Verizon (NYSE: VZ) Cutting Capital at the Wrong Hour


As the world is getting introduced with new technologies like 4K video, HD TV’s and smart phones, there is one thing that has also become necessary to enjoy these new technologies and that is high speed internet. Long gone are the days of a dial up internet connection and not it’s all about high speed internet. A gigabit internet is the need of the hour, Verizon (NYSE: VZ) is yet to give its customer the privilege of gigabit internet.

Currently there are only two companies (AT&T (NYSE: T) and Google Inc. (NASDAQ: GOOGL) in the country that are offering gigabit internet services from east coast to west coast. In fact, realizing the importance of high speed internet, Google Inc. (NASDAQ: GOOGL) is even willing to get on board the Class II reclassification that is being opposed by major internet service providers.

Verizon (NYSE: VZ) which is one of the largest telecommunication company in the country is currently in a dilemma. For now Verizon (NYSE: VZ) has no plans of launching a gigabit internet connection and seems to be content with the half gigabit internet it is offering to its home users. The only problem here is that Verizon (NYSE: VZ) is charging a fortune from its customers for this service. The rates of Verizon (NYSE: VZ) are almost 350 times more than the rates offered by Google Inc. (NASDAQ: GOOGL) and the speed is also half. This is something that Verizon (NYSE: VZ) should be looking in to as even the most loyal customers would be agitated by such difference in rates.

Verizon (NYSE: VZ) at the moment wants to increase its margins by cutting on the capital expenditure in year 2015. It might not be the smartest move as the other companies could take advantage of this strategy and capture the untapped markets still out of the reach of Verizon (NYSE: VZ). One of the competitors AT&T (NYSE: T) has decided to make some heavy capital investments to expand its network and services to further add to its market share.

Analyzing Verizon (NYSE: VZ) with a broader lens, it seems that the company is heading towards trouble during 2015. Verizon (NYSE: VZ) has to face some steady competition in its wireless business as well. Already the margins have dropped by .2% during 2014 and to retain its customers this figure is most likely to increase.

The customers are demanding high speeds such that of 4G LTE and Verizon (NYSE: VZ) is not offering it across the country. Also the decision to cut capital expenditure by Verizon (NYSE: VZ) might lead to an outflow of customers who would like to operate with a company matching their needs. An investment in 4G LTE is the need of the hour and Verizon (NYSE: VZ) should invest in it before it is too late.

Verizon (NYSE: VZ) has a very loyal customer base but this might change during 2015, if it fails to match the current standards. The telecom needs to become a trend setter not a trend follower.

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