⚠ Retiree Promises of $10.6 BillionLow threat

Verizon (VZ) — threat to the moat

Verizon's pension is fully funded, but $10.6 billion of retiree health promises are paid out of the same cash that funds the dividend.

Verizon's old promises to workers are mostly under control, with one large exception. At the end of 2025 the "aggregate defined benefit pension obligation was $8.0 billion" against plan assets of $7.9 billion, leaving an unfunded pension obligation of $50 million1. The company made "discretionary non-cash contributions in the aggregate principal amount of $1.3 billion" in 20252.

Verizon retirement obligations, end-2025 ($bn)8.0Pension obligation7.9Pension plan assets10.6Other postretirement obligationVerizon Form 10-K FY2025, employee benefits
The retiree health promise is larger than the pension.

The larger promise is health care and other benefits for retirees: "the other postretirement benefits obligation was approximately $10.6 billion"3. These obligations are largely unfunded, so they are paid out of operating cash as retirees draw them.

They are also sensitive to interest rates. A 0.50-point fall in the postretirement discount rate would raise the obligation by $476 million4. A company whose revenue grows about 0.5% a year5 carries these promises for decades.

The obligations are also long. Unlike a bond, they cannot be refinanced; they are paid as retirees claim them, and the 10-K notes they are sensitive to the discount rate, with a 0.50-point rise lowering the postretirement obligation by $442 million6. The company also carries $2,647 million of unrecognised tax benefits7, and "The IRS is currently examining" its returns for 2017 through 20198.

This is not a threat to the moat, but it is a claim on the cash the moat produces. An obligation above $12 billion would hand retirees a larger share of the free cash flow shareholders are counting on.

References
  1. ReportedAt the end of 2025 the "aggregate defined benefit pension obligation was $8.0 billion" against plan assets of $7.9 billion, leaving an unfunded pension obligation of $50 million.
    Verizon Communications Inc. Form 10-K for fiscal 2025 (year ended 31 December 2025) - financial statements and notes: debt, interest, pensions, receivables, performance obligations and taxes. — FY2025 · publ. 17 February 2026 · source ↗
  2. ReportedThe company made "discretionary non-cash contributions in the aggregate principal amount of $1.3 billion" in 2025.
    Verizon Communications Inc. Form 10-K for fiscal 2025 (year ended 31 December 2025) - financial statements and notes: debt, interest, pensions, receivables, performance obligations and taxes. — FY2025 · publ. 17 February 2026 · source ↗
  3. ReportedThe larger promise is health care and other benefits for retirees: "the other postretirement benefits obligation was approximately $10.6 billion".
    Verizon Communications Inc. Form 10-K for fiscal 2025 (year ended 31 December 2025) - financial statements and notes: debt, interest, pensions, receivables, performance obligations and taxes. — FY2025 · publ. 17 February 2026 · source ↗
  4. ReportedA 0.50-point fall in the postretirement discount rate would raise the obligation by $476 million.
    Verizon Communications Inc. Form 10-K for fiscal 2025 (year ended 31 December 2025) - financial statements and notes: debt, interest, pensions, receivables, performance obligations and taxes. — FY2025 · publ. 17 February 2026 · source ↗
  5. Moat Explorer calcA company whose revenue grows about 0.5% a year carries these promises for decades.
    Moat Explorer calculation from Verizon's reported figures ($ millions unless stated; calendar years). Revenue and profit over the decade: revenue 2015-2025 (138,191 / 131,620) ^ (1/10) - 1 = about 0.5% a year; 138,191 / 131,620 - 1 = +5.0%; range 138,191 - 125,980 = about 12.2bn; 2027 revenue of 142bn would need (142 / 138.191) ^ (1/2) - 1 = about 1.4% a year; operating income 29,259 / 30,615 - 1 = -4.4%; net income 17,174 / 17,879 - 1 = -3.9%; diluted EPS 4.06 / 4.37 - 1 = -7.1%; total assets 404,258 / 244,175 - 1 = +65.6%. Segments 2025: Consumer share of segment operating income 29,628 / (29,628 + 2,532 = 32,160) = 92.1% (2024 29,484 / 31,542 = 93.5%; 2023 29,011 / 31,077 = 93.4%); Business share 2,532 / 32,160 = 7.9%; Q2 2026 Consumer 8,032 / (8,032 + 991 = 9,023) = 89.0%, Q2 2025 7,643 / (7,643 + 724 = 8,367) = 91.3%; Consumer operating margin 29,628 / 106,807 = 27.7%, Business 2,532 / 29,069 = 8.7%; Business share of segment revenue 29,069 / 135,876 = 21.4%; shared network and service costs 17,991 + 9,717 = 27,708, Business share 9,717 / 27,708 = 35.1%; Consumer share of segment EBITDA 43,801 / (43,801 + 6,644) = 86.8%; Consumer revenue 2025 106,807 / 102,904 - 1 = +3.8%, 2023-2025 106,807 / 101,626 - 1 = +5.1%; Consumer service revenue 80,617 / 77,127 - 1 = +4.5%; Consumer equipment 21,779 - 23,930 = -2,151, about 2.2bn below cost; Business revenue 29,069 / 30,122 - 1 = -3.5%; Enterprise and Public Sector 13,532 / 15,076 - 1 = -10.2%; Business Markets and Other 13,555 / 12,697 - 1 = +6.8%; Wholesale 1,953 / 2,313 - 1 = -15.6%; institutional and wholesale decline (15,076 - 13,532) + (2,313 - 1,953) = 1,904; Q2 2026 Consumer revenue 26,242 / 26,648 - 1 = -1.5%; Business revenue 7,155 / 6,973 - 1 = +2.6%; restatement 7,275 - 6,973 = 302 a quarter; mobility and broadband service revenue 2025 75,923 + 14,940 = 90,863. Customers: T-Mobile postpaid accounts 34,700 - 34,237 = 463 more than Verizon; T-Mobile 34,700 / 31,502 - 1 = +10.2%, 34,700 - 31,502 = 3,198; Verizon accounts 34,237 - 34,646 = -409, -1.2%; ARPA premium 168.35 / 152.91 - 1 = +10.1%; cable lines 10,187 + 12,540 = about 22.7 million; cable Q2 net adds 448 + 406 = 854 thousand, 854 / 184 = 4.6 times; Q2 net adds share 184 / (184 + 432 + 448 + 406 = 1,470) = 12.5%; fibre net adds 155 / 367 = 42%; annual churn at 0.92% a month 0.92 x 12 = 11.0%, about one customer in ten; 0.1 point on 94 million = about 94 thousand phones a month; prepaid churn 3.59 / 0.92 = 3.9 times; prepaid annual loss 1 - (1 - 0.0359) ^ 12 = 35.5%, average life 1 / 0.0359 = 27.9 months, a little over two years; revenue per postpaid line 170.62 / 3.67 = 46.49 (2025), 167.26 / 3.61 = 46.33 (2024); ARPA 2025 170.62 / 167.26 - 1 = +2.0%; ARPA Q2 2026 168.35 / 170.79 - 1 = -1.4%; ARPA H1 2026 167.50 / 170.30 - 1 = -1.6%; wireless service revenue 83,703 / 82,073 - 1 = +2.0%; wireless service share of revenue 83,703 / 138,191 = 60.6%; FWA revenue 2,940 / 2,139 - 1 = +37.4%; FWA revenue share 2,940 / 138,191 = 2.1%; fibre annualised 155 x 4 = 620 thousand; passings 2.0 / 30 = 6.7%; passings to fill 2,000 / 620 = 3.2 times. Spectrum and capital: C-Band 45.5 + 7.5 = 53.0bn; licences share of assets 158,159 / 410,186 = 38.6%; licences over goodwill 158,159 / 30,664 = 5.2 times; licences over equity 158,159 / 105,196 = 1.5 times; wireless service revenue per dollar of licences 83,703 / 157,039 = 0.53; spectrum bought June 2026 1.0 + 3.2 = 4.2bn; capex / revenue 17,011 / 138,191 = 12.3% (2025), 23,087 / 136,835 = 16.9% (2022); capex 17,011 / 23,087 - 1 = -26.3%; capex less depreciation 17,011 - 18,349 = -1,338; ROIC averages 2015-2019 (10.8 + 9.1 + 12.7 + 8.2 + 11.3) / 5 = 10.4%, 2021-2025 (8.7 + 7.3 + 5.0 + 7.0 + 7.1) / 5 = 7.0%; interest expense 6,694 / 5,524 - 1 = +21.2% (2023-2025); Q2 interest 1,985 / 1,639 - 1 = +21.1%; interest / operating income 6,694 / 29,259 = 22.9%. Cost, cash and capital returns: employees 89.9 / 99.6 - 1 = -9.7%; severance 533 + 1,733 + 1,715 + 397 = 4,378, about 4.4bn; adjusted EBITDA margin 49,997 / 138,191 = 36.2% (2025), 48,791 / 134,788 = 36.2% (2024); Q2 2026 operating income 7,179 / 8,172 - 1 = -12.2%; free cash flow Q2 6,426 / 5,167 - 1 = +24.4%; adjusted EPS less diluted EPS 4.71 - 4.06 = 0.65; phones sold below cost 28,976 - 25,470 = 3,506, about 3.5bn; dividends / free cash flow 11,481 / 20,126 = 57.0% (2025), 5,864 / 10,209 = 57.4% (H1 2026); dividends / net income 11,481 / 17,174 = 66.9%; dividends per share 2.735 / 2.230 - 1 = +22.6%, (2.735 / 2.230) ^ (1/10) - 1 = 2.1% a year; dividend cost a quarter 0.7075 x 4,155 = about 2,940; buyback average 3,500 / 72.047 = about $48.58 a share; shares 4,155 / 4,217 - 1 = -1.5%; free cash flow yield 21.53 / 193.94 = 11.1%; cash returned about (11.5 + 4.5) / 193.94 = 8.2% of market value; net unsecured debt 128,682 - 110,053 = 18,629; backlog 55.2 / 58.1 - 1 = -5.0%; backlog months 58.1 / 138.191 x 12 = about 5.0; device receivables 34,004 / 31,308 - 1 = +8.6%, allowance 1,628 / 1,315 - 1 = +23.8%; TracFone 3.5 + 3.0 = 6.5bn plus up to 0.65bn. Valuation: Frontier price / market value 22.3 / 193.94 = 11.5%; market value 193.94 / 253.94 - 1 = -23.6% (against end-2019), 193.94 / 188.06 - 1 = +3.1% (against end-2015); target 51.58 / 46.68 - 1 = +10.5%; year-end market value over net income 188.06 / 17.879 = 10.5 (2015), 217.61 / 13.127 = 16.6 (2016), 215.92 / 30.101 = 7.2 (2017), 232.30 / 15.528 = 15.0 (2018), 253.94 / 19.265 = 13.2 (2019), 243.11 / 17.801 = 13.7 (2020), 215.12 / 22.065 = 9.7 (2021), 165.47 / 21.256 = 7.8 (2022), 158.49 / 11.614 = 13.6 (2023), 168.34 / 17.506 = 9.6 (2024), 171.74 / 17.174 = 10.0 (2025); trailing twelve months to June 2026 revenue 138,191 - 67,989 + 68,693 = 138,895, net income 17,174 - 9,882 + 8,880 = 16,172, 193.94 / 16.172 = 12.0, 193.94 / 138.895 = 1.40 - revenue, profit, costs and growth over time. — 2015-2026 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in Verizon's Forms 10-K and 10-Q, quarterly results releases, the recast segment revenue 8-K, peer results releases (T-Mobile, AT&T, Comcast, Charter) and market data; operands shown in the source line.
  6. ReportedUnlike a bond, they cannot be refinanced; they are paid as retirees claim them, and the 10-K notes they are sensitive to the discount rate, with a 0.50-point rise lowering the postretirement obligation by $442 million.
    Verizon Communications Inc. Form 10-K for fiscal 2025 (year ended 31 December 2025) - financial statements and notes: debt, interest, pensions, receivables, performance obligations and taxes. — FY2025 · publ. 17 February 2026 · source ↗
  7. ReportedThe company also carries $2,647 million of unrecognised tax benefits, and "The IRS is currently examining" its returns for 2017 through 2019.
    Verizon Communications Inc. Form 10-K for fiscal 2025 (year ended 31 December 2025) - financial statements and notes: debt, interest, pensions, receivables, performance obligations and taxes. — FY2025 · publ. 17 February 2026 · source ↗
  8. ReportedThe company also carries $2,647 million of unrecognised tax benefits, and "The IRS is currently examining" its returns for 2017 through 2019.
    Verizon Communications Inc. Form 10-K for fiscal 2025 (year ended 31 December 2025) - financial statements and notes: debt, interest, pensions, receivables, performance obligations and taxes. — FY2025 · publ. 17 February 2026 · source ↗
Sources
Generated September 29, 2026