By Emily Bary
MarketWatch photo illustration/iStockphoto
This article is part of a series tracking the effects of the COVID-19 pandemic on major businesses, and will be updated. It was originally published April 10.
Verizon Communications Inc.’s relatively simple business puts it in a safer spot than more media-exposed telecom players during the COVID-19 crisis, though Verizon isn’t completely immune to the pandemic’s effects.
The company remains largely focused on providing telecommunicatons services like wireless plans and broadband at a time when rivals have made big bets on media. AT&T Inc. /zigman2/quotes/203165245/composite T -0.77% acquired Time Warner two years ago, while Comcast Corp. /zigman2/quotes/209472081/composite CMCSA +1.98% houses NBCUniversal. Media businesses are especially feeling the pain from COVID-19 amid weakness in the ad market, the postponement of film releases and a shortage of live sports.
AT&T and Comcast have greater media exposure than Verizon, which got about 5% of its revenue last quarter from its media unit, which includes brands such as Yahoo and AOL.
Still, Verizon isn’t completely in the clear. As anyone who’s ever looked at a wireless bill knows, all of those miscellaneous fees add up, and Verizon /zigman2/quotes/204980236/composite VZ -0.96% may not be able to rack up quite as many with the COVID-19 outbreak keeping many people close to home. Consumers might not be ditching their phone plans outright, but they’re amassing fewer overage and roaming fees now that people are staying indoors more and largely avoiding international travel.
Verizon told investors on its last earnings call that a reduction in such fees and usage-based charges could pressure June-quarter services revenue growth by 3 to 5 percentage points.
The company also increased its bad debt reserve by $228 million due to the Keep Americans Connected pledge, a Federal Communications Commission effort that asked telecommunications companies to waive late fees and avoid service termination for small businesses and residential customers who couldn’t pay their bills due to the pandemic. The program ran through June 30.
Then there’s the issue of smartphone upgrades, a mixed bag for Verizon. The company saw “sharp reductions in equipment revenue” in the first quarter as store closures limited new device purchases, a trend that could continue as long as social-distancing efforts impact foot traffic to stores. But the pullback in handset purchases wound up helping Verizon’s margins since the company could cut limit its promotional costs and reduce customer churn.
Read: Smartphone sales are in a ‘massive’ slowdown—here’s who could benefit
Though wireless carriers in general had been aggressive with their promotional deals in the lead-up to the pandemic, such activity could take a breather now that economic uncertainty and stay-home trends have curbed new device purchases. “As a net share loser, that stasis impact actually helps Verizon” and hurts T-Mobile U.S. Inc. /zigman2/quotes/204659678/composite TMUS +0.17% , MoffettNathanson analyst Craig Moffett wrote after Verizon’s last earnings report.
As with AT&T, Verizon should give some commentary on how smartphone-buying patterns have evolved during the crisis when it reports results before the opening bell on July 24. That could offer clues about what to expect if Apple Inc. /zigman2/quotes/202934861/composite AAPL +0.53% launches its first 5G-enabled iPhones in the fall, as expected.
Even amid strange times for the wireless industry, that area of Verizon’s business should remain a source of stability. The company faces bigger challenges in its media business, warning on its last earnings call that digital media revenue could drop 20% to 30%.
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The financial effects
Revenue: Verizon is expected to post $29.9 billion in revenue for the June period, according to FactSet, down from $32.1 billion a year prior and below the $32.2 billion that analysts were projecting as of late March.