Editor’s note: As reflected in data disclosed in its most recent earnings report, 2016 is shaping up to be a good year for Verizon based on internal changes, divestments, layoffs, and changes in strategy, writes Technology Business Research analyst Steve Vachon.

HAMPTON, N.H. – Verizon’s (NYSE: VZ) outlook remains promising heading into 2016 as the carrier is restructuring its operations to improve profitability.

Verizon’s shift from wireless contracts resulted in wireless EBITDA margin increasing 580 basis points year-to-year in 4Q15. Wireline margins also improved in the quarter due to headcount reductions and lower programming costs associated with the company’s Custom TV service.

TBR anticipates Verizon’s margins will continue to rise in 2016 as more wireless subscribers migrate to equipment installment plans (EIPs), which will result in higher equipment revenue and lower subsidies.

The carrier will also sell noncore assets over the next year, including data centers, and complete wireline divestments in three states to Frontier Communications in 1H16, which will enable Verizon to improve wireline margins and its balance sheet. Verizon’s migration to NFV and SDN infrastructure will also contribute to lowering network expenses in the long-term.

Verizon’s consolidated revenue increased 3.2% year-to-year as higher wireless equipment and FiOS revenue offset lower wireless service revenue and declines in the carrier’s Global Enterprise and Global Wholesale segments.

Verizon generated $882 million in revenue from AOL in the quarter and TBR anticipates the business will become a more significant revenue stream in 2016 as AOL’s advertising technology is integrated more deeply into Verizon’s growing go90 mobile video service.

Verizon will pursue assets to become a stronger competitor within the media segment, including potentially acquiring Yahoo, which would expand the carrier’s footing in the Web services and digital media markets and will generate Internet traffic from visitors of Yahoo’s websites.

Verizon’s early entry into the 5G market will cement the carrier’s reputation as the U.S. leader in wireless innovation

Since becoming the first U.S. carrier to offer LTE services in 2010, Verizon has relied on its network capabilities as the chief differentiator to attract wireless subscribers. Verizon’s strategy will remain intact over the next five years as the company aims to become the first operator in the U.S. to offer 5G services. Although international industry standards for 5G are not expected to be established until 2020 at the earliest, Verizon intends to offer enhanced wireless services that will be marketed as 5G beginning in 2017. Laying claim to offering 5G services before competitors will help Verizon distinguish the company from competitors and spur subscriber growth without succumbing to the wireless pricing war.

Verizon’s 5G services are expected to initially provide speeds reaching 1Gbps, which will be particularly beneficial in enhancing the carrier’s mobile video capabilities. Over the long term, 5G will provide Verizon the capability to support next-generation Internet of Things (IoT) applications that will require massive data analytics in multimode environments, such as self-driving cars and complex medical solutions.

Slowing enterprise revenue causes Verizon to revamp the company’s data center and cloud strategies

According to TBR’s 3Q15 Enterprise Operator Benchmark, operators are consolidating their enterprise businesses to improve profitability in light of continuing legacy revenue declines and high costs to offer certain services such as data center and cloud solutions. This trend is underscored by the recent development that Verizon is reportedly interested in auctioning off 48 data centers, including facilities gained through the company’s acquisition of Terremark, which closed in 2011.

Verizon aims to receive over $2.5 billion by divesting its data centers, which will help fund more lucrative wireless investments that will support the carrier’s IoT and 5G initiatives, including spectrum purchases at the upcoming Broadcast Incentive Auction.

Verizon is de-emphasizing its public cloud business due to the company’s struggle to gain market share against established competitors such as Amazon Web Services. Instead, TBR anticipates Verizon’s focus in 2016 will be on providing network connectivity and value-added services to solutions offered by leading cloud providers via the Secure Cloud Interconnect platform.

(C) TBR