Analysts say Verizon needs to make a deal. But which one?

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Multiple analysts have come to believe Verizon must make a blockbuster acquisition to counter its sagging wireless business and position itself to compete more effectively as 5G offerings come to market. But just what that acquisition should be—a spectrum deal, a tie-up with a cable operator or content provider, or even a marriage with a smaller carrier—isn’t at all clear.

Shares of Verizon sank Monday after the company posted fewer subscriber adds than expected in the fourth quarter and saw its wireless service shrink 4.9% year over year. Its 591,000 postpaid net adds fell shy of analysts’ expectations, and postpaid churn of 1.1 percent also disappointed. Worse, the nation’s largest carrier unexpectedly said its wireless service revenue likely won’t return to growth until next year.

Verizon has long operated the best nationwide wireless network in the U.S., of course, which has allowed it to charge a premium to customers for whom connectivity is a top priority. But that edge has largely disappeared as the network gap has narrowed among major service providers, according to Walter Piecyk of BTIG Research, who lowered 2017 estimates for the carrier following Monday’s earnings report.

“We believe the root cause of our estimate revisions is an erosion in Verizon’s wireless network advantage, potentially marking the end of a 20-year run,” Piecyk wrote in a research note.

Meanwhile, the carrier’s competitors have gained significant ground in recent months by offering “unlimited” data plans to varying degrees. Both T-Mobile and Sprint launched unlimited plans half a year ago—although both plans come with noteworthy restrictions—and AT&T offers an unlimited plan for its wireless customers who also subscribe to DirecTV.

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Jumping aboard the unlimited bandwagon would help Verizon compete with data-hungry consumers, Piecyk wrote, but questions remain about how well the network could handle the increased traffic. Like its rivals, Verizon is looking to small cells to increase network capacity, but deploying those transmitters often takes a significant amount of time. So a spectrum deal—perhaps for Dish Network—could enable the carrier to offer unlimited data plans and ramp up capacity to support them.

“We have been cautious on Verizon based on our view that they face a very large capacity shortfall relative to their competitors that could have dire consequences for the business if not addressed,” New Street Research analysts wrote in a note to investors. “Data growth seems to be accelerating, in heightening the risk for the company: they reported growth in LTE data usage per postpaid phone sub this quarter of 38 percent, up from 31 percent last quarter. They are poorly positioned to respond to the unlimited offers from the challengers. … We continue to believe Verizon needs to buy Dish spectrum and that they should do it as soon as possible (Charter is an interesting alternative but doesn’t solve enough of their problems quickly enough).”

Verizon could also take a page from AT&T’s playbook and spend heavily to expand its digital media business more aggressively. AT&T recently The carrier recently launched DirecTV Now, an ambitious OTT offering built on last year’s $49 billion acquisition of the satellite TV provider, and it hopes to double down on that strategy with its proposed $85 billion takeover of Time Warner. Such a move wouldn’t solve Verizon’s spectrum woes, of course, but it could help better monetize its users in a tough market for traditional wireless services.

“Similar to AT&T in previous years, Verizon is faced with the unenviable choice of sacrificing subs or margins until it can differentiate with its 5G/digital media strategy,” analysts at Cowen and Company wrote. “We believe the company is making the correct choice (choosing to retain phones at the expense of lower margin and revenue growth) in order to fully monetize the 5G/digital media strategy with a healthy subscriber base.”

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Indeed, there’s no shortage of potential deals Verizon could pursue, as MoffettNathanson analysts observed. While Dish’s spectrum is attractive, the carrier could also buy Dish’s satellite TV business to compete directly with AT&T and DirecTV Now. Acquiring T-Mobile or Sprint would not only provide spectrum but a sizable customer base in a move that would consolidate the industry in a huge way (and, under a Trump administration, might pass regulatory muster). Verizon could even consider a blockbuster deal like a tie-up with Disney to pursue a mammoth, vertically integrated business.

“Yes, we’ve heard all of these and more,” MoffettNathanson analysts wrote. “Indeed, in what is perhaps the best sign of the times that we’ve seen since the election, almost no one with whom we have spoken has argued for ‘none of the above.’ (And almost no one believes that anti-trust rules still apply.) But we would submit that doing deals when everyone thinks you HAVE to is usually the worst possible time to actually do so.”