Q2 2019 Earnings Call
Good morning, and welcome to the rise in second quarter 2019 earnings Conference call.
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It is now my pleasure to turn the call over to your host Mr. Brady Connor Senior Vice President Investor Relations.
Thanks, Brad Good morning, and welcome to our second quarter earnings Conference call. This is Brady Cotter and I'm here with Hans Vestberg, Our chairman and Chief Executive Officer, and Matt Ellis, Our Chief Financial Officer.
As a reminder, our earnings release financial and operating information and the presentation slides are available on our Investor Relations website.
A replay and transcript of this call will also be made available on our website.
Before I get started I'd like to draw your attention to our safe Harbor statement on slide two information in this presentation contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties.
Discussion of factors that may affect future results is contained in Verizon filings with the FCC, which are available on our website.
This presentation contains certain non-GAAP financial measures.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the financial materials on our website.
The quarterly growth rates disclosed in our presentation slides and during our formal remarks are on a year over year basis, unless otherwise noted as sequential.
Now, let's take a look at consolidated earnings for the period.
For the second quarter of 2019, we reported earnings of 95 cents per share on a GAAP basis. These reported results include a pre tax charge of approximately $1.5 billion related to early debt redemption costs.
The impact after tax was approximately $1.1 billion or 28 cents per share, resulting in adjusted earnings per share of $1.23.
This represents growth of 2.5% on an adjusted basis compared to $1.20 a year ago.
Let's now move to slide four and take a closer look at our earnings profile for the second quarter.
Consistent with the approach we discussed last quarter, we have illustrated the ongoing impacts to earnings from the adoption of accounting standard as C. Six so six for revenue recognition as well as the adoption of ASV 842 for leases.
As we pointed out last quarter, we expect a smaller benefit in 2019 than we realized last year from the adoption of assay six so six primarily due to the deferral of commission expense.
The reduction in benefit creates a year over year headwind to both reported earnings per share and adjusted earnings per share.
The impact was a three cents headwind in the quarter and six cents year to date.
As a reminder, this headwind is expected to continue until the end of 2020.
For the second quarter. This headwind was one cents on the earnings per share.
As you can see on the slide the 2.5% growth in adjusted EPS includes both the impacts from the deferral of commission expense related to the revenue recognition standard and the adoption of the leasing standard. This highlights the strong underlying performance of the business, Matt will take you through the details and key drivers later in the call with that I'll now turn the call over to Hans.
Very good quarter for most financially.
Together with our work in a network, which is so important to us when we're building on natural gas service. We also won all the top third party mesh amounts we won't from the power to fund a third consecutive time when come to root metrics. The twelveth straight win there as well. So we are really getting the right feedback from the market and the measurements that it's a really valuable in this market at the same time, we won some more spectrum in the need to meet the wave auction, we just now adding up to our portfolio.
My five five D device that we launched recently Alan now four different devices on Friday.
We're also very focused on the fiber because ultimately if we're going to do five you need fiber.
Our fiber deployment is now in more than 60 cities and we had the 1400 route miles a month in average in this quarter, which means that we increase from the first quarter continued the sole important build for our overall intended and edge network and fortified the deployment we're doing.
When it comes to horizon, two to Dolwin and transformation one though the proof points is of course, a day, that's when our reporting horizon consumer group and were awesome business group as well.
I can also say that we get the gold look so good traction with our customers, especially with enterprise customers with the new support on the new go to market, where we can show the full portfolio rice on and seeing that we have the right support also for the people in the in the in the line meeting our customers every day at the same time, we are continuing to net service concept where.
We have now announced our collaboration with you tube TV, where are we going to go for that both our bias customers, but also due to wireless customers again working on them all the way we outlined earlier this year, how we can partner with some of these columns and payers instead of investing ourselves thing it and seeing that we can bring you a seamless service for our customers, but also making it's very efficient for ourselves and for our customers.
Actually it's quite the local these changes recently, so I would say that we are doing this transformation from a seasonal strength.
I am really proud loaded team that one down all of these changes and transformation in the last 12 months on delivering these results at the same time money. It really sets us up for continued to be very competitive in these markets and definitely the continued to be the leader in this market. So.
I'm proud of the team and what about producing this quarter by that I hand, it over to Matt to go over the financials more in detail.
Thanks, Tom and good morning, everyone.
Wireless service revenue growth was offset by lower wireless equipment revenue and wireline service revenue.
We are maintaining our full year GAAP consolidated revenue guidance of low single digit percentage growth for 2019.
On a consolidated basis second quarter, adjusted EBITDA margin was 37.7%, which was up from 36.8% in the prior year and includes headwinds of approximately 80 basis points from the deferral of commission expense and the impact of the lease accounting standard that Brady mentioned earlier.
Our business excellence initiatives, if realized cumulative cash savings of $4.1 billion since the program started in 2018.
We have now completed all three phases of our voluntary separation program and have realized approximately $480 million of expense savings year to date.
With the last tranche of employees exiting in late June we expect additional incremental savings in the third quarter.
We remain on track to achieve our goal of $10 billion of cumulative cash savings by 2020 wall.
As Brady mentioned adjusted earnings per share for the quarter were $1.23 up from $1.20 a year ago. The increase in earnings per share was driven by growth of more than $200 million in adjusted EBITDA slightly offset by a higher tax rate the higher tax rate resulted in an approximately one cent headwind to adjusted earnings per share as a reminder, last year's tax rate included certain onetime benefits related to the tax cuts in jobs Act, which do not repeat this year.
The 2019, our adjusted effective tax rate is now expected to come in at the lower end of the 24% 26% range.
Continued wireless service revenue momentum and solid margin performance keep us on track to achieve our guidance of low single digit percentage growth in adjusted EPS, excluding the impact of the new lease accounting standard.
Our expectation of the lease accounting headwind remains unchanged at approximately four to eight cents for full year 2019.
Now, let's move onto the review of the new operating segments on the Verizon Twod zero, starting with consumer on slide seven.
As a reminder, our new consumer segment encompasses both wireless and wireline products and services targeting retail customers as well as our wireless wholesale operations.
In the second quarter total consumer operating revenue was $22.0 billion, which is flat compared to the prior year.
These results were primarily driven by continued strong growth in wireless service revenue and file service offerings offset by declines in wireless equipment and legacy wireline services.
Consumer wireless service revenue increased by 2.5% driven by customer step ups to unlimited plans and migration within unlimited to higher rated plans as well as an increase in connections per account.
Less than 50% of our customer account base on unlimited plans.
In the second quarter consumer wireless equipment revenue decreased 8.2% as lower upgrade rates more than offset an increase in phone gross adds.
Consumer finance revenue increased by 1.2% due primarily to the demand for our broadband offerings.
Consumer EBITDA margin as a percentage of total revenue in the quarter was 46.5%, which was up 80 basis points from the prior year.
This includes headwinds of approximately 100 basis points from the deferral of commission expense and the new lease accounting standard as previously mentioned.
Let's now turn to slide eight and take a close look at consumer operating metrics.
Within consumer wireless performance is very strong while operating in a highly competitive environment.
Phone net additions was 73000 for the quarter as compared to 17000 last year, including postpaid smartphone net additions of 209000 up 17% from the prior year.
Postpaid phone churn of 0.72% improved sequentially due to focused retention efforts around our high value customer base as well as normal seasonal patterns.
This performance was in line with last year's strong results.
Our superior network quality and personalized offerings continue to resonate with our customers.
Our retail postpaid upgrade rate was 4.3%.
Down from 5.1% a year ago, reflecting the continued elongation of the handset upgrade cycle.
We continue to focus on high value accounts and profitability in our retail prepaid wireless offerings.
Files Internet net additions of 28000 were driven by continued demand for our high quality fiber broadband products.
Our business segment includes wireless and wireline products and services provided across four customer groups.
Global enterprise small and medium business wholesale on public sector or another which includes Verizon connect.
Total operating revenues for the business segment decreased 1.1% in the quarter as growth in wireless services and our high quality fiber products were offset by ongoing secular pressure from legacy technologies.
This strong performance reflects Verizon is best in class network quality reliability and solutions based approach with our business customers.
Revenue from our wireline products declined 7.6% in the quarter.
From a customer group perspective, global enterprise and wholesale declined 4.8% and 15.1%, respectively, driven primarily by legacy pricing pressure and technology shifts.
Small and medium business revenue increased 5.4% driven by wireless service in files growth, partially offset by ongoing declines in traditional data and voice services.
Public sector and other revenue increased 3.8% as a result of growth in wireless and wireline products and services.
Business segment EBITDA margin for the quarter was 27.3%.
Which was down 20 basis points compared to the prior year driven by declines in legacy wireline product revenues.
This includes headwinds of approximately 10 basis points from the deferral of commission expense and the new lease accounting standard as previously mentioned.
Now, let's move on to slide 10 to discuss business operating metrics.
Business wireless trends remain consistent and strong.
Postpaid net adds were 325000, which includes 172000 phones 90000 tablets and 63000 other connected devices.
Phone churn of 0.97% improved sequentially, while total postpaid churn of 1.21% increased five basis points compared to the prior year.
Total postpaid device Activations were up slightly at 0.6%, while our retail postpaid outweighed rate was 4.2% down from 4.6% in the prior year.
Gains in native and mobile advertising continued to be offset by declines in desktop appetizing.
So the business continues to build on positive momentum in key areas.
We are continuing to migrate customers to our recently integrated appetizing platforms, simplifying interactions with partners and driving synergies within the business. We remain focused on growing our audience engagement and monetization across our Super channels, which include sports Finance News Entertainment Open mail.
During the quarter, we launch Yahoo, finance premium and half post plus which a subscription services that enhance the experience of two of our most popular media assets.
Let's now move to slide 12, which reconciles Verizon todays zero results to our legacy Verizon one don't see or results.
As we mentioned during our Verizon two dogs Aero segment reporting webcast in mid June .
We will be providing over wireless and wireline results through the remainder of this year.
You can find these results in our supplemental information included on our website.
Slide 12 shows the reconciliation from Verizon to those arrow to Verizon one Ddos area for both consumer and business revenue.
The was full charts show the bridge from consumer revenue to wireless and from business revenue to wireline.
The bottom chart shows a similar reconciliation from business to wireline revenue.
We start with business revenue of $7.8 billion subtract $3.8 billion of business wireless and zero point $2 billion, Verizon connect and then add $3.1 billion of consumer wireline to ultimately arrive at total wireline revenue of $7.1 billion in the quarter.
Total wireline operating revenues in the quarter declined 4.5%, while wireline margins were 19.3%.
Let's move to slide 13, which highlights our overall legacy wireless results.
Looking at overall wireless results, which includes both consumer and business wireless total wireless operating revenue increased 1.0% to $22.7 billion in the second quarter, primarily driven by a 3.1% increase in service revenue.
For the remainder of the year, we continue to expect over wireless service revenue growth to be within the mid 2% to 3% range.
Total wireless EBITDA margin as a percentage of total revenue in the quarter was 48.2%.
This includes headwinds of approximately 100 basis points, primarily from the deferral of commission expense and the new lease accounting standards as previously mentioned.
Excluding the impact from the accounting standards second quarter, EBITDA margin was 49.2% up 140 basis points year over year.
Total postpaid net adds were 451000 in the quarter.
This includes phone net adds of 245000.
Which was up from 199000 a year ago.
Postpaid smartphone net additions in the quarter were 420000.
Postpaid phone churn was 0.76% was similar to last year, while total retail postpaid churn of 1.02% was up five basis points year over year.
For the quarter, we increased customer accounts by 8000 as compared to a loss of 24000 in the second quarter of last year.
Total postpaid device Activations were down 5.7%.
This was driven by an increase in postpaid gross additions to $3.9 million from $3.8 million in the prior year offset by a decrease in our retail postpaid upgrade rate to 4.3% from 5.0% a year ago.
Let's now focus on our consolidated cash flow results on the balance sheet on slide 14.
Year to date cash flow from operating activities totaled $15.8 billion down from $16.4 billion during the prior year.
Benefits from operational improvements were offset by higher cash tax payments and payments related to the voluntary separation program.
The onetime benefits realized last year related to tax reform, we're primarily recognized in the first half of 2018.
Capital spending for the first half of the year was $8.0 billion, which is up slightly from the prior year.
The launch and continued build out of our Fiveg Ultra Wideband network.
The upgrade to our intelligent edge network architecture, and significant fiber deployment in 60 plus markets outside our ILEC footprint.
We maintain our full year 2019, capex guidance range of $17.0 billion to $18.0 billion.
The unsecured debt balance was $102.1 billion, which is lower year over year by $3.9 billion and lower sequentially by 1.2 billion.
Our net unsecured debt to adjusted EBITDA ratio at the end of the quarter was 2.1 times versus our targeted range of 1.75 to 2.0 times and is down from 2.3 times last year, reflecting the continued strength of our balance sheet.
We continue to actively manage our debt portfolio to minimize near term maturities optimize our overall funding footprint and lower our cost of capital.
During the quarter, we tend to $4.5 billion of notes that resulted in a pre tax charge of $1.5 billion that Brady mentioned earlier.
The charge was predominantly noncash.
Our balance sheet strength provide us with financial flexibility to execute on our strategy.
We continue to maintain near term maturities at low level has given us confidence to operate and invest throughout the business cycle.
So in summary, second quarter saw a continuation of our strong performance, while we made the transition to Verizon to zero.
We grew customer relationships and increased service revenues.
We continue to be disciplined in our approach to capital allocation and we remain committed to strengthening our balance sheet.
With that I'll turn the call over to Brady. So we can get to your questions.
Thank you we will now begin the question and answer session.
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The first question comes from Philip Cusick of Jpmorgan. Your line is open.
Thanks, guys, one short term and one long term if I may 1st Youre, 2.5% to 3% service revenue growth guide seems very conservative at this point versus 3.7% in the first half.
And second on can you dig more into the 60 market fiber build and help us understand any early progress on in sourcing backhaul as well as when you will start marketing that to consumer or business out of region. Thank you.
Thank you.
Let me start with the wireless.
Service growth and that will come back on that but I think that the Tms shoulder really good work here and then also a couple of quarters since I would say we have this new structure. So we're.
I'm confident we have a good momentum in our in our business.
Rona team probably have some more costs out theres leaves thinking how they will continue to compete in these markets. So we think it's or at least I haven't looked and confident in the team will run on continued to progress on the service revenue growth and to have done so far.
On the fiber build yes, that's a very important bean processing unit wed be known for that for quite a wide right now and and the speed in this quarter was 1400 rock models per month on average in the quarter and remember in the first quarter, we talked about 1000.
So definitely were coming up right now the majority of the fiber is going to our own sites to go on this day, if we if I may say, but over time of course, when we roll in later in part of this year and next year. We also want to be able to offer that to our enterprise customers on wholesale et cetera. So that's how we're working right now and we would be looking at in seeking work is on it is yields so with potential for the whole intended and edge network is so essential for.
The whole the five do you play that will have to have these fibers. So we have a good speed now the Tms being there on for required to buy them.
So it would take a little bit longer before we can offer it to all our customers, but mainly I would say we're right now we're taking to our own sites, which is a very important improvements for our efficiency Matt.
Yes, so good morning, Phil So on the service revenue certainly.
3.1% in second quarter, driven by over 6% in the.
In the business segments, so great momentum.
In the wireless products and services across both segments as we head into the second half of the year.
We like the momentum we have as we jump off into second half.
In terms of the total service revenue growth, we certainly see a continued path to continue on the service revenue growth that we've had for over over a year or so now.
To start lowering costs or are you not starting to like that okay.
We have been starting about the of course to today on the total cost to have the it's it's not significant yet but this is all part of the intended and edge network. The multipurpose network. We are building and Thats. What you have seen in our capex in the last two years to efficiencies so and as you remember Kyle talked about that the intelligent edge network build these going a couple of years more.
So we'll of course believed that we have more efficiently will come out with them and one of them is definitely the fiber, which we're now building that definitely to shouldn't get those a better owner economics and long term.
Thanks.
Brad we're ready for the next question.
Thank you. The next question will come from Brett Feldman of Goldman Sachs. Your line is open.
Hi, Thanks for taking the question this one's for Matt.
As you show in slide 14, you're getting very close to achieving the net and secured leverage target you outlined at your analyst meeting a couple of months ago is that the question is as you sort of get down to two turns of leverage in below how you think about prioritizing the incremental capital you'll be generating at that point should we think about that is dry powder for spectrum would you maybe look to flex up on Capex a bit.
We actually are getting closer to a point where share repurchases become a higher and more immediate priority. Thank you.
So let me start your technical data is of course, something that the math is working with guns and remember what we outlined in February with very clear and DC Blaine way all our capital allocation number one into the business. The capex you've seen what we've done with the KBC last couple of years, we do everything we need and we all on historical levels.
And we will continue to be very disciplined there secondly, we want to put the ore body into position to make a difference that we have been working on and off today, we work with our depth. That's how we've worked on at times, which business dividend and debt.
And then.
We just want to continue these commitment that we made that we can get the introduce range and remember that was a commitment long before me, but as you know in order to company to always to deliver on the commitments.
So thats why its important and ultimately when we get that we would get the optionality to our board will have a great conversation what you want to do it and that's that's how I see it and then of course that is working with these daily.
To see that we have the right balance sheet structure and the capital allocation on the company, Matt Yes. So.
Thanks for those points and.
Just building on maybe on the back end of that.
So as you as you said Brett we are.
We're as close as we bring to that range in the in the past five plus years and so we're making good progress to get there and that comes from having strong results that drive good cash flow and you see the progress weve been able to make.
But just a couple of add on points to what Tom said.
The 1.75 into that range either.
And so you don't get into the range and then be in a range and then we also don't expect to build up cash on the balance sheet.
Beyond our normal operating levels, so as we get into the range. We look at the opportunities from priority number one which is to invest in the business and then the rest of the items you have at home to talk about.
We'll then decide the.
Of cash that we may have to drive long term value for our shareholders.
Thank you.
All right. Thanks, Brent Hey, Brad we're ready for the next question.
Thank you. The next question comes from Simon Flannery of Morgan Stanley . Your line is open.
Thanks, Good morning hands I Wonder if you could update us a little bit more on your.
Fiveg you talked a bit about opening up the new mobile broadband markets, perhaps you could talk about your learning so far.
And where we stand on expanding Fiveg home I think you talked before about new markets. Later, this year and dynamic spectrum sharing how is that panning out and when do we expect to see that hitting the.
Verizon network. Thanks.
Thanks Rich great question, so on the Fiveg seen our progress in the quarter, we have basically no one's nine markets on the way to get to 30 that we have talked about.
For the full year.
You can also see on the five year mobility, how the improvements has gone extremely fast lemon and take a couple of the seat is where basically doubled the footprint in these centers since we launched the markets and that's this pace of our own too at the same time, we have gone from roughly having 600 megabits.
In speed on the on the handsets now we're doing easily 1.31 0.5 in averaging opted to gig.
What I want to tell you is that the development, we're doing on technology east its actually extremely fast compared to what ISO in Ford yen remember Ella's bottom Ford, yes, well im going.
We are used to quarter into all these nine markets when the ones. We've launched with all the three infrastructure vendors will have which means that we're coming out from sort of your scaling into beginning gifting all the technology to work and now we just don't scaling at the same time, we are now three handset.
And we have the end Siegel might find that we will launch which is a sort of a business.
Position us well for five years, so I think that that's what you see we see a great great the improvement, but still it's a lot of the intended and 10.
So dole with technology that were developing added team yourself into field everyday so.
I'm confident that we will continue to do well here around and remember now in the Fiveg Ultra wide band that we're doing right now we're doing that in a most dense populated areas where really he fiveg is coming to its rights you know, we do fantastic in salt dome.
The performance there so that's the.
And if I get home, you're absolutely right when I said that the late this year we won't.
The launch of Fiveg Youre five your home with the end nor chipset. So that that will come back to assumes no changes on those plans. Ultimately your question about DSS, we did dynamic spectrum sharing which is an important piece for anyone that wants to.
Do coverage on Friday.
That the steel coming in the first half of next year.
But in our case, what I said before the most important needs to get our customers. The best experience. We have the best experience on for you right now.
We are just giving them an extraordinary experience on the ultra wide band, we going to be in the end of into into position to give optionality. When we turned adult on then we are going to turn it on that we'd coverage and capacity when we see some benefit for our customers, but the I would say the activity level in the engineering team to the team working on the ground in every seat the doing to fiber is extremely high and rising right. Now. So I think our focus is absolutely in the right place to see that our network is the number one and then remember also said previously the Fourg network now continue us to win all the third Party awards from Rootmetrics JD power in this quarter. So we're not neglecting that ultimate nine or so you need to think about that when you have a customer in front of you.
Great. Thanks, a lot.
Yeah. Thanks, Simon Brad we're ready for the next question.
Thank you. The next question comes from David Barden of Bank of America. Your line is open.
Hey, guys. Thanks for taking the questions I guess, two if I could one for Matt.
If we are guiding for the low end of the tax rate.
Before 2019 should we be thinking that we're kind of steering our earnings per share growth up or are there other things in the mix.
Just with respect to the to the legacy one that old reporting for the business segment I think one of the surprises that came out of the TNT result was the strength that they show relative to history in their enterprise business and I talked about.
Price stability and other things I think Randall said that that was as good at outlook as you had for that unit.
For some time.
I think that the performance at Verizon didn't seem to have kind of reflect the same strength, but I'm wondering if it had something to do with the reorganization in the quarter and we should start to see some improvement there I wonder if you could kind of elaborate a little bit on that thank you.
Yes, I can start with the with the runoff question there about the Beast is set aside on it then I think that the.
The governmental business on the small to medium the good growth for us. So I think we see a very good possibility to continue to.
See that with the accident rates will go into declining in in enterprise, we have a great funding the enterprise business well.
I remember I mean, there's no impact on the on the reorganization, we have done them and I would go there, but I would say that hey, the changes were done in the last 12 months compared to what we've done the last five to 10 years and we delivered these results in all units I think its a really strengthened the company that we are doing in transformation from from a position of strength and which will you will set us up to be much stronger going forward and of course, Tom and her team are working daily with our customers on.
So sad that we'll see in mind.
Previously and the excitement from our enterprise customers when we come with the full portfolio, so beat fiber or.
You cast sorry, if it's coming with the Fourg or five you solution mobile edge compute I think we have a good and compelling story to continue to work hard here. So.
That's how I see the business.
Then of course, we still have some legacy business declining and enterprise side.
Which we've had for a couple of quarters right now our work is to see that would accelerate that overtime.
Matt Yes, so David on the on the Ti so as a as I look at that.
I remind you that on a year over year basis. The adjusted etiology is actually is up.
And as I mentioned in the prepared remarks.
And largely that's because of the the one time impacts a year ago from the adoption of the tax reform.
So we do see that continuing to be a higher year over year, but despite that the EPS in the quarter was up three cents, even with some some headwind from the TR and a year over year basis, and also approximately four cents of headwinds on the from the accounting standard so kind of similar to the first quarter. So good EPS performance year over year.
In both first quarter and second quarter.
Strong momentum therefore, once we jump off into the second half of the year and so feel good about where we are so far this year and we'll see how the backend plays out, but certainly a very strong platform to be building from.
Thanks, guys.
Yes, Thanks, Dave.
Hey, Brad we're ready for the next question.
Thank you. The next question comes from John Hodulik of UBI, Yes. Your line is open.
Great. Thanks, two questions first on the on the Fiveg home.
Hi, guys, how should we think about the expansion of the.
Of the Fiveg home footprint once you get the standards based based equipment and anything you could tell us on sort of growth in the target market or or or or how you expect that subscriber base to grow and then the second base. The second question is on spectrum. The obviously you guys control less spectrum than than your than your current competitors and with the T. Mobile sprint deal we looked at the creation of a company with over 300 megahertz of spectrum.
Is that a competitive disadvantage for you at this point and with that situation worsened with a competitor out there with with with that much spectrum certainly relative to its smaller subscriber base. Thanks.
Okay on the five year home.
I think what was remember we have the limited short goal for your home and in four markets right now and we kept both the development on our software as well on the how many CBS . Thus we did proprietary solution. The only thing I can say or when shares really good in those markets.
It seems to be a good appetite for five year old we have a good performance all of it.
And then we going for the the part and the second half of this year or this at least part of the year, we want to come back when an and are sort of the five year old CB equipment and I think that's what we're going to do what we need to sort on site size on walk in that so it makes sense for us. So I think as we've said before and this is a 20 to 21 when its going to have a significant.
A significant impact on our revenues of 20 2020 to 20 is going to be an important year for us on and of course coming out now in the latter part of this year asphalting, adding markets over time will be very important.
On the spectrum side I mean.
I think that we've always had the headwind that people don't think we have enough spectrum and all of that and what this organization and these engineering team. He's do when we do expect for me is I would say is magnificent I remember something went to a plus spectrum is so much more you just softer how you plan how you build in that regard, we get utilization ultimate and I think that that's that the team has done a very good.
All the time.
So has had previously we have a very compelling position when it comes to mean you need to wait for all the wideband, but we'll also have spectrum, where we can deploy five D.
On the on demand ultimately fiveg is going to be on all bands and I have a high covenant that might see me say is going to be doing that well continue to have the leadership in the market when it comes to network performance.
There might also come up at all but units over time, where it can be added spectrum, but right now to launch both capacity and coverage, we feel confident on that asset will have.
Great. Thanks.
Thanks, John Hey, Brad we're ready for the next question.
Thank you. The next question comes from Jennifer Fritzsche of Wells Fargo. Your line is open.
Great. Thank you for taking the question if I may I just wanted to revisit on the fiber activity. I think you said you are now, adding 1400 miles of fiber route miles every month versus a thousand.
Our companies have cited some issues with municipalities and power companies and utility are you finding that easier lately or hardware that just seems like a 40% increase not only as it is a big jump.
Thank you for your question I would say this is not an easy work. These days about Dcs and really with Verizon is great that I mean, we had people all the way from working with the municipalities working with engineering planning working with third parties and remembering that in the couple of years since we decided to to invested together with Corning in the in the fiber factor, we outcome to actually running four to 112 months a month. So yes, you are right, we are where our scaling right now and and the team is really really responding to the to the demands that we have on them, where we're always going to have even higher internal demos on them, but as you can see we definitely have a good the good the role right now, but that doesn't mean that it's easy to do it but I think we have put the machine in place with a team that I have a lot of king Kong than anything to do with.
Enhancements I mean should we continue to see that number increase throughout the year as you gain more scale.
Not so much I think we'll start to get thing on the volumes. We all are and that's really important on this down for you. Both its has been questions on the mall could you know the Capex will go up and all of that remember we are almost on the highest the sort of volume, where we believe we need to be able to serve these markets because the or of course, the technicalities of doing it. So I think we'll have a machine right now that is actually executing very well on the on the high volume there might be some increases, but maybe not so much more I think now is more about the broad deployment in all these markets, where we are right now deploying fiber.
Terrific. Thank you.
Yes, Thanks, Jennifer.
Hey, Brad we're ready for the next question.
Thank you. The next question comes from Michael Rollins of Citi. Your line is open.
Hi, Thanks, a couple of questions first have there been any recent changes to the cable NVNO deal and how do you see your role continuing to evolve as a wholesaler of capacity in the industry.
And and then secondly.
Is there an update on any of the potential strategic needs you could make on the wireline side, whether it's asset optimization or trying to figure out.
Maybe how to proceed video business.
The current size that you have thanks.
Okay.
Thank you on that and I know, so I know there's a.
There are no major differences, but the important piece that we believe it is a good model remember we outlined our network as a service strategy, where we sometimes we're doing to connectivity and then we have others being on top of these in EMEA know, sometimes we do Dave Koning TV do platforms and in some cases, we do the whole strategy.
So I think that that that continues to be important for us and we are happy with our partnership with the with the cable and they know so which is part of our how we are actually doing a a multi usage Omar Omar Omar assets to get them up to maximum utilization on the investments. We are doing so for US. This is playing straight into the long term goals as we'll have a yeah.
As a company and.
On the wireline optimization, we I would say that the biggest assets will have years of course, all the infrastructure, but also to customer relations. We have and we will work and of course, we are looking into all the areas, we need to fortify or own areas, we should draw which most of the market is and not demanding it and I think that's a very normal way youre reviewing distracted you will it time and time in our team that now has been in place for this quarter that constantly talking to new customer, what we need to do and where we need to fortify in some areas where the products may have been on the heat thing, but it's not major if you use the daily grinding that you're doing and what just to optimize how you work with your customers Anyhow, you optimize your capital plan and efficiency and it yet and I can also add of course that in this quarter, we announced them that we want to work with you to TV when it comes to the sort of the linear TV both for defy also.
Optionality as well as for the wireless customers. So again working with them on the left we're alone in February and yields continue with that.
Thank you.
Thanks, Mike.
Thanks, Mike Hey, Brad are ready for the next question.
Thank you. The next question comes from Craig Moffett of Moffettnathanson. Your line is open.
Yes, Hi, I Wonder if we could go back to the spectrum question for a second there.
I understand that the longer term.
Spectrum position for for Fiveg, you have a lot of spectrum bands outside of millimeter wave, but there's been a lot of concern in the marketplace that that for the near term your coverage map, maybe more limited than your competitors until you can start peeling away. Some of your your LTE and Threeg committed spectrum bands and dedicate that can you just talk about that issue and how you think about the coverage layer of fiveg over the next few years as you make the transition.
No. That's a great question I think first of all DSS DSS, we did dynamics spectrum sharing is the same for all.
That's a standard solution coming out in the market is softer. So I think that we are not disadvantaged by I mean anyone if you want to deploy your coverage and I think that's how long at the same time you also need you want to see that there's enough handsets and things out in the market. When you start turning on Varghese, who get because we want to do a transformative feeling almost five years, we don't want to use rebranded and say its five D. And you don't feel the difference we already have the best Fortinet work for us to customers. The most important.
So you're right I mean, I I see that we will have a a coverage map.
Whenever it's going to be needed for our customers and is going to be enough handsets in the market and not disadvantage.
For.
For anything so that I think that historically, we have had those feedbacks that we are not in the right position when spectrum et cetera.
I come from the outside you know I'm worked and seen what Verizon has done a weed spectrum and we the new softwares and we the optimizing how you build the networks and I'm confident that we have a good path here and I'm not feeling that were disadvantage I feel that we are executing right now we're launching markets what others are doing other things.
Is there any concern that that even from a marketing messaging perspective, though that your competitors will have.
More ink on the map so to speak.
Early on in Fiveg, even if the experience in Fiveg may not be all that much better than your Fourg networks.
Let's see how Thats turn shelf because again, it's a lot of promise is I think that.
Verizon has had an eye actually inherited a fantastic sort of DNA in this company that we believe we first to do the things and then we start marketing it and I think that's what we'll continue to do that might have on their strategy. So I'm not going into that context about who is talking met most right now I working with the technology team myself weekly to see that we are doing is right for our customers and thats a consumer it's an enterprise customers a governmental customers and customers. We think it through and that's why we're building the intelligent edge network already started two years ago. When I think that the significance of understanding how important that east 40 successful rise. So I think has not really been on installed yet and we will continue to execute on that but there is going to be a lot. The message and then a market. Then you know it does so well.
Yeah, just to be confident that the or our company of rice and will continue to to execute on the re Fi d. would they'd currencies and seeing that we can actually given the right to historical performance to all our customers and the right moment.
Thanks, guys.
Yeah. Thanks, Thanks, Craig.
Thank you.
Hey, Brad we're ready for the next question.
Thank you. The next question comes from Colby sign a sale of Cowen and company. Your line is open.
Great two questions. If I may 1st for Matt I was hoping you could quantify.
The cost of the VSP plan.
That was implemented in the second quarter since that didn't seem to have an impact on free cash flow and then secondly, if you're able to just kind of quantify the savings we could expect from that as we go into the third quarter.
And then my second question has to do with the.
The fiber route miles that you're referencing on the call I just wanted to separate the conversation between the route miles and small cells. So I appreciate you're adding about 1400 miles route miles per month in the second quarter, but are you seeing the same momentum in terms of actually getting to small cells.
Put up as well as I feel like you could still be adding the fiber route miles, but not necessarily getting the actual small cells up and it seems like those two things would have to go hand in hand in that might explain why some of the other companies that are out there doing the same thing might be seeing delays on the small cell side. Thank you.
I can start with the Fibra Uno and math was reduced from another one so what if I remember, it's a multi juice fiber and I have several different customers I have the network guys that needs with Fourg and Fiveg I have the enterprise at the small and medium and I've wholesale and that's Oh of course very important when we build that we can have owner economics on fiber.
And we can build it asked we had all those customers.
But of course initially quite the multiple to fiber is coming and going to their its more sense and that's why we are able to turn up the nine seats as we have done so far on but again then the question earlier was about how much you all we know actually get gaining on it I think this is an early indicator about how we're building the network. The growth would you need to start with the fiber on gifting to permit seem to see because before you can deploy and defy diesel Dcs early indication that we have a high speed and orientation to be prepared for the fiveg and whatever other use cases, where I'm from fiber.
Matt, Yes, Colby on the the voluntary separation.
You, obviously to the income statement charges, we took in the fourth quarter of last year from a cash flow standpoint.
We took probably the largest piece was was in the first quarter and then some in Twoq and Threeq you.
Certainly.
I think that there's good savings in the first half of the year for me mentioned about $480 million of.
A positive impact in the first half of the year.
And we'll have another step up in Threeq is that the final tranche of.
Of employees came off payroll at the end of June so for the full year I expect that to be north of a billion dollar of impacts and that benefit on a year over year basis would carry over into the into the first half of <unk>.
Into the first half of next year until we get to a.
Full run rate by June of next year, So certainly being a positive thing is part of our overall focus on on improving the cost efficiency of the business and we will continue continue to focus on that we're well on track to a more than meet the other 10 billion dollar commitment we made and the VSP was a it was a big component of that.
Thank you.
Yeah.
Yes, Thanks, Toby Hey brand, we're ready for the next question.
Thank you. The next question comes from Mike Mccormack of Guggenheim Partners. Your line is open.
Hey, Thanks, guys just a quick comment on what you're seeing a robust subscriber adds in the business segment for wireless.
What you're seeing from a competitive standpoint in the B to B marketplace I know when your competitors pretty loud about getting bigger there.
I'm just thinking about the the ARPA drivers going forward, but what do you see there obviously you have more room to move to unlimited any other puts and takes and ARPU, we should be thinking about for the back half. Thanks.
Yeah on the Beastie aside when it comes to why this.
And we're taking share we feel really good about it I think that Tom and his team are doing a great job with the relationship we have and of course with the we didn't network quality will have its a very important when business is eminent is no doubt about that coverage and capacity becomes even more important it and there's no enterprise company that has not been a digital transformation so that.
I'm pleased with that we want to do even more so yeah. Yeah. The second question was about the.
The or fine I will hand, it over to Matt, but I can also say that that team would or wouldn't roll non especially on the consumer side has been scenes done limited would loans continue to lean forward with new offerings with new ways of dealing with the market segmenting it up and actually continue to have good service revenue growth and I think that's where it will down I'm pleased when I look at the team I know that they have more called up this leaves as I say and what the math and I'm on doing together, we're transforming the company and to have a disciplined approach to that to be prepared for that the marketplace to continue to do well and so oh I'm sorry.
Good about the rolling on in what is his team is doing.
Yes.
Thanks on some on because as you think about wireless as a whole in the office trajectory.
It's coming from the overall growth of the business.
Just a few things to point out that is really driving both ARPA and oversee the total.
Service revenue whether that be in the b to B space, which had very strong results in the quarter or the consumer space, which also performed well.
You know net account growth positive in second quarter of this year.
That's up year over year, so good growth there.
We continue to lead the industry in a in phone gross adds yet again.
A number of quarters in a row that we've done that and in addition to lead in the industry and gross adds.
Growing year over year, and not that's something that I don't know all industry participants can say that they did so late in the industry and grow sense also lead in the industry and phone churn yet again. The net result, there as you know phone net adds of 100 or 245000, a nice increase over the 199000 last year. So as I think about the business.
In the first half of the year had had nice strong performance at that went from the operational side onto the onto the financials as well puts us in a great place as we drop off into the second half of the year to continue that momentum and.
You know I feel good about where we are at this point in time.
Great. Thanks, guys, yes, thanks, Thanks, Mike.
Yeah, Hey, Brad we have time for a one last question.
Thank you. Your last question will come from Doug Mitchelson of Credit Suisse. Your line is open.
Oh, thanks, so much just a couple on wireless competition. So Honda seen obviously, a strong wireless core I'm curious if you're seeing any competitive impact from the first initiative at 18 T. I know I think you recently signed a deal with the Massachusetts first responders I'm not sure if that's sort of a sign of.
You all competition going back and forth and then I was just hoping to revisit bundling and the importance of video to wireless with 18 team planning to bundle each field Max when they launch it next spring with wireless services is is hardly video with wireless does it lower churn or is it just necessary to compete on a promotional basis with others that are offering video I'm just sort of curious how that informs your video strategy.
Yeah. So you need to speak to lead to be let me talk what consumer based it's not the.
Let me, let me just say M&A, if I look in the second quarter. It was a little bit more competitive than that and then down in the first quarter.
When it comes to competition in the market that that tenancy a lot about our performance done that we gained a gain or loss or net additions at the same time, we'll have the no show and so I think that on the business side as I said before we are we are we're doing well on the beast inside out and.
Again.
And I think that the wireless part on the B societies important under network performance East.
Great to get a sense that coverage.
And the performance but of course, there is competition for for those deals as well I think we're doing well in that area. We will continue to do well with new offerings coming out and we continue to be Lynette book, even more robust than getting more.
The more quantity on it so again I think the team is there Matt and I are working and transformation of the company to me to two to enable us to continue to compete and do well in the market than giving both Tammy I would say.
And enrolled on the sort of the tools to do work in the market and Thats what were doing and I think we're done and well in this quarter and preparing for the rest of the year.
I just want to follow up on the on the video question there.
Look we're very confident with the that are the most important thing to customers in wireless is the quality of the other network experience and so for the past couple of years now we've seen competitors bundle video offerings and with wireless and we continue to lead the industry in phone gross adds and we continue to.
Lead the industry in churn so I think that demonstrates the most important thing to customers the quality of that connection the reliability of that connection and that when you have the best network you don't need to bundle other things in there in the same way and we will continue to be focused on providing the best quality network out there.
Right. Thank you.
Yeah, Thanks, Doug Hey, Brad.
That's all the time, we have right now before we end the call I'd like to I hand, it over to Hans for some closing comments.
Thank you.
Right, Yeah, I think we've covered quite a lot of ground in this quarter because basically the question has arranged for all RBC is what you asked a couple of things first of all.
I'm really proud on a team a lot Devon, she them and remember we have changed the structure will change how we build a network that down a a launch of voluntary program were reporting in new structure were put into a new structure and the team is executing well I think thats. The way we want to work here continued to lead the market then contino transformed to be a strong company. We just try to do is have felt in February . So then it comes back to execution on fundamentals. That's what we're doing and we will continue to do so and to be disciplined on our capital and also continued to lead the market then that and then of course I think a lot of questions on circulating around the five deep what we laid out in February capital markets day, He's still valid and that's what we're aiming for and we're executing on and I think that the team is is doing great job there. So.
I think that to sum it up I'm, a I'm probably quarter to change them are doing at the same time delivering this quarter. So on a financial earnings. So thank you very much for attending this call and I guess I see you out there soon.
Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation and for using for Rising Conference services you may now disconnect.