Claiming that Verizon Communications (NYSE: VZ) has always operated under an open Internet policy, company EVP and CFO Fran Shammo said today that he is confident the FCC will make the right decision regarding net neutrality. However, he added that if the regulation should pass, he is concerned that it will create a very litigious environment.
Speaking at the Wells Fargo Tech, Media and Telecom 2014 event, Shammo noted that U.S. ISPs and wireless carriers have invested $550 billion in network infrastructure from 2006 until 2013, and he said that in countries with highly regulated broadband and wireless connectivity, there is less investment in networks. Shammo's comments were in response to President Obama, who earlier this week called on the FCC to create the "strongest possible" regulations to ensure net neutrality. In addition, the president said the net neutrality rules should apply to wireless networks as well as wireline ones, but he acknowledged that wireless networks are different than wired ones.
It's no surprise that Shammo expects additional litigation on net neutrality. It was Verizon that filed a lawsuit against the FCC's initial 2010 net neutrality guidelines. It was also Verizon's lawsuit that eventually caused a court to invalidate parts of the FCC's net neutrality rules. It is that court defeat of the rules that is driving the agency to write new rules.
"There is probably a large constituency in the telecom industry that is regretting Verizon's insistence on opening this Pandora's Box," telecom analyst Craig Moffett of MoffettNathanson told the Wall Street Journal.
In a wide-ranging discussion at the Wells Fargo investor conference, Shammo also said that with the penetration rate of the U.S. smartphone market at a record high, Verizon is counting on tablets, wearables, VoLTE and over-the-top (OTT) content to drive more data usage and therefore more revenue growth in the coming years. "Tablets will be the growth engine for the next two to three years," Shammo said.
But he also spoke about product categories that Verizon hasn't talked much about in the past, such as wearables and the connected car. Shammo noted that while wearables don't necessarily connect directly to a wireless network, they do drive more data usage over the network (via a connection to a smartphone) and therefore will bring revenue growth to Verizon. "Every device is going to be connected to the wireless network. There will be a lot of growth that will drive future revenue," he said.
He highlighted the connected car as an area that is gaining a lot of traction and that touted the company's 2012 Hughes Telematics acquisition, which he said provides not only connectivity but also a platform and solution, which he said will result in high ARPU for the company. "We are the connectivity piece of it and also the platform provider piece," Shammo said, adding that having the platform allows Verizon to expand beyond connectivity and to other geographic areas such as China where the company is working with Mercedes on a connected car solution.
Not surprisingly, Shammo also touted the company's continued investment in its network noting that since completing its acquisition of Vodafone's 45 percent ownership in Verizon earlier this year, the company has been able to generate more free cash flow which it has funneled back into its network. "If you have negative cash flow you will hit a wall," he said. "Lack of network investment will catch up with you."
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