Verizon

Shares of US wireless carriers and tower firms traded lower after SpaceX claimed that it will use satellite dishes to build a wireless network capable of competing in the US wireless industry. SpaceX also claimed that it will launch 10 times as many V3 broadband satellites as V2.

Why it matters: SpaceX's potential impact on telecom is a key factor in valuations across the industry. We don't believe the firm's comments this quarter change the range of potential outcomes for the industry relative to our prior expectations. Several firms have attempted to build hotspot-type wireless networks like the one SpaceX is contemplating. The cable companies have incorporated public hotspots in tens of millions of broadband modems over the past decade, but these networks still deliver fundamentally limited signal coverage. We view SpaceX's comments as part of its battle with the US wireless carriers for network access rather than a credible threat. To fill areas satellites don't reach well without this access, SpaceX would likely need to build and manage a massive number of sites, just to attack a market that is well served today and not growing rapidly.

The bottom line: We maintain our fair value estimates and moat ratings for the US telecom and tower firms. Both wireless and broadband markets benefit from efficient scale attributes, but this moat source is most at risk in broadband. We recently cut our Comcast and Charter valuations, in part to reflect incremental Starlink competition. We don't expect Starlink to threaten the wireless operations of T-Mobile, Verizon, or AT&T for the foreseeable future. For US tower firms American Tower, Crown Castle, and SBA, we believe SpaceX offers more upside potential than downside risk. We don't factor upside from a SpaceX network buildout into our valuations, but the company would likely need tower sites to provide reliable signal coverage if it chooses to enter the wireless market.

Our $54 fair value estimate equates to roughly 7.6 times our 2026 EBITDA forecast. Based on Verizon's performance in 2025 and management's forecast for 2026, our valuation also implies an 9%-10% free cash flow yield. The firm currently trades at an enterprise value of about 6.8 times 2026 EBITDA, with an 11%-12% free cash flow yield.

We expect Verizon to gradually lose postpaid wireless market share. Smaller rivals T-Mobile and AT&T have comparable network resources and should attract roughly the same number of gross new customers each quarter as Verizon. This parity should naturally cause the firms’ market shares to slowly converge. With a rational competitive environment and stable service pricing, we expect revenue per postpaid customer to grow modestly but steadily over the long term.

However, Verizon's decision to shift its wireless pricing strategy and the amortization of heavy phone discounts provided in 2025 have dented growth recently. Verizon is working to move away from phone subsidies as an offset to lower headline prices. We forecast that 2026 wireless service revenue will be flat year over year as these changes work through the customer base.

Over the next five years, we expect average annual wireless service revenue growth of about 2%, with acceleration to 3% in 2028 after most customers move to new rate plans. Growth could exceed our estimate if the firm adds new perks to its offerings, but these gains would come with additional costs, muting their impact on the bottom line.

After a bump from the Frontier acquisition in 2026, we expect consumer fixed-line broadband revenue to grow 13% annually through 2030 as Fios continues to attract broadband customers and pricing power remains strong. Offsetting this growth, the television and phone businesses will likely continue to decline, but this drag is diminishing. We aren’t optimistic about the fixed-line business services segment, but we believe this business can return to growth over the next several years. Selling or shuttering underperforming parts of this business could accelerate its return to growth.

We expect the consolidated adjusted EBITDA margin to expand modestly over the next five years versus the 36% reported in 2025. New efforts to improve customer service will likely increase customer service costs over time, offsetting the benefits of ongoing efficiency improvements, including recent workforce reductions. We forecast capital spending of about $16.1 billion in 2026, in line with management’s expectations but down from around $20 billion in 2025 (including Frontier). While management claims this low level is sustainable, we expect investment to gradually ramp back up over time to meet customer demand and remain in line with rivals. We also assume two large spectrum acqusition in the coming years, in addition to smaller annual purchases.

Verizon’s moat stems from the wireless industry’s efficient scale characteristics. The firm has organized its business along customer lines, but we believe it is best understood along the wireless and fixed-line network dimensions. The wireless business produces about 70% of service revenue but contributes nearly all of Verizon’s profits. We estimate wireless returns on invested capital were about 16% prior to 2021. Heavy investment to acquire additional spectrum in the C-band auction and subsequent spending to put that spectrum to use, have pulled wireless returns on capital to the low-double digits by our estimate, still leaving Verizon ahead of its cost of capital.

Verizon, AT&T, and T-Mobile dominate the US wireless market, claiming around 90% of retail postpaid phone customers. Providing solid nationwide coverage requires heavy fixed investments in wireless spectrum and network infrastructure. A larger customer base requires incremental investment in network capacity, but a significant portion of costs are either fixed or more efficiently absorbed as network utilization reaches optimal levels in more locations.

The benefits of fixed-cost leverage and the difficulty of providing a differentiated wireless offering create an efficient scale advantage in the wireless industry. The massive consolidation across the industry over the past 15 years and the inability of several interested parties, including EchoStar and Comcast, to enter the market with their own networks provide evidence of efficient scale.

With three sizable players, we don’t believe the major carriers will have an incentive to aggressively poach each other’s customers over the long term, given how painfully slowly market share shifts in the business. Competitors can easily respond to pricing and promotional changes before an aggressive carrier gains meaningful share. The recent increase in competitive intensity across the wireless industry, in our view, reflects the continued move toward parity among the three major carriers, with Verizon acknowledging that it can no longer charge a premium for its services.

Comcast and Charter have taken significant market share in wireless over the past four years, but both rely on Verizon's network for coverage. We don't know the specifics of Verizon's agreements with cable companies, but we expect the firm to set wholesale prices high enough to remain indifferent to losing a customer to one of these rivals.

Satellite presents the latest threat to the efficient scale attributes of the wireless business. We don't believe satellite providers like SpaceX will be able to amass the wireless spectrum needed to provide capacity similar to the terrestrial wireless network today. Even if enough spectrum were made available, it would likely cost in the neighborhood of $100 billion to acquire, a huge sum to attack a mature market. In addition, spectrum depth can't easily overcome the challenges of providing reliable coverage from a satellite without a clear line of sight to the sky.

Verizon’s fixed-line operations are challenged on a stand-alone basis and don't possess a moat, in our view. These businesses account for a bit more than 20% of the firm’s invested capital base. With the acquisition of Frontier, Verizon holds fixed-line assets that serve approximately 45 million homes and businesses, primarily along the corridor from Washington to New York City. The firm has deployed fiber-optic cable to approximately 30 million of these locations, thereby eliminating the gap in network capabilities relative to cable companies such as Comcast. Despite this network improvement, however, Verizon’s ability to win customers hasn’t been impressive. About 40% of homes served by fiber take Verizon internet access service, a figure that hasn’t moved much over the past five years. In areas where Fios is unavailable, cable has outperformed Verizon, leaving it with a subscale operation that likely earns very poor margins.

In addition to the traditional residential and small-business telecommunications segments, Verizon serves large enterprise and carrier customers worldwide. The firm should be reasonably well-positioned in this market owing to its global reach and deep technical capabilities. However, this business has declined rapidly in recent years—to about $11 billion in revenue in 2025 from $16 billion five years earlier. Management has provided minimal transparency into the revenue contributions from various service types in this segment, but we suspect advances in networking technology have eroded the firm's advantages in several areas. As a result, we don't believe this segment has a moat. Verizon's new CEO plans to shutter or sell nonstrategic businesses, most of which we suspect reside in this business segment. In its first step in this direction, the firm has agreed to merge its international enterprise services business with BT's, forming a joint venture. This agreement covers only a very small portion of Verizon's business services revenue, however.

Verizon's network focus over the past 15 years has given it the industry's broadest wireless coverage, and its reputation with most customers is sterling.

With the largest customer base in the US, Verizon is the most efficient carrier in the industry, delivering better profitability than its rivals. Combined with a growing fiber footprint, the firm also enjoys economies of scope.

Verizon shares offer a fantastic dividend yield. The payout consumes less than 60% of free cash flow, providing plenty of cushion to maintain this income stream for shareholders.

Rival carriers have rapidly deployed new spectrum and technology to add coverage and capacity. Verizon’s network leadership is a thing of the past, and recent price increases have soured its reputation with customers.

Verizon’s fixed-line business is a disaster, earning minimal profits and facing years of high costs necessary to support declining revenue.

Verizon’s balance sheet isn’t the fortress it once was. Because of the dividend, paying down debt takes time, limiting strategic flexibility and shareholder returns after periods of heavy investment.