon had only been able to sell that inside of its ILEC footprint in the Northeast because they divested all those assets to Frontier.

Don Kellogg 11m47s

Now they've got them back. In addition to the conversion story with FWA, which is also a winner, they've got kind of like a budget FWA convergence option and then a more premium fiber convergence option and in areas where they have fiber footprint. So I think it's exciting. I think what's old is new again, and convergence is, you know, on the tip of everybody's tongue now. And there's good reasons for that.

Don Kellogg 12m8s

Right?

Roger Entner 12m9s

This was a very, very good week for Verizon with a minor road bump that looks, when you're going over the road bump, a lot bigger than it looks in the rearview mirror.

Don Kellogg 12m19s

Let's talk about bumps.

Roger Entner 12m21s

Only the

Don Kellogg 12m22s

There's one more one more story we need to talk to. That's radiation from phones. Yeah. Tell us about this.

Roger Entner 12m31s

And under the topic of only the best people. Right? You know, now that the chairman of the Children's Defense Fund, one of the organizations that has been incessantly ranting about cell phone emissions and how horrible it is, has become the Secretary of Health and Human Services. Unsurprisingly, they're now doing want to do a study on this. What these people are missing is we have already the largest possible study on radio exposure on people in existence and possible.

Roger Entner 13m12s

We are using cell phones for the last fifty years. 6,000,000,000 people today are using this on a daily basis, right? And when we go in history, like in Scandinavia, where this all started, we had like radio emissions that were like 10 times stronger than what we have today. And if there would be negative healthcare effects, it would have shown up in the health statistics. You know, people would run around with tumors and abscesses and everything hanging out of their head if there would be a case.

Roger Entner 13m50s

And when you look at it, the cancer rate has been largely stayed flat. It has gone a tiny smidgen's up, but you can attribute that to an older population, much better detection.

Don Kellogg 14m5s

Well, and it's types of cancer that have nothing to do with how people use their phones. You know, it's like things like colon cancer.

Roger Entner 14m11s

And the lethality has gone down.

Don Kellogg 14m13s

Right.

Roger Entner 14m15s

And so we have so many cases where we see no effect. You know, I don't need to test it on a 100 or a thousand lab rats when I have 6,000,000,000 people who are doing this already for fifty years. Right? It's like insanity. I feel like I'm in the middle ages.

Roger Entner 14m35s

It's like suspicions and things. You know? Stop arguing with facts and logic. It doesn't get you anywhere.

Don Kellogg 14m42s

We shouldn't be worried about the vad vapors, I guess, is what you're saying. Right?

Roger Entner 14m45s

Yeah. It's ridiculous.

Don Kellogg 14m47s

I remember when, you know, CTIA used to be in San Francisco, and some of the quacks in City Hall at San Francisco decided that they were gonna mandate cell phone radiation labeling. And that was the last time CTIA was ever in San Francisco.

Roger Entner 14m59s

Yeah. But that's the different story. CTIA is nowhere anymore. Right. That show is dead probably because of the labeling.

Don Kellogg 15m6s

Well, they made a big show out of not going back to Moscone as a quid pro quo for the cell phone radiation. But wireless shows, regardless, life goes on and cell phones don't cause cancer.

Roger Entner 15m17s

Yeah. And here's the thing. Previously, it was the left wing tree huggers, and now the left wing tree huggers have turned into right wing tree huggers and have become the Secretary of Health and Human Services. It's ridiculous. But if that's what we want to spend our time on, knock yourself out.

Roger Entner 15m34s

We know the answer. It's not brain cancer.

Don Kellogg 15m37s

All right. Well, on that note, we'll talk to you next week.

Roger Entner 15m40s

All right. Thank you.