Verizon: Loathe the Company, Love the Investment

I have had the privilege of learning from some great stock pickers. Information advantage is a key component to stock selection, and in 2004 when I chose to create a new hybrid investment process, I choose data processing in a post Sarbox/Reg FD environment to gain information advantage rather than supply chain identification or some of the other generally accepted practices among top managers.

Our multifactor models work, and when reversing a stock scored highly by our models into investment themes that I have been taught over the past decades, I find the process has come full circle.

Case in point is Verizon Communications Inc. (VZ), one of the most loathed firms by this New Yorker. As a portfolio manager though, the firm is a gem for many of the reasons that I cannot stand the firm. Our investment process tosses out our emotion. Clear decisions are made on stock selection not biased by a focus group of one.

A few set up stories.

• My firm’s headquarters is now 2 blocks away from having FiOS Internet, a great service that may take years to bring another two blocks.

• My wife’s Blackberry Storm is a useless paper weight. She simply wants to exchange it for the incredible Curve. Currently, VZ is offering a buy one Blackberry get another one free. We are still struggling to exchange the inferior phone for a workhorse of a phone.

• We finally got DSL at my second home. The trouble; DSL only works while we are on the phone at the same time. Our workaround is to call our cell phone from our land line and let them sit the entire time we are online. Verizon can’t figure out how to fix this so we can always be online.

So why not vote with our wallet and leave? I think you know the answer to this question because it is a big reason the firm is a good investment – they are almost a monopoly!

• FiOS is great and not offered by a competition in that part of NJ, cell service other than Verizon sucks in much of the northeast and DSL is the only high speed internet offered in our area.

• On top of being a monopoly, the firm has a unique policy of never allowing a customer to speak to the same person twice. This veils all potential responsibility.

The flip side is that FiOS rocks, VZ offers only low tech phones and slower mobile internet (not true 3G) but easily provides the best basic service for phone/text/email, and DSL (the only service available) is life changing to us in the boonies. So we accept the challenge of navigating the bureaucracy that is VZ.

In a contracting industry, Verizon reported year over year quarterly revenue growth of 3.40% and sports a trailing 12 month operating margin of 18.50% which is near the top of the industry. The firm has a strong trailing 12 month return on equity of 13.93%.

From a portfolio construction perspective it is a good fit for two of our strategies with a portfolio calming beta of 0.79 and the lure of 6.46% dividend yield. Street analysts are mixed on Verizon, providing another potential advantage for the stock.

Layup investment themes my mentors steered me towards are government mandated firms and pseudo-monopolies. This firm has characteristics of both and the data keeps my emotions at bay and my perspective well placed.

Disclosure: Mr. Corn is Chief Investment officer - Equities of Beacon Trust Company. Verizon is a holding in the Beacon Core portfolio. Mr. Corn directly owns shares of through his participation in that portfolio.

Comments

[D_Virginia:]

I agree with much of what this article says, but I personally will not invest in Verizon, they are just too evil.

I have been blatantly lied to by sales and service reps, I have had to explain to techs how their own products work, and I have, on several occasions, been billed for a number of months after canceling services (and was left with no choice but to pay, as collections agencies were sent after me).

I simply will not support a company that is so unashamedly unethical.

I'm not saying Verizon won't make people money, but I *am* saying that the practice of looking at nothing but cold, hard, profit-seeking facts is part of what created out current mess.

Mar 02 07:44 AM

[Verizon and...:]

Mr. Corn, I agree with you. I, too, loathe Verizon. However, I think your investment advice is sadly misguided.

Verizon's customer service and the cost/complexity of its FIOS and DSL offerings will sink it. These offerings are, as you have learned, not adequately supported by its bloated, arrogant back office operations. FIOS and DSL are complex and dedicated facilities that run counter to the open architecture of the internet. They are far too costly to implement.

FIOS and DSL are too hardware focused at a time when hardware is being deemphasised. The cable companies (Brighthouse and Comcast) at both my residences completely blow Verzon away in terms of cost, quality, and customer care. They also have more flexible, lower cost infrastrctures. I guarantee that cable is taking more phone lines than FIOS is taking television accounts. Seriously, what makes you think that VZ will be any better with FIOS than with DSL? Those funny but misleading television commercials?

Verizon's rapacious, and often misleading, customer practices are why it is doing well, but that will not last. Verizon has contacted me several times with misleading sales offerings, and has signed me up for services based upon mis-information. Verizon's customer service is horrible, and you should know that. There is only one reason that they cannot fix your DSL - they do not care.

Americans such as yourself should not tolerate such treatment. The only reason you do is that you think you have no alternative, which may or may not be true. Once you do see a way out of Verizon's clutches, you will take it as will every other subscriber with options. Verizon is not a long term investment in my mind.

By the way, try AT&T wireless. If you are not on a Blackberry Enterprise Server, get your wife an iPhone and she will thank you forever.

Mar 02 08:37 AM

[D_Virginia:]

> VZ offers only low tech phones and slower mobile internet (not true 3G)

While I do hate Verizon, I feel it's my duty as a techie to clear up some things for you non-techie finance weenies.

Verizon has some good devices, they just get them later than Sprint and AT&T...and they gimp some features (or at least make you pay for them)...and they charge more for them...yeah. This is part of why I hate them. But aside from the iPhone and the G1, you can get /some/ phone from Verizon that is reasonably comparable to other great phones on other carriers.

Specifically I predict that the Storm will be a pretty good device in 6 months after the software has been upgraded a few times and the app store has ramped up. Verizon is also slated to get the Blackberry Niagara, basically a CDMA/EVDO version of the Bold...what took so long, I do not know, but that's Verizon. There is also an HTC Touch Pro 2 in the works, which again VZ will get late, charge more, and gimp features, but still, it'll be a pretty good device.

Now for 3G -- it's not just a buzzword.

Verizon's EVDO Rev 0 reaches 3G speeds (which are not officially defined, but 300kbs or more "feels" about right to most people). Verizon's EVDO Rev A, for which its whole network has been upgraded, and for which all new smartphone devices are equipped, is twice as fast as Rev 0. By the way, Rev B is in the works, and shouldn't require a hardware upgrade to work.

Yes, AT&T's HSDPA is /theoretically/ faster (7000kbps), but in practice, it's at best on par. You only get that 7000 if you're close enough to kiss the face of the tower transmitter. I've never seen more than around 800kbps from an AT&T device in the Washington DC area, and it's more like 500kps on average, less in the suburbs. EVDO Rev A averages more like 800kbps based on my research in my area, and is more consistent in the burbs. (Sprint's EVDO Rev A averages about 1200kbps, but that's just because no one is left on the network.)

And, Verizon's EVDO has broader coverage than AT&T's HSDPA -- maybe not in all of the boonies, but definitely in more of the boonies than the competition.

And for long-term wireless growth, Verizon is currently the leader in investment and planning for LTE (long term evolution), the 4G standard that Europe and Asia will also use. They were first in 3G with EVDO, and they will be first in 4G as well.

Again, I hate them with a passion -- but they will make you money.

Mar 02 09:44 AM

[Just a worker:]

Yes verizon is evil,I have seen this from the inside..but as for FIOS, well I can not stand Verizon I have to say it is the right move...the main coast of FIOS is placing the fiber as it must be placed everywhere with a lot of manpower. That being said once it is inplace the fiber optics is were it is at...you could carrier every phone call in the largest of US cities with just one fiber...that is the potential of this new network,and you will have one to every home.At this time it only provides phone Internet and video,but do you really think that once enough homes have this that some creative mind such as Bill Gates or such will not come up with new ways to use this bandwidth.All you realy need to do is change out the equipment on the end of the fiber to do this.

Fios is the new age and even the cable companies know it why do you think comcast keeps trying to say they have a fiber network when they for the most part still use a single copper line which limits the bandwidth they can send and receive.

Yes it will coast Verizon a great deal to have this product but it now coast them a great deal to keep up the old network,oh ya and there is one more thing that leads to FIOS being deployed. You see the old network falls under telecom regulations. The new network is considered a data network and Verizon under the laws that govern data can not be forced to let those such as ATT and others use it at cut rate pricing that is mandated by telecom regulations, if other companies wish to use this network "and they will" they must negotiate a price with Verizon,not be given a lower then what it coast to maintain price set by big government.

Mar 02 09:50 AM

[User 154334:]

The end game with the exception of rural areas is fiber optic connectivity ... Verizon is ahead of everyone. Fiber creates financial and competitive advantages over those relying on legacy infrastructure.

Like them or not, they are building out FIOS to be around for a long, long time.

Mar 02 11:00 AM

[Howard_T:]

I too am a Verizon hater, but only because they abandoned their operations in northern New England. We picked up FIOS a couple of years ago, and I cannot say enough good things about the technology. At home, our gamer son, my shopper wife, and me, the surfer extroadinaire, can all be on at the same time with no noticeable slowdowns. The Verizon Yahoo homepage was very good, and their e-mail service was acceptable.

Then came doomsday. Verizon sold its operations in northern New England to FairPoint (from North Carolina). The cutover was at the end of January. Since then we have had nothing but troubles. The FIOS (now called FAST) is still working well, but I think it's only a matter of time before deterioration of the infrastructure exceeds FairPoint's ability to maintain it. As far as their home page and e-mail goes, "fuggedaboutit". They managed to lose about a month's worth of e-mails in the transfer from Verizon's servers. Then they had such a volume of complaints that one could not get any help. Finally, when help was available, the answer was, "sorry, it's too late to do anything about it now." Then my wife and I each received an e-mail that our respective mailboxes were too full and we would receive no more mail. After we spent 2 days frantically trying to clean the mailbox, get an alternate e-mail provider (Yahoo), and move everything we wanted to keep over there, we received another message that the first one was sent in error. Sorry about that!

Verizon was looking at only the bottom line here, and not worrying about its customers. Any company with that attitude is doomed to fail. True, it may be technically ahead of the competition, but as is amply demonstrated by the US automakers, that is a temporary state. Once others catch up, and Verizon has to compete on terms of customer satisfaction, it is all over for them.

Mar 02 01:40 PM

[Hating Veri...:]

Until you see the way Verizon operates on the inside, you cannot imagine the chaos that goes on in that company. Associates are given no direction, misinformation, and systems that do not function. The work around is listed in the author's 5th bullet. The faster the representative can get you off the phone, and never have to speak to you again, the less time they sweat as they search for answers or risk getting a bad score from a customer that was not "delighted". Lower management is given no tools to assist them as they continually operate in the "deer in the headlights" mode. Middle management routinely puts people in charge based on physical appearance as they can be overheard eliminating potential candidates by poking at the way some possible candidates walk, the way they move their mouth when they eat, or how their body reacts when they are made upset. You would think you were in jr high school. Skills do not play a major factor when selecting candidates for promotion. Undeniably who is "hot" has more to do with it. Senior management routinely decides to "takeover" lower management job functions since low and mid management spend their days coming up with the same tired "action plans" to get associates to twist words into magic phrases that will get customers to forget they have been given poor customer service & products that do not work and will instead buy more Verizon products that do not work The problem is that senior management doesn't know anything about the lower management job challenges, so they "wing it". Senior managers routinely show up and start randomly quizzing employees on what their numbers/results are, not even taking the time to find out if the worker is a manager, associate, new hire on an interview, or someone that has come to fix the plumbing in the building. If they are just walking to the rest room, they become fair game. And if they don't get the answer they are looking for, meetings are called, and threats are made to "find" the nameless employee and have them removed from payroll. Managers literally hide from the senior management, seeking refuge in little visited cubbyholes in the building until the word is out that they have left the building. Right, Denny? Verizon consistantly rewards those managers that fudge their numbers and those associates that don't show up for work. After lengthy absences, they are rewarded with the most coveted jobs, while those associates that are diligent and dependable are just hammered by management I don't know how much longer I can last in this environment, but I have too much time invested in this company and the job market is too tough to think about jumping ship. Besides, sometimes it is just very amusing to watch.

Mar 02 02:24 PM

[TinyTim:]

Verizon customer service deserves an award for being terminal lousy. These comments all ring true, especially the one about never talking to the same person twice. You can't even get info to access the same person. The only way I've discovered to ease this is to collar the manager of my local Verizon store face to face. We hate each other by now.

They're also big on nickel & diming on the billing. Check your monthly data charges closely. Also verify the fees.

It's amazing that a company this poor can gain mkt share. They are definitely the evil monopoly everyone was warned about. One neat trick is to make V-to-V calls free.

They recently bought Alltel & I'm waiting to see how they handle this in my mkt. Surprisingly, they just announced bonuses for lower level employees in this mkt & made a point to get as much media coverage as possible.

Mar 02 05:25 PM

[socphd71:]

Eventually VZ's terrible management and customer service will sink it. How long will it take? What about VZ's 6.58% yield (as of this evening)?

How many of VZ's customers have another, better choice? Apparently, not many.

I think the stock could be a buy.

Disclosure: no position in VZ. Long WIN (Windstream).

Mar 02 07:31 PM

[NHSkier:]

Thanks for the great clarification on the technical aspects of the various networks. I disagree with most here. Having compared the customer service of Sprint and Verizon Wireless I can say that VZW is far better. Sprint is simply incompetent and has far more billing snafus than VZW. Your assertion that "no one is left on Sprint's EVDO network" wouldn't surprise me in the least.


On Mar 02 09:44 AM D_Virginia wrote:

> > VZ offers only low tech phones and slower mobile internet (not
> true 3G)
>
> While I do hate Verizon, I feel it's my duty as a techie to clear
> up some things for you non-techie finance weenies.
>
> Verizon has some good devices, they just get them later than Sprint
> and AT&T...and they gimp some features (or at least make you
> pay for them)...and they charge more for them...yeah. This is part
> of why I hate them. But aside from the iPhone and the G1, you can
> get /some/ phone from Verizon that is reasonably comparable to other
> great phones on other carriers.
>
> Specifically I predict that the Storm will be a pretty good device
> in 6 months after the software has been upgraded a few times and
> the app store has ramped up. Verizon is also slated to get the Blackberry
> Niagara, basically a CDMA/EVDO version of the Bold...what took so
> long, I do not know, but that's Verizon. There is also an HTC Touch
> Pro 2 in the works, which again VZ will get late, charge more, and
> gimp features, but still, it'll be a pretty good device.
>
> Now for 3G -- it's not just a buzzword.
>
> Verizon's EVDO Rev 0 reaches 3G speeds (which are not officially
> defined, but 300kbs or more "feels" about right to most people).
> Verizon's EVDO Rev A, for which its whole network has been upgraded,
> and for which all new smartphone devices are equipped, is twice as
> fast as Rev 0. By the way, Rev B is in the works, and shouldn't
> require a hardware upgrade to work.
>
> Yes, AT&T's HSDPA is /theoretically/ faster (7000kbps), but in
> practice, it's at best on par. You only get that 7000 if you're
> close enough to kiss the face of the tower transmitter. I've never
> seen more than around 800kbps from an AT&T device in the Washington
> DC area, and it's more like 500kps on average, less in the suburbs.
> EVDO Rev A averages more like 800kbps based on my research in my
> area, and is more consistent in the burbs. (Sprint's EVDO Rev A
> averages about 1200kbps, but that's just because no one is left on
> the network.)
>
> And, Verizon's EVDO has broader coverage than AT&T's HSDPA --
> maybe not in all of the boonies, but definitely in more of the boonies
> than the competition.
>
> And for long-term wireless growth, Verizon is currently the leader
> in investment and planning for LTE (long term evolution), the 4G
> standard that Europe and Asia will also use. They were first in
> 3G with EVDO, and they will be first in 4G as well.
>
> Again, I hate them with a passion -- but they will make you money.

Mar 03 10:57 AM

[Geddy:]

AT&T Wireless blows dog! If you like making multiple calls to keep one up, go for it as you'll drop more times than you can take.


On Mar 02 08:37 AM Verizon and Cable Customer wrote:

> Mr. Corn, I agree with you. I, too, loathe Verizon. However, I think
> your investment advice is sadly misguided.
>
> Verizon's customer service and the cost/complexity of its FIOS and
> DSL offerings will sink it. These offerings are, as you have learned,
> not adequately supported by its bloated, arrogant back office operations.
> FIOS and DSL are complex and dedicated facilities that run counter
> to the open architecture of the internet. They are far too costly
> to implement.
>
> FIOS and DSL are too hardware focused at a time when hardware is
> being deemphasised. The cable companies (Brighthouse and Comcast)
> at both my residences completely blow Verzon away in terms of cost,
> quality, and customer care. They also have more flexible, lower cost
> infrastrctures. I guarantee that cable is taking more phone lines
> than FIOS is taking television accounts. Seriously, what makes you
> think that VZ will be any better with FIOS than with DSL? Those funny
> but misleading television commercials?
>
> Verizon's rapacious, and often misleading, customer practices are
> why it is doing well, but that will not last. Verizon has contacted
> me several times with misleading sales offerings, and has signed
> me up for services based upon mis-information. Verizon's customer
> service is horrible, and you should know that. There is only one
> reason that they cannot fix your DSL - they do not care.
>
> Americans such as yourself should not tolerate such treatment. The
> only reason you do is that you think you have no alternative, which
> may or may not be true. Once you do see a way out of Verizon's clutches,
> you will take it as will every other subscriber with options. Verizon
> is not a long term investment in my mind.
>
> By the way, try AT&T wireless. If you are not on a Blackberry
> Enterprise Server, get your wife an iPhone and she will thank you
> forever.

Mar 04 11:41 AM

[Geddy:]

Actually Rev. B & C will not be released. It was supposed to be one of the 4G standards as well (referred to as "UMB" but no carrier decided to run with it).


On Mar 02 09:44 AM D_Virginia wrote:

> > VZ offers only low tech phones and slower mobile internet (not
> true 3G)
>
> While I do hate Verizon, I feel it's my duty as a techie to clear
> up some things for you non-techie finance weenies.
>
> Verizon has some good devices, they just get them later than Sprint
> and AT&T...and they gimp some features (or at least make you
> pay for them)...and they charge more for them...yeah. This is part
> of why I hate them. But aside from the iPhone and the G1, you can
> get /some/ phone from Verizon that is reasonably comparable to other
> great phones on other carriers.
>
> Specifically I predict that the Storm will be a pretty good device
> in 6 months after the software has been upgraded a few times and
> the app store has ramped up. Verizon is also slated to get the Blackberry
> Niagara, basically a CDMA/EVDO version of the Bold...what took so
> long, I do not know, but that's Verizon. There is also an HTC Touch
> Pro 2 in the works, which again VZ will get late, charge more, and
> gimp features, but still, it'll be a pretty good device.
>
> Now for 3G -- it's not just a buzzword.
>
> Verizon's EVDO Rev 0 reaches 3G speeds (which are not officially
> defined, but 300kbs or more "feels" about right to most people).
> Verizon's EVDO Rev A, for which its whole network has been upgraded,
> and for which all new smartphone devices are equipped, is twice as
> fast as Rev 0. By the way, Rev B is in the works, and shouldn't require
> a hardware upgrade to work.
>
> Yes, AT&T's HSDPA is /theoretically/ faster (7000kbps), but in
> practice, it's at best on par. You only get that 7000 if you're close
> enough to kiss the face of the tower transmitter. I've never seen
> more than around 800kbps from an AT&T device in the Washington
> DC area, and it's more like 500kps on average, less in the suburbs.
> EVDO Rev A averages more like 800kbps based on my research in my
> area, and is more consistent in the burbs. (Sprint's EVDO Rev A averages
> about 1200kbps, but that's just because no one is left on the network.)
>
>
> And, Verizon's EVDO has broader coverage than AT&T's HSDPA --
> maybe not in all of the boonies, but definitely in more of the boonies
> than the competition.
>
> And for long-term wireless growth, Verizon is currently the leader
> in investment and planning for LTE (long term evolution), the 4G
> standard that Europe and Asia will also use. They were first in 3G
> with EVDO, and they will be first in 4G as well.
>
> Again, I hate them with a passion -- but they will make you money.

Mar 04 11:43 AM

[kris23:]

Couldn't agree with your title more. I have found most conversations I have with their incompetent employee's end with me extremely angry and back to where I started. That being said, the attitude of the company itself is indeed different from the investment side. A majority of investors seem to be bearish on VZ (www.predictwallstreet....) but VZ is a monopoly ( like it or not) and they will gain more and more market share.

Mar 04 02:11 PM

[mretome:]

I have owned Vz for a number of years so I tend to agree with those who see the benefits of the investment. Haven't had many opportunities to deal with the customer service side so I cannot add to the diatribe on that topic. I will say that having been a Vz customer since Bell Atlantic days that I haven't personally witnessed many issues with the service. I used their DSL for years until they finally pulled the fiber past my house and I have adopted the FIOS service since. The TV is far better than the Comcast Digital service I had prior (you want to talk about some bad customer service in that company, I could write you a book). I often work remotely and getting my laptop (and my subsequent new home desktop) hooked into the FIOS router was a breeze and it's nearly as fast as sitting at my desk at work.

Mar 05 11:22 AM