Verizon
Verizon, the second-biggest U.S. carrier, doesnt have any major purchases on the horizon, Chief Financial Officer John Killian said in an interview yesterday. The January takeover of Alltel Corp., partly funded by $22.2 billion in debt, pushed interest costs to almost double in the first half.
“We have more debt pay-down ahead of us, not debt raising,” said Killian, 54. He took over as finance chief in March, more than a year after the start of a U.S. recession that has grown into the worst since at least the 1930s.
Paring debt will help shield Verizon from possible credit rating cuts that would make it more difficult or expensive to borrow, said Joel Levington, a director at Hyperion Brookfield Asset Management Inc. Cutting costs also would protect Verizon as sales growth ebbs, pushing the carrier and larger rival AT&T Inc. to look to new technologies to spur sales.
“Nobody can determine when crises are going to hit,” said New York-based Levington. “If you look at the past nine months, one of the key takeaways is clearly having a clean balance sheet with low leverage provides you access in good times and in bad.”
Revenue growth will shrink to about 1.5 percent next year, the lowest level at New York-based Verizon since 2005, according to the average of analysts estimates compiled by Bloomberg.
Fixed-Line Sales
Sales in the companys wireline business, which includes home phone and FiOS television and Web service, have dropped 5 percent since 2006. Wireless subscriber growth, which has more than made up for the drop in traditional phone customers, is now slowing as penetration in the U.S. approaches 90 percent.
New growth may come from fledgling wireless industries, such as games and applications that can be downloaded on mobile phones, as well as electronics, including e-books and security systems, that can connect to the wireless network, Killian said.
Verizon rose 23 cents to $30.66 in New York Stock Exchange composite trading at 2:32 p.m. AT&T, based in Dallas, advanced 9 cents to $25.47.
Verizons total debt grew to $64.9 billion at the end of the second quarter, from $52 billion a year earlier. The carrier has an A rating from Standard & Poors Ratings Services, the sixth-highest investment-grade rank. S&P changed its outlook on Verizon to negative more than a year ago after the carrier announced the Alltel sale.
No Difficulty
The company has typically used cash generated from its operations to lower its balance, spokesman Bob Varettoni said. Verizon spent $1.71 billion on interest expenses in the first half, compared with $862 million a year earlier.
Much of the debt paid off would be in the wireless business, which shares earnings with joint-owner Vodafone Group Plc. That gives Verizon more incentive to lower debt rather than split the cash with its partner, Hudson Square Research analyst Todd Rethemeier said.
The company pushed forward with the Alltel acquisition last year as banks failed and credit markets dried up. Verizons size and ability to generate cash allowed it to access debt markets, Killian said.
Alltel helped turn Verizon into the largest U.S. mobile- phone company, surpassing AT&T. That hasnt prevented subscriber rates from slowing as more people in the U.S. switch to handsets from fixed lines. Verizons wireless subscriber additions fell 24 percent last quarter from a year earlier.
“These are not growth stories anymore,” said New York- based Rethemeier, who advises investors to hold Verizon shares. “With the way the capital markets are these days, any time you can remove uncertainty from this business, any time you can de- lever, its a good thing.”