The trend in the telecom sector throughout 2014 has been that many of the biggest companies — regardless of the type of services they provide — are going through massive mergers or acquisitions.
In February, Comcast announced it would buy Time Warner Cable. On May 18, AT&T announced its $48.5 billion purchase of DirecTV. A potential Sprint/T-Mobile deal has been speculated about for months.
Yet, on the sidelines in these massive mergers and acquisitions has been Verizon, the nation's second-largest telecom company. What is the New Jersey-based giant's strategy, and why are industry observers optimistic that the unique path among its rivals will pay off in the long term?
With the nation's largest telecom company acquiring the top satellite provider, a rumored move was for second-place Verizon to acquire satellite counterpart Dish Network. Verizon CEO Lowell McAdam called the conjecture "someone's fantasy" while meeting with investors last week.
Instead of buying into a satellite TV industry that has stagnated in the last two years, Verizon is putting its focus on online video after its purchase of Intel's troubled OnCue service in January.
"I don't feel that owning a satellite company is something I'm finding intriguing at this point," McAdam said to a group of investors May 20. "We did our big deal."
In comparing the strategies of AT&T and Verizon, market analyst Walt Piecyk of BTIG likes the direction Verizon is taking.
"Verizon is positioning the company for the next five years," Piecyk told Bloomberg Businessweek. "AT&T settled for a more conventional transaction to fund its dividend and hide slowing growth."
With the acquisition of the OnCue service, Verizon has in its portfolio not only something that it hopes can compete with Netflix, Hulu and Amazon Instant Video for content delivery, but also something that could feature live-streaming TV functionality with broadcasters.
Intel hired former BBC executive Erik Huggers to lead the OnCue media effort in 2011. While at the United Kingdom's national broadcaster, Huggers helped to develop the BBC iPlayer, which allows U.K. residents to catch up on shows from various BBC platforms.
As Paul Sawers wrote in a feature about OnCue and its purchase by Verizon in The Next Web in March, OnCue was meant to be "something just like iPlayer ... but for everything. One platform that lets consumers choose what they want, without being shoehorned into paying for a tonne of content they may not desire."
So why did Intel give up on the OnCue project? The company's leadership changed in mid-2013, and new CEO Brian Krzanich couldn't justify the expense on hundreds of millions of dollars of content fees for a successful launch.
With Verizon's potential to devote more capital to the project, plus its status as an existing pay-TV provider with its FiOS service, the company has a better chance of getting the former OnCue to live up to some of its hyped 2013 billing.
Perhaps AT&T's greatest asset it stands to gain from DirecTV is the NFL Sunday Ticket package, which allows football fans to watch any out-of-market game broadcast of the nation's most popular sports league for all 17 weeks of the NFL regular season.
According to Reuters, DirecTV pays the NFL approximately $1 billion annually for exclusive access to the package, and charges customers a minimum of $240 each year for the extra games. AT&T has put such a value on the service that it can back out of the acquisition should DirecTV not renew the NFL contract later this year.
Verizon already has a mobile video deal with the league for content on its subscribers' devices and will launch the NFL Now over-the-top network prior to the start of the 2014 season. But a Sunday Ticket exclusivity deal could represent a massive coup and weaken AT&T.
As Verizon focuses more on online video, it is also strengthening its mobile 4G LTE network, already deemed to be the best in quality among major nationwide providers by customer groups such as J.D. Power. The so-called XLTE network is promising double the bandwidth and up to 12 megabits per second download speeds, even when accounting for condensed areas.
Even though consolidation has ruled the day for 2014 so far in telecom, Verizon is showing that bigger may not be the ideal strategy for content and profits in the long term.
