Q3 2021 Verizon Communications Inc. Earnings Call
Good morning, and welcome to the Horizon third quarter 2021 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 third quarter.
This conference call. This is Brady Connor and I'm here with our chairman and Chief Executive Officer, Hans Vestberg, 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.
Or it will be made available on our website.
Before we 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 discussed.
A discussion of factors that may affect future results is contained.
In Verizon's filings with the S E C, 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 posted on our website.
As a reminder, we've entered the quiet period for the $3 four or five gigahertz.
Well all remarks, and so we will not be able to comment on our spectrum holdings or strategy now, let's take a look at the consolidated earnings for the third quarter and the third quarter, We reported earnings of $1 55 per share on a GAAP basis.
Reported results include a net pre tax gain on the sale of Verizon media of 706.
Spec dollars and a net pretax charge of approximately $247 million, which includes a net charge of $144 million related to a mark to market adjustment for our pension liabilities and $103 million related to a severance charge for voluntary separations under our existing plans excluding the effect of.
Millions of shall items adjusted earnings per share was $1.41 in the third quarter compared to $1.25 a year ago. Please note. Our results include two months of Verizon media as the sale to Apollo funds closed on September 1st.
With that I'll now turn the call over to Hans to take us through a recap of the.
These border. Thank you, Brian and thank you all for joining our third quarter earnings call. We had a solid performance in the third quarter growing total wireless service revenue by three 9% year over year earnings growth. These are all supported by a strong net additions in wireless and broadband which are both translated.
Third called Bottomline growth this definitely confirms our strategy to grow our business with high quality offerings.
As I've said throughout the year, we have all the assets we need to extend our number one position in the market our strategy remains unchanged and we're delivering on everything we promised and we're gaining momentum.
Did all of the five vectors for growth, we have more paths to grow well then antibody and we're confident with our growth targets for the outer years based on our third quarter and continued momentum into the fourth quarter. That's an evidence we're updating our financial guidance for the full year, we now expect.
All of the wireless service revenue growth of around 4%, which is on the high end of our prior guidance and adjusted EPS.
<unk> 35 to $5 40 up from 525 to $5 35.
On track to achieve our targeted capex levels in 2020, one assuming no further.
Attrition in the supply chain, our team is working diligently and doing a fantastic work with vendors and suppliers to ensure we have adequate equipment to meet our C band build and that's what I have devices that our customers want.
Our operational excellence and our partnership strategy is the best in the industry, which I've been so impressed.
Disrupting inside joined Horizon and in times like these it.
It matters, let's talk about business, we continue to provide the best in class experience across the board on the network from third parties continue to recognize us as the best network experience. This includes route metrics what are the 16th.
<unk> consecutive time and J D power.
Seventh consecutive time, our network team is doing a great job on the commercial front, we've got great momentum into five year adoption with over 25% of our consumer phone base using a five <unk> capable device.
This is tracking well.
Based on the forward year adoption as I've said before it will contact 12 months' of the Ford you'd launched 10 per cent of the devices ballroom for Jeep.
Less than 12 months off their fire the DSS launch more than the double world five devices and it's growing at a rapid pace.
Combined with our millimeter wave strategy.
They had an important combination and that is paying off in the third quarter. The total millimeter wave users more than doubled sequentially. We're doing more gigabit there'll be huge as in a month now than we did in all the first quarter in some of our more established build outs, we're seeing more than 20% of users of.
Millimeter wave and we're on track to have 5% to 10% of all traffic in the urban millimeter wave polygons by year end for BC segment, we continue to add wireless subscribers and take broadband share in our ILEC footprint, we'd files and finally with delivers significant value creation and strategy refinement.
So with the sale of the Verizon Media group in September depending Tracfone acquisition and also the issuance of our third Green bond, which is a vital step towards our net zero goal in 'twenty 35, all these what's accomplished in tandem with a strong quarter result.
When it comes to the financials, we are on track to meet.
Men and exceed all of our 'twenty to 'twenty one guidance.
We expect to have a strong finish of the year as we approach the launch of C band.
We continued to deliver excellent revenue performance in wireless service and with even vials, we have a diversified path for revenue growth with all five vectors contributing.
I beat that was up three 3% year over year I don't know on adjusted basis EPS was up 12.8%.
Our capital allocation stands firm, we invest in our business to create shareholder value. We continue to increase our deal with them, which we did for the 15th consecutive year and Matt and team.
Working diligently on our depth reduction as we said last quarter. Our guidance race is broad based and across all our five vectors of growth consumer segment. They beat the increased by 2% driven by positive trends in customer acquisition premium plan adoption, probably gonna services and content.
T mobile as well as prepaid on reseller growth.
The service revenue momentum in the third quarter was driven by continued execution of our migration strategy to a higher valued price plans as well as high quality net adds but our growth is more than that much of a long term growth is in fixed wireless access and mobile edge compute.
Our strategy is becoming a national broadband provider with the best access did it take for a customer to include files fixed wireless access on five D 40 millimeter wave and see but when it comes to the mobile edge compute where the mobile edge compute leader both in public and private thanks to great partnerships.
I, just announced a private mobile edge compute partnership with Amazon that we're pleased with.
And this just scratches the surface on how we'll continue to utilize our assets we're confident in our growth opportunities as you move into the investment cycle would see bad.
Before I hand, it over to Matt I want to briefly touch on our broadband expansion.
And we can track to meet our fixed wireless access household coverage targets with an expected 15 million homes passed by the end of the year between 40 and fire.
To date five your home is in 57 markets and the Ford E. L. D home in all but 200 markets across all 50 states.
Well in addition to fixed wireless access we're pleased with the great performance of iOS and continue to grow the open for sales volumes within our footprint.
We're on track on exceeding all the commitments for 2021 and on track for long term growth expectations outlined in our Investor day earlier this year.
You can expect us to provide 2022 guidance during our Q4 'twenty one earnings call and now not overdue.
Thank you Hans and good morning, everyone I'm pleased to be with you today to share our Q3 results another quarter in which we delivered strong financial and operating performance as we have said previously our focus.
Not solely on volume growth as a goal in itself, but on high value volume growth that will yield sustainable increases in revenue and profitability going forward.
By delivering the best in class network experiences to customers with additional services and products like Disney plus that others can't provide our strategy is focused.
Because he is increasing the value we receive from every connection.
As you can see from our results our disciplined approach is driving profitability and strong earnings results.
In the third quarter consolidated total revenue was $32 $9 billion up four 3% from prior year.
Our results are inclusive of.
Custodians of media revenue, which approximated $1 $4 billion on a segment basis.
Excluding horizon media total revenue grew five 5%.
Our service and other revenue growth rate was 0.5% and one 6% without Verizon media equipment revenue growth was approximately.
At least 30% compared to the prior year, mainly due to the timing of iconic device launches and the continued pandemic recovery.
<unk> revenue was $3 2 billion up four 7% year over year, driven by continued growth in customers as well as our efforts to increase the value of each customer by encouraging them to step.
Two must be tip toes.
Total wireless service revenue, which is the sum of consumer and business was $17 $1 billion, an increase of three 9% over the prior year.
The results were driven by higher access revenue volume growth in products.
We are creating more pasta growth with connectivity.
Pop in an non connectivity services.
Adjusted EBITDA in the third quarter was $12 $3 billion up three 3% from prior year.
Top line growth and a reduction in non equipment related expenses contributed to the year over year EBITDA growth.
And that EBITDA growth is helping us drive EPS growth.
<unk> for the quarter adjusted EPS was $1 41 up year over year by 12, 8%.
Now, let's take a look at our consolidated metrics.
Throughout the quarter, we remained focused on bringing in high quality net adds a key component in helping us continue to deliver strong quarter over quarter revenue.
Growth.
We are seeing strong demand for connectivity across our consumer and business units.
Our mix and match value propositions network quality and unique partnerships are resonating with both new and existing customers.
For the quarter, we delivered 429000 wireless retail.
Revenue gross paid phone net adds up more than 50% from prior year and in line with 2019 levels.
We're seeing growth in new accounts as well as high retention levels, allowing us to grow our base with high quality net adds phone churn for the quarter was 0.74% well below pre pandemic.
Levels.
<unk> continues to benefit from a number of sustainable factors, including our best in class network with unmatched reliability and coverage and overall value propositions within our consumer and business unlimited plans.
Additionally, consumer payment patterns continue to be back to the pre pandemic.
<unk> pubs.
Total broadband net adds defined here as files D. S L and fixed wireless where 129000 fast Internet net adds were 104000 compared to 144000 last year as a reminder, last year's three Q fast results included a benefit.
I'm ignoring them a higher backlog entering the quarter as we had largely paused installs in Q2 'twenty 'twenty due to Covid files has continued momentum driven by our best in class value proposition built on network quality and a mix and match pricing structure there.
This combination is helping us to take share and.
And deliberate historically low churn rates.
For the first time, we are providing fixed wireless net adds which include both consumer and business fixed wireless products.
We are building momentum in our pre C band success in Q3 demonstrates there is demand for the product from consumers and businesses.
Both have five G and LTE fixed wireless products are performing very well, we're pleased with what we're seeing around the install process as well as the quality and reliability of the product.
Now, let's turn to our consumer group results.
Our consumer group had another strong quarter continuing the momentum.
That we've been seeing in wireless and files.
Total revenue was $23 $3 billion up seven 3% year over year.
Service and other revenue was $18 $8 billion, an improvement of two 5% versus prior year.
These results include strong wireless revenue as well.
Well as growth in files.
Wireless revenue was $2 $9 billion up 4.3% year over year.
Mainly driven by growth in our Internet base of approximately 400000 or six 2% over the past year and migration to higher speeds.
Our actions around mix and match.
Which include our broadband first approach is helping us to grow with fast revenue and consumer EBITDA.
We still see plenty of room for additional growth within files and we continue to increase our share makes them match penetration rates and are open for sale locations wireless service revenue was $14 billion up four.
Percent from the prior year.
We have been driving access gains both in growing accounts and phone net adds as well as by continuing to execute on our migration strategy.
As a result of migrations and step ups.
30% of our account base is now on premium unlimited plans.
Our growth in access.
Its being complemented by product revenue, which includes items, such as protection plans content and others.
A wide range of product offerings and helps us to not only grow revenue, but provides differentiated experiences and more value to our customers for the quarter EBITDA was $10 $5 billion up.
Access a cent year over year or more than $200 million driven by a high quality service and other revenue gains coming from multiple growth vectors.
These results show the impact of our strategy to enhance the value of each connection, which we believe will drive continued growth into the future the mix and match pricing structure.
Up to both wireless and files provides tremendous opportunity to migrate customers to higher value tiers, and bringing customers in higher value plans.
We are very pleased with how this strategy is working to help us increase value from our base and from new customers you can see the impact of this strategy throughout our results postpaid.
For BOE net adds with 267000 above our Q3 performance in 2019 and 2020 the performance was consistent during the period.
We were able to grow accounts and deliver sustainably low churn throughout the quarter. Most importantly, we continue to be very pleased with the quality of customers.
Paint them with approximately 66% of new accounts, taking a premium unlimited plan.
In Q3 was another quarter in which we saw a strong acceleration in F. Five G penetration.
Exiting the quarter with over 25% of our phone base now equipped with a five G capable device, which.
Which is great progress.
We're at the answer that launch of five G service on C band spectrum in the coming months.
Fast Internet net adds with 98000 for the quarter up slightly from the prior quarter. We continue to be pleased with the results, we're seeing especially warm attention now.
Now, let's move to slide 11 to review the business group results.
Our business.
Yes, and it continues to see strong demand for wireless services across multiple verticals.
We are continuing to focus on what we believe will be the highest growth portions of the business segment as small and medium business unit.
<unk> wireless and the next phase of our enterprise customers.
As well as building momentum for fixed wireless access to serve.
Second customer groups.
Total revenues for the business segment was $7 $7 billion, we continue to see growth in wireless revenue being offset by ongoing legacy wireline declines.
Wireless service revenue was $3 $1 billion up three 6% year over year.
We saw quarter.
Multi quarter expansion, driven by small and medium business, which was partially offset by distance learning pressures in public sector.
Wireline revenues continued to be pressured by secular trends, while also facing elevated year over year comps due to 2020, COVID-19 spending consistent with our focus on driving high value.
So our openness in the wholesale space, we continue to rationalize our international voice traffic, which is contributing to the revenue declines shown on the slide.
Business segment, EBITDA was $1 9 billion down two 4% from the same quarter last year and business segment EBITDA margin was 24, 8% in the quarter.
While secular trends within wireline will continue to put pressure on margins in the near term. We're encouraged by the growth opportunities associated with our business transformation efforts as they start to gain traction.
Our market leadership in wireless across all customer groups and our continued investment in primary growth areas for Verizon business group will.
<unk> seen us to take advantage of the growth opportunities in the future. We are encouraged by the results we delivered for the highest value portions of the segments in <unk>.
Phone gross adds volumes were above pre pandemic levels up 11, 4% year over year and up 3% versus the same quarter in 2019 total postpaid.
Because it adds for the quarter with 276000 to better highlight some of the trends on this slide we've broken out the net adds by public sector and a higher growth commercial businesses, which includes small and medium business and enterprise during three Q 'twenty 'twenty, the commercial space, primarily within small and medium business.
<unk> paid depressed while public sector buoyed by distance learning programs, so elevated net ads.
And three Q 'twenty, one we've seen a rebound in the commercial space, while distance learning disconnects have driven public sector volumes to lower levels. We expect these trends to continue into the fourth quarter.
With a portion of distance learning disconnects also impacted our phone churn and net add performance.
Despite this we delivered postpaid phone net adds of 162000.
Now that's moved to a consolidated cash flow summary, the business continues to generate strong cash flow.
Year to date cash flow from operating.
Activities totaled $31 $2 billion the year over year change was primarily driven by lower cash taxes last year from a one time benefit and higher working capital requirements. This year due to greater volumes yet.
Year to date capital spending totaled $13 $9 billion as we continue to support traffic growth on our <unk> LTE.
Water, while expanding the reach and capacity about five <unk> Ultra Wideband network.
C band Capex was more than $1 billion through the third quarter and we have placed orders for approximately $2 billion of related equipment year to date, giving.
Giving us confidence that we will be with him the previously guided incremental capex range.
<unk>, a $2 billion to $3 billion for the year as we accelerate our C band deployment. The net result of cash flow from operations and capital spending is $17 $3 billion of free cash flow for the nine months period.
Net unsecured debt at quarter end was $131 6 billion or $5 2 billion decrease.
Decrease versus the prior quarter. In addition to our third Green bond issuance, we extended over $4 6 billion of near term debt into a new 2032 maturity as we continue to optimize borrowing cost and our debt profile, our net unsecured debt to adjusted EBITDA ratio was approximately two seven times.
Our cash balance at the end of the quarter was $9 9 billion, which included the proceeds associated with that sale of Verizon Media group, we expect lower levels of cash on hand, as we progress through the fourth quarter and approach to close but the Tracfone acquisition, while continuing to execute on our business strategy within our capital allocation framework.
Let's move on to slide 14 for an update on guidance for the remainder of the year we.
We continued our strong first half performance and momentum in the third quarter.
And I am very pleased with the hard work our team is putting forth.
And we are excited about the opportunities that lie ahead as we prepare for the C band launch.
Our strong year to date results and momentum.
Into the fourth quarter are allowing us to update guidance on both wireless service revenue growth and EPS.
Wireless service revenue growth is now expected to be around 4.0% the high end of the prior guidance.
Adjusted EPS guidance is being increased to $5 35 to $5 40.
Some headache from the prior range of $5 25 to 535, our guidance for the effective tax rate is unchanged Capex guidance is also unchanged, though I'd note that our assumption for IPA you spend a 17.5 to $18 $5 billion is dependent upon no material changes in the current states about supply chain our team continues.
Tenuous to execute on our strategy and delivered strong operational and financial results. We are attracting high quality customers that see value in our products and services evidenced by growth in accounts migrations and step ups.
Look forward to continued momentum as we wrap up the year and position out base to take full advantage.
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With that I'll hand, it over to Hans to wrap up my prepared remarks, Thank you Matt.
As you heard we delivered a solid third quarter result, and we're on track to meet or exceed all of our 'twenty to 'twenty, one commitments to the investment community.
Our strategy is working.
And I'm pulling for them in their strategy. They will have to deliver both strong results and premium experiences going forward as well.
Looking ahead, we'll continue to focus on expanding RFID leadership, capitalizing on wireless momentum and work towards our C band launch.
Deploying.
Differentiating experiences for our customers.
And execute our network as a service strategy to deliver all five vectors of growth.
And we look forward to delivering on all fronts and sharing our results in the coming months with that.
Got it back to Brady.
Thank you Hans Brad we're ready to take questions.
Thank you we will now begin the question and answer session.
I would like to ask a question. Please press star one please on mute your phone and record your name clearly when prompted your name is required to introduce your question to withdraw your request. Please press star two.
One moment for our first question.
Our first question comes from Phil Cusick of J P. Morgan Your line is open Sir.
Hi, Thanks, guys.
Hans you discuss continued momentum into the fourth quarter and I see you recently pulled back on the more aggressive retention plans can you talk about what competition looks like in consumer right now and any shift in underlying demand.
And then second for Matt given the strong performance in our recurring revenue businesses does it makes sense to be less aggressive on reducing leverage and maybe allocate some free cash flow to buybacks given our low multiple on the stock. Thank you.
Thank you Phil let me start with the competitive landscape yet.
There.
There is of course, a little bit more competitive landscape right now, but let me remind you on a couple of things first of all that's what I've learned from the history and in broadband and mobility is two of the most important are the infrastructure for any person in these countries in the world. So it's a little strange so there's competition. There secondly, we are in a moment.
Where it's a phase five years scaling the economy's strong so of course, that's a moment, where we see a lot of our competition, but anyhow. If you look at our numbers. We are competing extremely effectively we're gaining to high quality customers regardless of the type of competition will have.
And not only that I mean, if you look at the growth of three 9%, we feel really good about that as well that wouldnt come to our service revenue and we have been going back and forth on our own up to almost <unk> and the reason is that Ronan and his team on the consumer side. They they look at long term profitability.
Lithia high quality customers when they come in and doing a promo and right now we feel very good about how we compete in the market. So we're always going to have it promos. One we think is the right timing of it so we.
We feel really good about it and as you also saw that Matt talked about our increased guidance as.
So all in all we feel good how we compete in this environment and if you look at the track record. The last couple of quarters, it's been really strong in consumer and rolling on them and the whole team are doing a great job. So I feel good about that.
When it comes to the capital allocation I'll, let I cant say that we are capital.
Well it is clear I mean, we we focus number one on investing in business and we are investing in the business this year and bolting Capex spectrum and all of that so that's number one but we also have as I said I mean, our 15th consecutive year of dividend increase and our math and I, we constantly to see that.
We have a have a position for the board. So they can continue to do that and we will continue to do that and then we have our depth reduction, which Matt will talk about and finally, we have the buybacks that we tend to do all the time, but I can tell you is that we're going to have a conversation with the board.
What is the best way of doing capital allocation priority is and will continue to do so to see that our shareholders get the best out of horizon right now.
So I think you hit on the key point and say look we're always going to look at the pillars of our capital allocation policy and.
Right now we continue to see a lot of opportunities to invest in our business you see what we're.
Doing that around the C band investment for example, not just the spectrum, but also the capex associated with that.
You know obviously, we said long term, we put do believe deleveraging.
Is the right priority, but we're also focused on returning capital to shareholders and you saw that with the dividend. So you.
You should.
Expect us to continue to be thoughtful about capital allocation as we go forward.
Great. Thanks, Phil Thanks, guys, Yeah, Brad we're ready for the next question.
The next question is from Simon Flannery of Morgan Stanley. Your line is open Sir.
Great. Good morning, Thanks, so much for the disclosure.
Closure on fixed wireless that's great to see perhaps you could just give us a little bit more color on the economics of the product is this a similar ARPA who to a smartphone are we looking at mostly LTE or is this a mix of LTE in millimeter wave and then perhaps just coming back to the C band I think you've said before seven to 8000 towers. This.
So getting to a 100 million covered pops by the first quarter, perhaps you just update us on that and then how quickly do you really turn that into a an expansion of your fixed wireless footprint of the marketing really start coincident with that or is that a steady ramp during the year.
Thank you so I'm on a on the fixed wireless access yeah youre.
This year, it's a similar ARPA on fixed wireless access as an automobile.
And also when it comes to our the numbers, we'll have it as you said, it's a mix all the four Gee, it's a millimeter wave in.
In the fixed wireless access right now and as I said before when we talk about our five year fix.
The usage on the network is very similar as well so they are even using more gigabytes on the on the on the fixed wireless access on five E than they do on one five years or so and we have a very very good performance in call. It on I remember on the fixed wireless access we're also.
Also doing a I would say a different mode hell with the self install and all of that making optionality for our customers and ultimately the vision is clear for horizon, we're going to be a nationwide broadband provider.
We're going to have different access is in different places depending on what is right for the customers and how quickly we can deploy and so.
Thanks, a lot and we are investing in the files and you saw the numbers these months of them and we're adding 130000 in this quarter, one comment or 129000 to be exact net adds in broadband. So this this is a great business for us and we're just ramping fixed wireless access and then coming back to C band.
Who knows what turn on C band.
We're also going to augment the footprint that we can offer a fixed wireless access so on the as we said in the in the in the opening remarks, we are on track for that to deliver that after one year, having 100 million Pops covered Baidu C band.
There are some challenging supply chain, but I don't want to say.
So I mean, just doing an enormous.
Work, and and and and just to be clear on it the long term planning, we have with our vendors the projection of forecasting we have done for all our equipment vendors will be two years before we start deploying of course is paying off right now that we work very differently with our vendors and.
The T plan, we are also a pooled resources and inventory higher in the network. So we can easily see that we have access to it. So we have done a lot of things. The last two years three years in supply chain. So we can be in a situation to meet the challenges we have right now so.
All in all that's that's where we are Matt Yeah, no sign I think.
How we just summed it up well that we've got good momentum in the fixed wireless business that you saw the 55000 net adds in the quarter that means we're at approximately 150000.
Total subscribers on fixed wireless access at the end of the quarter good momentum being built there and as Hans said as soon as we turned on C band immediately.
Adding that to the technologies that we're selling on fixed wireless access so good momentum buildup and then we've got that extra two.
Boost to come here in the next few weeks.
Great. Many thanks, yeah. Thanks, Simon Brad we're ready for the next question.
The next question comes from Brett Feldman of Goldman Sachs.
The line is open.
Thanks, and just actually a follow up here on your broadband business.
You mentioned, you're getting a mix of both LTE and five G subscribers I'm curious who are these customers specifically our U upselling into existing accounts or are these primarily new relationships for horizon.
And then it's also notable that you are continuing to expand the fires footprint looks like youre going to add over 400000 locations opened for sale. This year and it seems like you would expect to be at or above that pace going forward, you really hadn't edged out that footprint for a long time why have you decided to do that now.
How big.
Your lives footprint B and as all of this happening in your region or are you actually doing some of this out of region. Thank you. Okay on the customers on fixed wireless access I would say there are probably roughly half and half half, meaning coming from our existing base and half are taking from other costs from other suppliers.
Suppliers are.
That's basically how they come in right now and let's see how the mix going forward, but here we have the optionality, that's what I've talked about before and and we have the owners economics to work with convergence. If that's what our customers want to have we basically have all of those optionality right now and I feel really good about that.
And then the second question on the fiber footprint, we have constantly of course deployed a file some in D. C in our ILEC and to be honest and what we see right. Now is very strong demand and we are winning the business that we're deploying and the team is deploying and as I said, we're heading to 400000.
Open with sale lease this year and we will continue with that because we see a great demand and our win share is extremely strong and the fires footprint.
Yes, so just coming out of things that are out there Brett on the mixture of the customers as Hans mentioned, a good mix of 50 50.
Kind of split that between new and existing.
Listing.
Customers, but also a comment a good mix of good split between not just at being in rural areas and so on but also seeing a good traction in suburban and urban areas too for those products and when you think about those customers in the first 46 C band.
A market that will come online the customers, taking the LTE product, they're getting a router that also has C band in so they can immediately step up to those those speeds when as soon as we turn C band on there soon and the fast expansion. It's a there's a couple of pieces that we see great opportunity.
As Hans mentioned the other piece, it's a it's a it's a great cost opportunity as well as we continue to upgrade the network technology in that footprint as well so.
We've been investing in that for a number of years, maybe haven't spoken about it quite as much but it continues to be a very good growth.
Unity a driver for the business and we see very strong line of sight for it to continue to do so 4% growth in faas revenues. This quarter, certainly something we can continue to build them.
If you don't mind, a quick follow up there on the cost point.
Those of US who live in regions that have I know that sometimes you can get five so it may be down.
<unk> you can't are you kind of completing the communities in other words are you going to be at the point, where you could finally rip out all of this legacy infrastructure is that what you meant by the cost savings right at that that's absolutely part of it now we gotta be all the way there. That's a that's a long term a go for us, but certainly as you replace a N a.
The situation copper with fiber there is a theres a good benefit from a cost standpoint. In addition to the revenue step up opportunities you get with that customer base. So it's a win win on both sides of the the the P&L there.
Thank you great. Thanks, Brett Brad we're ready for the next question.
Thank you the.
The next question comes from John Hodulik of UBS, Sir Your line is open.
Great. Thanks, guys just a couple of follow ups on the again on the C. Band deployment first of all are you seeing any supply chain or labor shortage issues with it and that may affect the timing of that rollout.
And then beyond that you know thanks for the $15 million sort of homepage.
Past with fixed wireless by year end can you give us a sense of what the C band deployment in the sort of first phase of that what what that will do to that number do you you know as that gets launched you turn on a you know a number of our more homes and then lastly.
Can you give us a sense of how you sort of go to market strategy.
We'll change it and do you expect the C band deployment to change the trajectory of the of your net adds both on fixed and mobile basis. When we see that early next year. Thanks.
On the C band and as I said before that.
There are of course challenges in supply chain, but our team has.
I think our team is the most outstanding operation Excellence.
Our team in the World you know and they are getting around all of it on all the major equipment radios et cetera, that's already secured he sees in the warehouse and that's how it work I mean, we we do long term planning.
Our suppliers are years back. So so we feel really good about that as being some challenges to meet material are the tea.
It's working around them everyday finding new solutions.
In order for us to deploy and they will continue to do so.
When it comes to resources again, we secured our resources.
Yes.
We had you know to be prepared for these type of deployments will happen. We were doing more deployment that we're ever done before you talk about C band, where do millimeter wave for 10000. This year, we'd do fiber we do augmentations.
On the on the 40, we do fires.
So it's many things they are doing and what I've never done.
And I can tell you the team and we.
In supply chain.
Deployment or doing a great job.
When it comes to them 15 million households passed by.
By year end this year.
That includes all the technologies, we have and of course, the second part that we guided for when we had our investor day as supposed to get the 50 million.
More on this whole path later on.
So that includes all the technologies, including C band of course on AR and also how we deal with different type of devices, having all the different technology in them. So the team has been planning these creating opportunities for us and of course without coming into 'twenty two.
Housing to yet but.
With the opening of the C band, we see great new opportunities and as I said also at the Investor day that means that we can accelerate and amplify our business case on <unk> that that was the whole the thing with the C band and the team is geared up for that and very focused.
Okay.
So just following up on the debate about the open.
Households covered as you saw in the prepared remarks were $11 6 million at the end of the third quarter. Obviously, we'll continue to add some millimeter wave and <unk>.
And for G for the rest of the year, but sheep and certainly will get us well over the $15 million as we turn that on.
Yeah, Thanks, guys yeah. Thanks.
Thanks, John Brad we're ready for the next question. Thank.
Thank you. The next question comes from David Barden with Bank of America. Your line is open.
Hey, guys. Thanks for taking the questions.
I just wanted to return Hans did a competitive.
Lance Cape I guess year over year, I think most observers would say that the.
<unk> kind of looked very similar as they did a year ago and if anything the wireless landscape is probably less competitive now than it's ever been in terms of postpaid phone net add availability and as we look ahead I think the things that people wonder about what's going to change our.
As the EVP and the PPP and the renovated.
Premiums all go away.
The Super normal kind of sport for the postpaid market might add and second you've got the cable companies coming in with with new pricing plans.
And then third we've got the additional launch coming up could you kind of give us your perspective on how comfortable people should be about.
How the landscape is going to evolve as these things change. Thanks.
Yeah, no. It's a lot of moving parts here as you have talked about again, I mean, I think that what we have and now we start with consumer because remember also our strong position why less on the business either and basically we are leading in every segment. So sometimes we forget to talk.
Talk about a strong word here, but let me start with consumer because I think your question is a little bit more geared to consumer remember how we have built or are a possibility first of all we have the best network. We have kept the best network, we augmented our and we are of course, adding more spectrum to it right now with C band. So that's.
That's a very important the second part is that the value we're doing besides having the best network of course with all the offerings. We have created over time with discovery Disney plus with all of them are giving us a profitability and retention and you see the share numbers in this quarter I think we have found the model with mix and match and the things.
We are offering our customers are on the wireless side has really paid off when the both the loyalty, but also this step ups and remember when Matt talked about you know that we have now one third of all the unlimited to be on unlimited premium, but but we still have let's say one third on metered plan as well so.
Things that so many steps to continue to move our customers upwards and that has been extracted from the beginning and it's clearly different than anybody else in the market. How we can do that.
Oh for the best network and the experiences that we have that's why I left a mix and match that we're having the network. So I feel good about it.
We had orders of what type of competition is there.
And how it changes we'll have owners economics of everything were doing that was very clear from the beginning we build our own fiber we have the food network and that's why we can have even in windows on the network, which also are benefiting from so the whole idea with the strategy we laid.
Rick just playing straight into a what is happening in the market, where mobility and broadband is the essential infrastructure for every individual in the world at the moment, then hey, everybody wants to be here, we have the best assets, that's basically outlooks.
Yeah, a couple of other points, Dave if I can so you mentioned the E P.
His impact on the marketplace and certainly we're supportive of all efforts to make our digital connectivity available and accessible to to everyone in the country and we're participating in those programs I would though say that in terms of our gross adds are new customers coming.
P M.
It's a very small portion of that the majority of our E. B b participation is with existing customers.
Rather than new customers. So it's not a driver of our.
Gross act for US and you also kind of mentioned and obviously in the marketplace. There's been new plans that have come to.
Coming in market in the past six to nine months.
And what I would say is just look at the volumes, we've had especially in the last two quarters, even with those new plans in place you see the high quality.
Volumes that we've put on in.
That environment. So you have to look across both the service revenue and the handset.
The components of the offering to customers.
In the other values and products and services that we bring to customers to this is the strategy that we've been working off of a two to three years now obviously it was a bit of a dip when we hit the pandemic, but the strategy was driving revenue growth before the.
Can you see it driving revenue growth now as we continue to focus on.
High quality customers and increasing the value of our base and it shows in our results.
And if I could just quick follow up Matt as we look at the implied performance in business wireline.
It is.
And then a portion of that related to Verizon as willingness to be more aggressive on price and throw more elbows to hang on to customers knowing that that that was enterprise relationships are the groundwork for potential.
New.
Wireless relationships as we think about enterprise five G. Yeah, no I think theres a couple of items when you look.
Is the are the.
The wireline part of our business revenue results.
For the quarter that are.
Not related to what you mentioned, one but last year during COVID-19, we saw a little bit of a step up in some of the the court voice data revenue that we hadn't seen in quite a while we're now lapping that in those.
Look at the volumes.
Turning to the pre pandemic trends. The other thing is we've we've stepped out of some of the wholesale international voice business, but had revenue, but not no significant margins associated with it. So we wanted to focus on value driving activities. We continue to compete.
Those typically in the enterprise space in wireline, but on the quality and reliability of the service we provide.
Obviously, we are aimed to be competitive there, but im not ive not seen us do anything out out of the ordinary of what we were doing previously and as you mentioned those relationships.
A very important to us as we go into the <unk> era, and we've really seen those relationships pay off with the work being done.
Working through those those opportunities and Mac with a broad array of enterprise customers right.
Alright. Thank you guys. Thanks, Dave Brad we're ready for the next question.
Your next question comes from Michael <unk>.
<unk> of Citi. Your line is open.
Thanks, and good morning, two questions if I could first I'm.
I'm curious if you're seeing any impact of inflation on your cost structure.
And related to that what are the opportunities and the specific products, where Verizon could try to pass.
Through any increase in input costs.
And get better pricing.
Good question.
I'm just taking the reaffirmation today that horizon wants to be a national broadband provider for home businesses and on the Doe how are you evaluating that build versus.
Buy decision.
Using your spectrum inside <unk> technology to introduced fixed wireless broadband services versus the possibility of acquiring cable and fiber assets in the future.
I can start with the second question Mats will have their own inflation.
When it comes to R. R.
Our rollout, though nationwide broadband.
I'm, playing with that of course remember, we're doing a lot of fiber already right now.
We're doing it remember we have been reporting on a one one fiber project, but it is still ongoing in the most of them most of the Metropolitan area, We're building fiber.
And of course that is setting us up to have the owners economics on the broadband and then at the access point, we will do a different type of forge access is that's what the reason would do that because there's so much faster when it comes to coming out to the customer and we want to be innovative as well and having a self install and all of that.
Combined with it.
Were always on our fiber it when it comes out from the outside I like well, we have looked into bio.
By a worse as build all the time, we have come to the conclusion, we want to build that we built our one fiber network because we wanted the owner's economics on fiber. So that's where that work is already done.
So we feel really good about it we're going to have owners economics nationwide on broadband over time here and we can we can work with a wireless offering our broadband offering.
We created that to go to market with Verizon consumer and business groups thinking about our customers how they do problem dogs, how did your platforms.
User experience. This all comes into play right now and I couldn't be more heightened on them right now because the momentum for mobility and broadband is happening we have prepared and work now for three years to get to where we are or and Ah yeah.
We we I feel really good about what we'll have in the strategy is really working but look.
At the last couple of quarters here, when we talk about our net additions so talking about the revenue growth and as I also said when we.
Smoked earlier I mean, if you look at the second quarter. When everybody has reported we also take the largest share of industry surveys and other revenue growth in the market I mean, that's really what we're focusing on we're full.
On getting the revenue growth and that's a little bit of the answer to your question on inflation as well if not it's going to soon takeovers of course, we still have a lot on the wireless side, where we can migrate customers off the higher plans and that's of course are the best way to see that we are getting incremental revenues from our from our customers but.
It also gave me more.
<unk> value and experiences.
Yeah, Thanks, John So.
Mike certainly we are seeing.
Inflation in our in our business here, how long that lasts obviously, we're going to have to wait and see and we're monitoring that closely but we're seeing that come across them.
And certainly in labor rates, we're seeing in commodities driving utilities and whatnot, so, but that's why the things we've done on the cost side over the past few years and continue to do.
Also important because it gives us the opportunity to be able to to handle those those any of those pressures coming in and continue.
To produce good margins. So we will continue to be focused there and then as Hans said our opportunity on the pricing side is really to step customers up if you've got direct costs out there are that we can pass through that we certainly will always look for the opportunities to do that and that's why you see kind of the change.
Continues to now and our content model from the legacy linear model, where there wasn't clear transparency to the consumer between the increase in the <unk>.
And in the cost from the producer there to what they were paying what you're seeing what we're doing in the us.
The wireless space with content.
<unk> gives a lot more transparency there so as costs go up its much easier for those to flow through to the end user.
Thanks, Yeah, Thanks, Mike Brad we're ready for the next question.
The next question is from Colby <unk> of Cowen Your line is open.
Great. Thank you two if I may.
And.
You're starting to talk more about it.
Yes.
Disclose more on fixed wireless.
Which we appreciate but you've also talked about the other <unk>.
Growth at became being in mobile edge computer Mac.
When will we start to see that show up in the numbers and actually.
Positively contributing to growth and where what line items.
Would you point to VR will be able to see that and then secondly.
You mentioned that next quarter, we should expect to see 2022 guidance just curious if your views on the metrics that you're focusing on might change youre.
I'm thinking incremental headwinds, particularly E. P S patches and accounting I believe on the spectrum. Just curious if you believe I'm guiding to EBITDA and or free cash flow.
It's something that might become more important when we see that guidance for next year. Thank you.
Great question Bob.
First on the mobile edge compute.
Well first of all we're doing a great progress in mobile edge compute and you'll have seen that we have made announcements in the quarter with the biggest cloud public cloud providers in the market both on the private a foggy mobile edge computing as you remember there are there are basically three use cases one is.
The public mobile edge compute and then there's the private mobile edge compute and then his private fiber networks all of them sort of are in in in execution right now, we're working with customers wherever announced a key.
Couple of commercial contracts already like coordinating the British ports et cetera are so that's not that.
That's already happening and of course, it takes some time, because where we're actually creating a totally new market and we're actually alone in this market nobody else in the World has launched a mobile edge compute at this moment. So of course, we feel really good about that and the team is working through the funnel all the way from proof of context for new.
Applications and that's how it works when you create new markets et cetera. So we will come back as soon as we feel it's time to start reporting it as we're done with fiber.
As far as access, but I'm, even more excited or the mobile edge compute with what ive seen in the last year here with the technology solutions, we have and also the.
Customer interaction, we have together with the main partner someone will have to.
Biggest partners, who can ever think about in this that are equally much vested as us because that was part of the strategy to bring a different partners there. So.
We will continue with that.
And we will come back and report and we will give you a new deals and how it is progressing with partners.
So over time and ultimately of course, it's going to be financials, and that's going to show up initially of course, it's going to be on Verizon business group, that's going to have that as revenue.
There is a b to b to C opportunity longer term, which can end up in consumer but predominantly in the beginning.
There is some business group opportunity Matt on guidance.
When I thought through what are you going to do next year.
He hasn't told me yet.
So koby a great question. So obviously, we'll get into a into guidance are at the next call, but as you mentioned, we always look at what our year over year pressures, maybe in there, especially things that are accounting.
<unk> got a two rather than cash flow related we'll make sure we have the appropriate level of transparency around that the important thing for us to be able to demonstrate in that guidance is how our strategy is working and is going to show up in revenue growth and cash flow growth and you see that this year and we.
We'll find a way to make sure that we could communicate clearly that we're continuing to grow the top line of the business and that's flowing through into the.
And to the cash generation of the business as well, which is ultimately what it's all about.
Great. Okay. Thank you yeah. Thanks, Colby, Brad we're ready for the next question.
Thank you. The next question comes.
From Craig Moffett of Moffett Nathanson your line is open.
Yes, hi, two questions if I could.
Both sort of at a strategic level Hans.
First maybe you could just update us on your expectations for what exactly do you do differently when when you get the Tracfone asset.
How do you think about the go.
To market strategy in the prepaid market in particular and then.
Second.
Are you starting to see some of the whether it's open signal or other.
Reports, suggesting that T Mobile's network for five G is is faster.
And.
And and broader coverage, how do you think about maintaining the sort of best network advantage that you've had and what gives you confidence that you can convey that in the business and consumer markets.
I can start with the second one I mean first of all I mean, we rely on the.
Root metrics because that's the most sophisticate the scientific way of measuring the network and it's we're undoubtedly the leader there and and without going into my competition, because I never talk about them, but they're clearly a wellness always lost so if with them talking about tracfone.
Tracfone wishes.
An exciting opportunity for us we're still to be closed.
We're not we were going to have to go to market and the brands attract won't have they are so good on prepaid and there show that what we will of course support them with all the back end support all the way from supply chain.
Of course, the support you works, our customer care and all of that but clearly we want to keep the points of sales we want to keep the offerings I would want to serve the value market. So that that's the way. We are I cannot go further into that because we still have the patent pending a sort of a proven of it but.
We will give you even more.
Color Craig as soon as we have closed this one.
Alright, thank you.
Thanks, Craig.
Brad we're ready for the next question.
Thank you. The next question comes from Ken and think Venkatesh far of Barclays. Your line is open.
Thank you.
So maybe a neighborhood and longer term question.
Sure Linda.
Look at your growth algorithm on the consumer side.
You have essentially in ARPA.
ARPA growth trend line as well as with revenue 10 languages screaming.
Okay.
I think probably continue as you deploy Z bend.
And then as the origination activity.
And should also pick up as we head into next year and then there is the competitive backdrop.
Sure.
So you could think about this growth because with them how do you keep margins intact. When your revenue growth is essentially training.
Yeah, Ken on you you broke up there, but I think what you were trying to ask is how do we think about margin profile as as ARPA trails that the service revenue growth.
That's your thoughts yeah, So look and I don't think we have tremendous opportunities and you see it come through in the results. We've delivered now for a few quarters.
The ability to bring high quality customers in.
And then stepped them up so the step ups give us the increase in ARPA and then the service revenue is obviously a combination of the increase in revenue within the base and then also the impact of the new customers coming in so.
You know as you do that we're very very confident that you.
You continue to add scale to our business, which is already the best our best in class from a scale standpoint, and that will show up in the margin profile of the business going forward. So I expect us to continue to have a very strong margin profile going forward.
As it gets built on executing the strategy you see that in our results this year.
You compared the the consumer margin in.
In <unk> this year to two years ago, you you see that strategy is working and delivering results that are both of the top line and the margin line perfect.
Yeah Yeah.
Yeah.
Forward.
Kirana, we're having technical difficulties with you will have to catch up later things not all of them.
Brad we have time for one more question.
Thank you. Your last question comes from Frank Louthan of Raymond James Your line is open.
Great. Thank you can you give us a little more color you mentioned.
Mentioned, there was a split in the fixed wireless between the consumer and business how is that shaking out and then on the on the business side still a little bit weaker there or is that just.
Continued pricing pressure in the market or is it a share issue or walk us through how you're looking at the enterprise space going forward yeah.
What about the fixed wireless access on the business side its course.
So they seem to net one that signed offering warehouse Oh.
Of course, we started off with our fixed wireless access on the consumer side and we are later on.
This decided to actually have access to it that's why because that's what I wanted to start I would say we had really good traction on the business side on takes wise.
<unk> be small and medium businesses are clearly, where we have our stronghold in the end there being the clear leader so we.
We see this as a great opportunity for our Verizon business group as well and again, we are now adding products and solutions for our Verizon business group that overtime should offset the.
The wireless decline.
The actions I have Ah that Matt talked about when we talk about the Verizon business group I haven't talked enough about them, but the momentum in wireless there is really good with them and look at the small and medium businesses are coming back theyre doing a great job on the enterprise side. The wireless piece is doing well as well are the only areas.
In that public sector is coming a little bit back, but that's a very natural things because the sort of the increased demand.
Our home education, and et cetera. During the Covid of course had a spike in wireless connections would you just naturally coming down a little bit right now, but the momentum on the wireless.
So beside when the Verizon business group and then you add the new opportunities everything from application on top of the network the mobile edge compute the fixed wireless access and over time also.
Opportunities outside the ILEC on vials or or at least on fiber so that that's a great opportunity for.
While and that's what we outlined already in 2019, when we decided to transform that business, you'll see that we are really well prepared for capturing those opportunities and those transformations that all enterprise small and medium companies will do to digitalize. All the time. So I think we're in a good place to them in.
We're also doing a great job.
Great Great. Thank you yeah. Thanks Frank.
All the time, we have today for questions. Thanks for joining the call and everybody be safe.
Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation and for using Verizon Conference services you may now disconnect.