Verizon’s surprise CEO pick shows that it’s banking on 5G over content and outsiders over insiders

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Verizon‘s pick of Hans Vestberg as its next CEO shows that the top U.S. wireless carrier by subscribers is focusing on developing 5G instead of spending big on content like its rival AT&T — and it’s banking on an outsider to do it.

Vestberg, the company’s chief technology officer, will succeed Lowell McAdam, who has been CEO since August 2011. He joined the company last year and was viewed as a potential successor to McAdam, along with two executives who had risen through Verizon’s ranks: Marni Walden, Verizon’s head of media, and John Stratton, president of global operations. Walden left the company earlier this year, and Verizon said on Friday that Stratton would retire by the end of 2018.

“They picked an outsider with a little bit more new experience compared to John Stratton, who has been nurtured and groomed for this position for 20 years,” said Roger Entner, an analyst at Recon Analytics.

He added, “I think this is a logical culmination of a strategy for the last five, six, seven years of Lowell and Verizon in general bringing in more and more people from the outside.”

Verizon’s chief marketing officer Diego Scotti, who joined the company in 2014, came from the retailer J. Crew. Ronan Dunne, who some industry insiders also saw as a potential successor to McAdam, became president of Verizon Wireless after serving as CEO of Telefonica UK. And CFO Matthew Ellis started at Verizon in 2013 after more than a decade at Tyson Foods.

Verizon has reason to make big changes. It has been facing more competition for subscribers in a saturated market for U.S. wireless subscribers where most people already have cell phone service.

The company and its No. 2 rival AT&T have pursued different strategies in search of growth. AT&T is trying to distinguish itself through ownership of content with an $85 billion acquisition of Time Warner, which owns channels like HBO and CNN. At the Code conference in May, AT&T CEO Randall Stephenson said that he feels the company needs to pursue a vertically integrated strategy, incorporating both content and distribution, to remain relevant against tech giants wtl multifaceted businesses like Amazon, Google and Microsoft.

But McAdam has so far said publicly that the company does not need to do a big media deal and that it was focused on maintaining its network advantage. Verizon has done some much smaller deals, buying digital content and advertising assets from AOL and Yahoo for a combined total of around $9 billion and turning them into a media company called Oath.

But picking an outsider to take the helm can be risky. Vestberg was CEO of the Swedish telecom equipment maker Ericsson until he was ousted in 2016 amid pressure from shareholders who were unhappy with the company’s performance.

Still, Vestberg and McAdam have known each other for years, and a source familiar with the matter said that Vestberg has proven his operational skills in just over a year at Verizon with moves such as streamlining Verizon’s network departments.

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