Verizon’s McAdam: Tax reform could help drive pickup in business services

Verizon sign
Lowell McAdam, CEO and chairman of Verizon, says he's confident that the Trump's tax reform bill could help raise business service spending. (Verizon)

Verizon says it is hopeful that more of its business customers will increase spending on next-gen services with the passing of the Trump administration’s tax reform bill. This is a welcome element at a time when the telco continues to see revenue struggles in its business segment.

Lowell McAdam, CEO and chairman of Verizon, told investors during its fourth-quarter earnings call that business customers will need services like cloud and Ethernet to enhance how they operate.

Lowell McAdam
Lowell McAdam

“Now, on the enterprise front, I think we've all been very pleased at how the market and the economy has run up here since tax reform,” McAdam said during the earnings call, according to a Seeking Alpha transcript. “Just like we're positioning ourselves to be able to execute and accelerate our strategies, I see other businesses doing the same thing. And telecom is such an important part to the productivity measures of a lot of these enterprises, we do see the opportunity to pick this up.”

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McAdam cautioned that it will take time to see what effect the tax reform could have on the business segment, but as more businesses order more services, the telco will prioritize fiber and 5G investments to satisfy their needs.

“We're only 30 days end of the tax reform process and we're all trying to understand the implications and what we can accelerate and how we can accelerate,” McAdam said. “So, where we build our fiber, where we're deploying 5G, what enterprises are telling us they want to do with our Intelligent Edge Network is influencing where we put our capital dollars. And I expect this to continue and I expect to see things pickup.”

Scotiabank said in a research note that the possibility that tax reform could drive more businesses to increase service investments could be a positive trend for the telco.

“In FY18, we forecast wireline to see marginal improvements in revenue and EBITDA with declines of -2% YoY,” Scotiabank said in a research note. “Longer-term, we believe the benefits of tax reform may lead U.S. companies to bolster their investment in VZ’s technology products, which would help offset some of the declines in the legacy business.”

However, turning the tide in the enterprise segment won’t be an easy task for Verizon’s business segment, one that saw more declines during the fourth quarter.  

During the fourth quarter, Verizon’s business segment revenues were challenged by what the company’s CFO Matt Ellis said were “secular and pricing pressures in our legacy offerings and technologies.”

Verizon’s Enterprise Solutions segment decreased 4.1% to $2.26 billion while Business Markets revenue fell 5.6% to $903 million due to a lopsided decline in older services that Verizon is still trying to overcome.