Verizon’s Cost-Cutting Drive - A Difficult Step to Ignite Growth in 2026

Full Transcript

Don Kellogg 0m10s

Hello, and welcome to the two hundred and seventieth 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 again is Roger Entner. How are doing, Roger?

Roger Entner 0m22s

Hey. I'm good. How are you?

Don Kellogg 0m24s

Good. So you're coming to us from

Roger Entner 0m26s

New York.

Don Kellogg 0m28s

And there's a lot going on in New York right now. One of the things that I know you've heard some whispers about and

Roger Entner 0m34s

Well, we're writing the news, right?

Don Kellogg 0m36s

We're writing the news, yeah, is layoffs at Verizon. So I thought we could talk a little bit about that.

Roger Entner 0m41s

Yeah. No. I wrote a research note, like when Dan was taking over and and one of the things I wrote about is that most likely, you know, there will be layoffs, right? He needs to cut costs. There's an article in the Wall Street Journal.

Roger Entner 0m55s

There's an article in Bloomberg. There's an article in Fierce Network, all talking about layoffs. We know it's coming. It's very painful. My heart goes out to people who will probably find out before Thanksgiving that they need a new job in an economy where we don't see that much hiring.

Roger Entner 1m17s

I don't think that's the kind of turkey that they were looking for. But when we look at it from Verizon's perspective, and from the leadership at Verizon's perspective, they need to make their guidance, right?

Don Kellogg 1m30s

Right.

Roger Entner 1m31s

And they can make their guidance in two ways. Either they're going to raise prices on the existing base, and then this, you know, death loop continues, or they find the EBITDA headroom in cutting headcount.

Don Kellogg 1m45s

Right. So you take it from the cost side, right?

Roger Entner 1m47s

You take it from the cost side, and unfortunately, cost side means people. And so that's the background here. In the very critical Christmas period, it's going to shock the patient here. You know, the hope is that the patient doesn't go into shock and is non responsive in this critical period. On the other hand, fourth quarter is what, like about 30% of the year.

Roger Entner 2m13s

It's important, but it's not absolutely it's not retail. It's not like department store retail. Oh, but then do department stores still exist. Right? It's still a very important quarter, but it's not the be all end all quarter.

Don Kellogg 2m29s

Yeah. But I mean, I would say in my push on that would be that at least for Verizon, it has been more of a bigger piece of their net ads than kind of the industry as a whole. And you might go on to diagnose that as part of the problem. Exactly. It's traditionally, or at least over the last three or four years, have had a lot of financial discipline for the first three quarters of the year and and then kinda had a fire sale in the fourth quarter.

Roger Entner 2m50s

Yeah, exactly. And and now, you know, we diagnosed this in previous calls where we said like, yeah, it's like 400 and change thousand to dig themselves out of the hole that they were in in the first three quarters. Now I'm taking Dan by his word that he needs to grow customers. And that means probably in the fourth quarter, a very aggressive Verizon on pricing. We're seeing this already in the promotional activity.

Roger Entner 3m18s

There T Mobile and Verizon are offering no trade in. That's like $304,100 dollars additional cost that this device is. I hope it's going to choose the numbers for them. You know, and then I expect, as Dan said, an overhaul in pricing or new initiatives in the first quarter. And so we're going to see a new reinvigorated Verizon, and it needs to be reinvigorated.

Roger Entner 3m44s

Right?

Don Kellogg 3m45s

Right. But I think to your point, by the time Dan took over, it takes a while to plan q four. A lot of the q four planning had already

Roger Entner 3m53s

Oh, q four was mostly locked and loaded. You can Right.

Don Kellogg 3m56s

Exactly. You can

Roger Entner 3m57s

pay a little bit with the amplifier and do things up.

Don Kellogg 4m0s

But Right. But you could either cut people or cut the dividend, and they've said they're not gonna cut the dividend.

Roger Entner 4m6s

Or raise prices, and they said they were not gonna raise prices. Right?

Don Kellogg 4m9s

Right. So by process of elimination, you kinda knew this was coming. Right? Yeah. And I think, you know, the broader story with telecom carriers at least is that, you know, the carriers have been shedding people every year pretty consistently for a while now.

Don Kellogg 4m22s

Everybody is doing more with fewer employees over time.

Roger Entner 4m26s

They are optimizing the network. They're automating the network. Right? That's the back office where a lot of this came from.

Don Kellogg 4m34s

The stores are being run by third parties in a lot of cases. Right? So the direct retail force is decreasing.

Roger Entner 4m40s

Which is not necessarily a good thing, at least historically. Historically, carrier owned stores provided higher ARPU, higher attachment rate of like add on things, more accessories sales, lower churn, higher satisfaction. If that changed, one of two things must have happened. Either the third party stores got mind blowingly better, or the carrier owned stores started sucking. I hope third party stores got better.

Roger Entner 5m13s

I am not sure that's necessarily the case to that dramatically. If we have somebody in the audience from the third party stores who wants to violently disagree with me, please come on the podcast. We're happy to have you on up for a very spirited conversation.

Don Kellogg 5m30s

I know when I used to work on some of the retail side of things for some of these carriers, The direct stores would always have the best trade areas. Right? The best Yeah. The areas where there is the most potential for sales, and those are the areas where the carriers still wanted to exert the most control through directly employed work for a retail workforce. And then the areas that were less fertile were often, you know, farmed out to independent authorized resellers.

Don Kellogg 5m55s

And then, you know, you you're paying for spiffs instead of paying for employees Yep. In most cases. But, you know, over time, I think the authorized resellers have taken more and more of a piece of the pie, and it represents less risk for the carrier. Right? Because you're only paying for gross ads.

Roger Entner 6m10s

At AT&T, half of their retail is, yeah, for read, as who runs their third party retail. But yeah, so, you know, I think the headlines, at least for the file that I said when Dan took over was like this means war, right? And these are some of his words and he's a man of action. We know that is coming. It has been telegraphed.

Roger Entner 6m33s

The news reports on it. We talk about it. Now let's see how this plays out. As I said, this is gonna be one of the most pivotal years in wireless history, and I'm not using this lightly, right? It's not like listening to cable news who said like, this election is the most pivotal in your lifetime every time there is an election.

Roger Entner 6m55s

No, '26 is set up to be epic.

Don Kellogg 6m59s

Yep, absolutely.

Roger Entner 7m0s

Well, we have a couple more episodes until '26, but hey, you know, it's a good start.

Don Kellogg 7m6s

All right. We'll talk next week.

Roger Entner 7m7s

Talk to you next week. Bye bye.