On Thursday morning, Verizon (VZ) Chairman Mark Bertolini said during a CNBC interview that newly appointed CEO Dan Schulman was working on a turnaround plan for the telecom giant, which has been grappling with declining market share, market capitalization, and bond ratings.
By Thursday afternoon, reports surfaced that the company plans to cut 15,000 employees, or about 15% of its workforce, its largest layoff to date, as part of a new restructuring plan.
We asked Seeking Alpha analysts Danil Sereda and Early Retiree what they thought Verizon needed to do to get back on track.
Danil Sereda: The main thing for Verizon’s (VZ) recovery now is the execution of the new leadership’s “customer-first” strategy, which pivots from solely focusing on network superiority to enhancing the entire customer experience. They want to reduce churn and move away from margin-eroding discounts at some point in the future.
There’s a risk that the ever-growing net debt, which is already over $170 billion as of Q3, won’t let the market reprice VZ’s multiples for what’s coming. But I’m bullish, as I foresee further efficiency gains internally, which should ultimately translate into additional cost savings and potential top-line growth re-acceleration.
As soon as we see the first signs of reduced churn ahead and some margin expansion, Verizon will be back on track, and its discount versus peers like AT&T (T) and T-Mobile (TMUS) is likely to shrink.
Early Retiree: T-Mobile (TMUS) has become the clear market leader and is the one to emulate. It has made a brand out of beating Verizon (VZ) and AT&T (T) when it comes to customer experience.
As I have stated in my recent analysis, Verizon (VZ) has evidently been trying to compensate for its inability to attract new subscribers by offering additional lines to its existing clients in exchange for price increases. In contrast, T-Mobile (TMUS) doesn’t appear to focus on pushing more connections onto its existing accounts but rather on moving its existing and new subscribers into higher-priced (higher-value) plans.
In theory, Verizon’s new CEO is already on the right track, since his strategy relies on improving the customer experience while avoiding price hikes. Investors will carefully watch whether the company will manage to compensate for any price concessions through cost cuts and keep margins stable.
That said, if T-Mobile (TMUS) can move its customers into higher-value plans, customers evidently see value in its proposals and are willing to pay up for value. TMUS has the advantage of having a value-conscious, dynamic customer base—those that could not find value at Verizon (VZ) and AT&T (T) and decided to move.
In contrast, Verizon (VZ) has been relying on a customer base that was too lazy to change. And someone who doesn’t look around won’t be easy to enthuse. Moreover, a deep cultural shift in a large organization is easier announced than done.