Verizon Wireless Deal Is Done: Now What?

The anticipation of the largest transaction in a decade sent Verizon’s stock to a 13-year high near $54 a share last April. When the deal was announced in September, Verizon’s shares popped from around $46 to just over $51, but shares have sunk to around $48 since then.

Price competition from T-Mobile US Inc. (NYSE: TMUS), initially aimed at stealing customers from AT&T Inc. (NYSE: T) by offering lower pricing and quicker phone upgrades, have caught up with Verizon. The company seemed to be holding the line on pricing until last week when it introduced a competitive plan that did not cut prices but did add more data and free network storage. Verizon has added more monthly subscribers over the past three quarters than has T-Mobile, but the smaller rival said that in January it was gaining more customers from Verizon than it was losing.

Verizon is unlikely to see any of the vaunted “synergies” that are claimed to acquirers in deals like its acquisition of Vodaphone’s stake in Verizon Wireless. What Verizon will see is a boost in EBITDA — Verizon Wireless posted EBITDA of nearly $35 billion in 2013 and that will all be Verizon’s from now on. That is, unless a price war among the wireless carriers dents Verizon’s profits.

While Verizon is still unlikely to enter into a full-scale price war with T-Mobile or AT&T, it does need to figure out a way to raise its profits and to explain to shareholders what they will get from the immense amount of money Verizon spent to buy out Vodafone. Expect to hear talk about taking a leadership role in the build-out of the “Internet of Things” and new demand for mobile connections as a result of new mobile capabilities being built into new cars. That may be great, but that is a low-margin “fat-pipes” opportunity, not a value-added business for Verizon.

Verizon shares were trading at $47.90 shortly after Friday’s opening bell, down about 0.5%, in a 52-week range of $44.72 to $54.31.