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Comment by Ilverin | Hacker News Reader

2.7% profit is not really razor-thin.

According to economists, over the "long term", profits tend to 0%. Wireline technologies are quite old, it seems the long term is here.

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Zero profit theory is based on having heavy competition which utilities do not have. 2.7% is absolutely razor-thin for something that is so capex heavy and with a heavy pension burden.

Not weighing in on whether the 1B in profit is "a lot" but a financial analyst would also want to look at return on equity, because a business like VZ likely "should" be highly leveraged (financing its long lived assets not with equity but with cheap long term debt). It is common that small absolute earnings as a percent of revenue look much more attractive when considered as against how much it yields the owners (equity).

Also, a business like that is going to have a metric crap-ton of noncash items, plus interest and taxes. So looking at free cash flow or ebitda are pretty enlightening in such cases.

Finally, there are comps so looking at this in isolation tells us nothing about idiosyncratic (management) performance rather than industry conditions.

My point is that a drive-by financial analysis of the net income margin of VZ is not at all instructive, and can't be used one way or another to justify/attack the propriety of labor grievances.

Actually, zero profit is guaranteed only if the market exhibits perfect competition or monopolistic competition.

Those that are not (which the wireline business should be in, given its very high barrier to entry and low number of competitors) do not go to zero in the long run because of the market power they control and tacit collusion with other players in the market. The 'razor thin margin' likely exists not because of competition, but because of inefficiency in the way the business is run.

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