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Verizon pushes forward on 5G but disappoints on 2017 guidance

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Verizon pushes forward on 5G but disappoints on 2017 guidance

Verizon Communications Inc. continues to push forward on next-generation 5G technology.

During a Jan. 24 earnings conference call, Verizon CFO Matthew Ellis said the company is moving beyond the lab to launch roughly 10 pre-commercial 5G pilots across the country, including in both dense urban and suburban neighborhoods.

"Our goal is to test the 5G fixed wireless technology in different environments," Ellis said.

On the mobile video front, Ellis said the company has seen "increased usage in the go90 application," though he noted that the average daily use of go90 was consistent sequentially at about 30 minutes per viewer.

While Ellis said Verizon's pending $4.83 billion acquisition of Yahoo! Inc. would increase Verizon's opportunities for scale in the digital media space, there was no final answer on whether that purchase would close. The status of the deal — or at least the price being paid — has been in question since Yahoo reported a series of hacks that took place in 2013 and 2014.

"We are still working with Yahoo to assess the impact of the breaches and we've not yet reached any final conclusions yet," Ellis said.

A day earlier, Yahoo said in an earnings release that its executives expected to close the deal with Verizon in the second quarter.

Verizon on Jan. 24 reported total operating revenues for the fourth quarter of 2016 of $32.34 billion, down 5.6% from $34.25 billion in the comparable 2015 period.

Wireless revenues were down 1.5% year over year to $23.4 billion, a decline the company attributed to more customers continuing to choose unsubsidized device payment plans.

Verizon reported 591,000 retail postpaid net additions in the fourth quarter of 2016, not including wholesale device and wholesale Internet of Things connections. At the end of 2016, Verizon had 114.2 million retail connections, up 1.9% year over year, 108.8 million of which were retail postpaid connections. Retail prepaid connections totaled 5.4 million.

On the wireline front, Verizon reported total wireline revenue of $7.8 billion, down 3.1% year over year. Total revenues for Fios services grew 4.4% to $2.9 billion as the company added a net of 68,000 Fios internet connections and 21,000 Fios video connections in the fourth quarter.

For the full year, the company reported total revenue of $125.98 billion, down 4.3% year over year, based off wireless revenues of $89.2 billion and wireline revenues of $31.35 billion.

On a consolidated basis, Verizon posted fourth-quarter 2016 net income attributable to the company of $4.50 billion, or $1.10 per share, down from $5.39 billion, or $1.32 per share, in the comparable 2015 period. For full-year 2016, the company reported net income attributable to the company of $13.13 billion, or $3.21 per share, down from $17.88 billion, or $4.37 per share, in 2015.

The S&P Capital IQ consensus EPS estimate for the just-ended quarter was 89 cents on a normalized basis and 90 cents on a GAAP basis. For the full year, the S&P Capital IQ consensus EPS estimate was $3.89 on a normalized basis and $3.01 on a GAAP basis.

Looking ahead, the company expects 2017 consolidated revenues, on an organic basis, and consolidated adjusted EPS to be fairly consistent with 2016. Specifically, the company expects improvements in wireless service revenue and equipment revenue trends, which had declined throughout 2016 due to unsubsidized device payment plans.

The guidance was below previous projections, which had called for "GDP-type growth," according to one analyst. Another analyst asked whether Verizon "needs to go to market more aggressively with unlimited products" to compete for more wireless customers.

Ellis said Verizon's leadership position clearly demonstrates that the company's offerings continue to "resonate in the marketplace." And while he acknowledge the move by some of Verizon's competitors to unlimited data offerings, he said, "It's not something we feel the need to do, but I'd say we continually monitor the market."