said by Video Guy :Keep in mind that Moffitt's argument is not whether FiOS was a good idea for customers (especially the tech-loving ones on forums like this). Clearly, it was/is. (I have it and like it.) He's arguing that using the cold calculating method of return on invested capital, FiOS was not the highest and best use of Verizon's money.
If you believe Moffitt's calculations are correct, Verizon will have lots of customers loving their fast fiber service (and hating their customer service and billing?), but Verizon will be worth *less* in terms of overall enterprise value (they move $23 Billion into capex and only $17 Billion into the present value of the return on that investment). What's the highest and best use of the investable dollars? Wireless and business services.
The most insightful point made in either the article or the blog was the following:
"Verizon is replacing expenses, which show up on its quarterly profit and loss statements, with capital spending, which appears on its balance sheet." from the Blog (»
bits.blogs.nytimes.com/2008/08/1···pay-off/).
This means they are converting things that usually get expensed as operating expenses into capital expenses, which artificially pumps up net income compared to prior periods.
If you unwind all that capitalization pro forma you would see a much, much different cash flow picture for Verizon and their stock would probably be lower.
Illegal? No. The financial treatments are probably just fine under GAAP (Generally Accepted Accounting Principles). But the mirage is there, nonetheless. People naturally compare performance over time and most casual investors and even some analysts gloss those kinds of details. And things look rosier than they really are if you just look at the numbers as stated in their audited financials. A smart analyst unwinds those differences between periods and takes another look.
In the end, Verizon will be fine. Wireless and Business revenues will hide many sins (including a labor liability that is and will continue to hang around their necks).
AT&T and Echostar? They need to worry. A lot.
Yes; they do need to worry. Moffitt's thinking is very traditionally bearish; he is generally only in favor of *like-for-like* replacement (as the copper plant ages, replace it with more copper), as opposed to what VZ is doing (replace labor-intensive copper with much less labor-intensive fiber, saving on longer-term M&R costs despite the huge immediate capex penalties). Moffitt is also thinking that VZ won't be able to reduce their labor costs even as the amount of copper in VZ's footprint drops (by and large, the leadership of the CWA and IBEW is not happy with VZ as the copper footprint drops; that unhappiness is largely *because* of the validity of VZ's reasons for replacing copper with fiber)
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