Q3 2022 Verizon Communications Inc. Earnings Call
Good morning, and welcome to the Horizon third quarter 2022 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 earnings Conference call. This is Brady Connor and I'm here with our chairman and Chief Executive Officer, Hans Vestberg and.
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 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.
Discussions of factors that may affect future results is contained in verizon's filings with the SEC, which are available on our website.
This presentation contains certain non-GAAP financial measures.
Conciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the financial materials posted on our website.
Now, let's take a look at consolidated earnings for the third quarter.
In the third quarter, we reported earnings of $1.17 per share on a GAAP basis reported third quarter earnings include a pretax loss from special items of approximately $881 million.
This includes a net pretax charge of approximately $645 million, primarily related to a mark to market adjustment for our pension liabilities and the impacts of amortization of intangible assets related to tracfone and other acquisitions of $236 million.
Excluding the effects of these special items adjusted earnings per share was $1.32 in the third quarter.
With that I'll now turn the call over to Hans to take us through a recap of the third quarter.
Thank you Brady and good morning, everyone and thank you for joining US last quarter. We told you we would take actions today I'm here to share the results of those actions have delivered.
We ended the third quarter with wireless service revenue growth up 10% year over year, and 2% sequentially and adjusted it beat that grew sequentially by almost 3% to $12 $2 billion.
We talk with phone gross adds of nearly $2 6 million and about 5% year over year increase.
This includes an increase in consumer a one 3% a significant improvement from minus 11% in the second quarter.
These results are early indicators that the actions, we're taking across our business is to build momentum are gaining traction.
Of course, we're not done yet I continued to work with my team to take actions to grow revenue and to take cost out of our business to unlock the full potential of Verizon.
I'm glad to see sequential improvements based on our efforts, but theres more to do there.
Based on our momentum and plans our financial guidance for 2010 to two remains unchanged.
Throughout the call you'll hear the actions, we took and the impact they've had on our business to position Verizon for growth.
Our pricing actions in the second quarter in both our consumer and business groups helped increase our wireless service revenue postpaid phone net adds came in 8000 for the quarter with a loss from consumer offset by gains in Verizon business.
Matt will share more details with you later in the call let.
Let me turn to some of our group results.
In consumer we have started to gain traction with customers reacting positively to our new offerings and as a result increased store traffic. Our welcome plan improved customers pricing perception and contribute to the consumer phone gross adds being up year over year.
With the launch of the iPhone 14, we delivered a first of its kind Apple one unlimited bundle. The rise on cost there is no access to Apple services, all under one subscription.
Abbott remains a unique and trusted partner on their iPhone, because they recognize our network quality and high value customers in the value segment, we launched total by Verizon Redefining no contract wireless service a key step in our continued integration of Tracfone and just this week.
We introduced a prepaid wireless home Internet service on our straight talk Brown.
We continue to expand our offerings in the value segment and customers are taking notice.
This helped us generate paucity of prepaid net adds for the quarter, our first positive quarter since.
Second quarter 'twenty to 'twenty one.
For postpaid, we're focused on attracting and retaining high quality consumers in a disciplined and measured approach as we see areas of opportunity we would address them in a surgical manner just like we've done with some of our recent actions. There is more progress to make our premium strategy is working well ended the third.
Third quarter with 53% of our customers, having a five your phone and eight 1% of our base is on unlimited plans.
With a 42% uptake on premium unlimited, there's a great opportunity for step ups and we see that demand with approximately 60% of our new customers choosing premium unlimited right from the start it is clear we have a high quality customer base. So we will continue to focus on retention and winning these.
Customers.
Moving to Verizon business, we see a continued very good momentum in both fixed wireless access and mobility and I'm encouraged also by the large five D infrastructure deals were made in the quarter. These include digital transformation projects with Astellas Pharmaceuticals, Fujifilm and are continuing to work with the department of defense.
And these are just a start we recently announced unimportant agreement with the U S Department of state to modernize its communications infrastructure across embassies and other locations around the world I'm proud that we're part of choice for these global enterprises and public sector clients in.
Broadband our fixed wireless access in fire service continued to see strong demand towards the broadband net adds were 377000, a sequential growth of over 40%. All of these services are built to deliver on top of our world class network with a premium network and experience that our customers value and the demands premium price.
Our network is a core of our value proposition America relies on us and we deliver this was evidenced before during and in the aftermath of Hurricane E. R.
Our team did what we always do we ran through the crisis quickly restoring our network as needed and using our technology solutions to protect impacted areas bottom line all networking infrastructure, what's the resilient and our people delivered in the way that you have come to expect from us.
Our mission has always been to build and operate the best most reliable highest performing network.
Our use of advanced technologies, our spectrum portfolio and our expansive own fiber footprint are critical to achieving that goal.
Where we deploy our C band, we see direct correlation to customer growth on both mobility and fixed wireless access where currently covering over 160 million pulps, we'd see ban and on track to deliver 200 million within the first quarter of 'twenty 'twenty three C band usage is.
<unk> hundred 70% quarter over quarter and fixed wireless access now covers more than 40 million households, right now more than 48% of our cell sites are connected by Verizon its own fiber, we're expecting to be about 50% by year end with a majority of our five year sites already.
On our own fiber.
This not only improves network performance, but also improves our owners' economics.
At the same time, we're making efforts to take cost out of our business. We're constantly thinking about how we run our enterprise everyday to enhance our performance while delivering on our strategy.
In this spirit, we have designed a company wide cost savings program that we expect will save between $2 billion to $3 billion annually by 2025, a first step in this effort is the creation of a global service organization under the leadership of Craig's cinema.
This is one part of a larger program to leverage cross function on opportunities across the business.
Over the past two years on the unprecedented circumstances, we have learned a lot about how we deliver our services to customers Verizon Global services will help unlock significant efficiencies and reduce cost across the business.
Keeping in line with our company values and strategy, we continue to practice financial discipline, even in a competitive market and delivered solid financial performance quarter over quarter.
Verizon is in a strong position no matter economical environment with our high quality customer base diversified go to market options, including our value offering there.
The benefit from strengthening our organization through our cost savings program and the best network that just keeps getting better.
And I'll hand, it over to Matt to go deeper into our results.
Thank you Hans and good morning, everyone.
Our results from the third quarter are not yet, where we would like them to be but as you heard from Hans the actions we've taken in the past two quarters are gaining traction in the marketplace.
As a result, we saw positive developments in store traffic and consumer phone gross adds.
Further gains in broadband and a sequential improvement in our financial results.
We anticipate that we will be able to build on this momentum as we head into the fourth quarter.
Let's now walk through our results from the third quarter, beginning with an overview of our postpaid mobility results on slide seven.
Our strategy for mobility growth is to drive revenue growth by attracting and retaining high quality customers and migrating them into premium tiers pre.
Premium penetration in the consumer segment increased to approximately 42% a quarter and a sequential increase in line with prior quarters, even with the introduction of the welcome plan and the current economic backdrop.
As a result of the continued increase in premium plan penetration combined with the benefit from our admin fee increase and the impact for me is it price ups.
Consumer postpaid ARPA increased three 8% year over year.
Overall phone gross adds were up approximately 5% year over year, reflecting continued strength in business as well as the improvement in consumer gross adds.
With the impact of three Q Chang, which increased as expected as a result, what's about recent pricing actions phone net adds were 8000 for the quarter.
Business delivered 197000 postpaid phone net adds in the quarter the fifth consecutive quarter exceeding 150000.
The results were again balanced across the three customer groups with enterprise delivering their best ever phone net add performance in SMB and public sector, both saying double digit phone gross add growth.
On the consumer side postpaid phone gross adds about one 3% year over year, a notable sequential improvement from an 11% decline in Q2.
The launch of the wall compliant in the Apple one unlimited plan helped to generate more store traffic, while providing another avenue to compete outside of promotional spend.
We have now seen year over year improvement in phone gross add performance for four consecutive months through September and anticipate another low single digit year over year growth performance in the fourth quarter.
As expected the pricing actions, we took around administrative fees and metered plans led to an increase in disconnects.
With certain price ups being phased in throughout the third quarter, we would anticipate some disconnect pressure to carryover into Q4.
Taken together, we currently expect the gross add and disconnect performance to result in positive consume a phone net adds in the fourth quarter.
Let's now discuss broadband performance on slide eight.
Total broadband net adds with 377000 in the quarter, reflecting a strong demand for reliable and high value broadband offerings.
Fixed wireless access momentum continued throughout the third quarter.
We added 342000 net adds up from 256000, and too cute, reflecting increased demand across business and consumers.
More than 75% of our consumer net adds are coming from urban and suburban locations with data usage continues to mirror our files customers.
We anticipate further share gains in this space as we continue to expand our household coverage and begin to realize benefits from our offering in the prepaid segment.
We also added 61000 files Internet net adds during the third quarter, reflecting improved gross add performance from Q2 as well as continued strong retention levels.
Our ability to grow styles in spite of some secular headwinds due to lower move activity shows that the quality value and reliability that fire.
<unk> offers continues to resonate strongly with customers.
We further expanded our nationwide broadband opportunity by adding more fixed wireless households, and businesses covered.
As well as growing our files open for sale within our ILEC footprint.
Total fixed wireless household coverage surpassed $40 million in the quarter, including over 30 million covered by <unk> Ultra wideband.
Files Open Society is now at $16 9 million a year to date increase of 410000, and we remain on track to hit our full year target of 550000.
Now, let's talk about the value market on slide nine.
Our work to integrate Tracfone continues highlighted by the launch of our new prepaid brand total by Verizon late in the quarter as well as the launch of fixed wireless for our prepaid customers earlier. This month for the quarter. We delivered positive prepaid net adds of 39000, which excludes the base adjustment of our hunt.
Third in 2000, primarily relating to a competitor has three G networks shut them.
We saw significant improvement in Tracfone is performance, which had a positive net adds for the first time since Q1 2021.
With our current momentum combined with the launch of our new brand and fixed wireless we're excited about our positioning and ability to further grow and the value market, bringing more connectivity and benefits to customers in this space.
Now, let's move to the consolidated financial results on Slide 10.
On a consolidated basis total revenue was up 4.0% year over year as wireless service revenue growth and higher wireless equipment revenue more than offset wireline declines and the net impact of last year's M&A activity.
As a reminder, the third quarter last year only had two months of Verizon media activity before its divestiture.
Total wireless service revenue growth was up 10.0% from the prior year, primarily driven by our ownership of Tracfone continued effectiveness of our premium unlimited strategy and business volumes.
The core business is strong as wireless service revenue, excluding O tracfone activities grew above 3%.
Additionally, we saw a benefit from the pricing actions taken earlier in the year, which we previously said would generate roughly $1 billion across Q3 and Q4.
These actions helped to generate a sequential increase of $494 million and wireless service and other revenue and an increase of $345 million of adjusted EBITDA as total adjusted EBITDA came in at $12 $2 billion for the quarter.
We continue to feel the pressures of higher device subsidies and promotional spending despite taken steps throughout Q3 to be disciplined.
Including the launch of the welcome plan, which comes at a device subsidy.
Inflationary pressures remain elevated both from a year over year and sequential point of view with the increase from Q2, primarily coming from higher electricity rates.
Expectations for full year 2022 impacts of inflation remain consistent with comments during our Q2 earnings call.
To further mitigate inflation impacts we have started a new cost savings program that we expect will provide a reduction in annual costs of $2 billion to $3 billion by 2025.
This program will be focused on several areas within the business, including digitalization efforts to enhance the customer experience and streamlining internal operations through automation and process enhancements.
While parts of this will benefit the bottom line a portion of these savings will be reinvested into the business to help accelerate opportunities.
As Brady noted adjusted EPS for the third quarter was $1 32.
In addition to the impact from EBITDA. This reflects sequential precious and interest expense due to rate increases and a reduction in other income associated with noncash changes to pension and OPEC.
Based on year to date interest rate increases and market expectations for additional federal reserve actions. This year, we now estimate cash interest expense of 2022 to be about $400 million higher than our expectation coming into the year.
We anticipate this pressure will continue into next year, given the full year impact from interest rate increases, providing an EPS headwind in 2023.
Likewise, the impact from noncash pension cost due to higher interest rates and lower return on assets. This year is expected to put additional pressure on below the line items for 2023.
Now, let's take a look at our third quarter consumer financial results.
Total consumer revenue for the quarter grew 10, 8% year over year, driven by wireless service revenue growth of 11.0% as well as higher equipment revenue.
Wireless service revenue increases were the result of the inclusion of Tracfone KOL wireless service revenue growth and the impact of the pricing actions.
Total <unk> revenue was up versus the same period, a year ago by <unk>, 3% as growth from our Internet base offset the revenue impact of a 9% year over year decline in video subscribers.
Finally content costs have also dropped resulting in an improved margin profile that we expect will continue to benefit from further shifts away from video.
Consumer EBITDA was $10 $6 billion up 0.7% compared to the same period last year.
The pricing actions as well as the full inclusion of Tracfone results more than offset the pressures from higher promotional activity and the impact of inflation.
Next let's take a closer look at the business financial results on slide 12.
The business segments wireless results remained strong and three Q. The wireline service revenue declines continue due to ongoing secular headwinds.
Wireless service revenue growth of five 7% was up from 3.0% last quarter 80 of our pricing actions as well as continued growth in our customer base.
Wireline revenue declined by six 7% versus prior year.
Operating trends are consistent with prior quarters, though in Q3, we saw a sequential increase in USF revenue due to higher rates.
Business EBITDA was $1 $8 billion for the quarter down six 7% from the prior year.
In addition to pressure from wireline.
We experienced higher growth related costs as water sales volumes are up by 15% from the prior year.
Now, let's move on to slide 13, and the cash flow summary.
Cash flow from operating activities for the first three quarters of 2022 totaled $28 $2 billion compared with $31.2 billion in the prior year period as working capital impacts from a higher device Activations and increased inventory levels continue as we expected.
Capital spending for the first three quarters of the year totaled $15 $8 billion, an increase of $2.0 billion compared to last year.
<unk> spending was $4 $5 billion for the first nine months of the year.
The net result of cash flow from operations and capital spending is free cash flow of $12 $4 billion for the first three quarters of the year.
We exited the quarter with $129 $3 billion of net unsecured debt a sequential improvement of $1 $3 billion.
<unk> and our net unsecured debt to adjusted EBITDA ratio of two seven times.
As Hans mentioned earlier, although unsecured bond maturities over the remainder of this year and next and strong operational cash flow generation puts our balance sheet in a strong position.
Payment trends remained at or better than pre COVID-19 levels and the quality of our postpaid base has never been better.
As evidenced by recent asset backed securities perspective filings.
As we look at Q3 results, we delivered a sequential revenue and EBITDA growth that we had anticipated from the actions taken into Q.
Our guidance for 2022 remains unchanged.
We are building momentum and remain confident that our strategy will deliver strong cash flow growth into the future.
It is this confidence combined with the health of our balance sheet.
They want us to recently increase our dividend for the 16th consecutive year.
We recognize the importance of the dividend to our shareholders and we intend to continue to put the board in a position to approve annual increases.
I will now turn the call back to Hans for concluding comments before we open up to questions. Thank you.
Thank you Matt.
The actions, we have taken all showing progress, but there's more work to be done our priority is to the end of the year and into 'twenty, two 'twenty three or a straightforward continue our traction in consumer wireless through the holiday season and into 'twenty two 'twenty three.
Maintaining and grow our momentum in fixed wireless access and business wireless.
Implement the initial framework of a cross functional efficiency program.
And improve our working capital efficiencies and finally continue our measured and strategic approach to the market with financial discipline and increased momentum for the quarters to come.
While there's work to be done I'm confident that we are well positioned to deliver so thank you now we are ready for your questions right. It back to 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.
Torture named clearly when prompted your name is required to introduce your question too.
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One moment for our first question.
Our first question will come from John Hodulik of UBS, Sir Your line is open.
Great. Thanks, guys.
Two quick ones if I can first I know you guys don't.
Often you hold off on giving guidance to the fourth quarter call but.
It sounds like you've got a number of sort of below the line headwinds to growth next year, but what.
What's the prognosis for EBITDA growth in 'twenty three given all the moving parts in all of the cost savings have come through.
And then secondly on postpaid phone churn.
Kicked up just looking for clarification on Matt's comment that it's going to stay elevated you know how do you expect that to progress as we as we move through to 'twenty.
'twenty three and what do you think is really driving it sounds like you. Obviously you had the price increase but are just fundamentally are the prices at Verizon just just too high at this point given that what we're seeing from the macro environment and given that something approaching network parity that we have in the market today.
Thank you John I can start and Matt will filling them and when it comes to our the quarter on the gross adds and the churn I think what happened is that we came out from the second quarter weather.
Soft quarter on the consumer side when it comes to gross adds we we added a couple of new products all the way from the welcome plan to the price adjustments and of course, the outcome we were expecting.
We continue to grow both ARPA and Baidu wallet.
Our wireless service revenue and as you heard we grew the service revenue with 3.5% if we exclude tracfone about 10 with Tracfone. So that that clearly is working for us and we will continue to do that but we will do it in certain segments. When we see weakness I mean, we also saw very strong a continuation in the premiums.
Segments, where we continue to have now more than 81% of our oh consumers on unlimited them.
And 42% on unlimited premium so we that there is going well. So we just need to find those areas and we will continue to do that but I think that we have a very competitive pricing in the market. We are that would values like the one plan with Apple right now.
Unlimited is.
And we have more to come so it's for us it's a grind needs to see that we do the right thing to segment and of course, we have the largest consumer base in the market. So we just need to see that we're doing this in the right way and ultimately our goal is to continue to grow our beat them and you saw this quarter. We grew our EBITDA was almost 3% and that's what we're doing and we keep.
Our guidance for the full year. So we that's our job and then on top of them that would take out costs. So I think all in all that's what we're working with constantly here and it's a big ship we're moving.
This quarter, we saw all the actions we took in the second quarter, having having impact positive impact that doesn't mean, we're done we think we can do more and we'll have more to do so that that's that's sort of the some real worry I think we are in and how we're executing and it will continue to execute in this in this quarter and the quarters to come.
Yeah, Thanks, Hans and as John said, maybe the second part of your question first around churn and is that pricing in the right place I'd point you to the fact that our gross adds were up almost 5% on a year over year basis in <unk>. So obviously.
Offerings continue to resonate with customers, obviously built on having the best network and our consumers continue to see the the value of that so continue to believe that the gross that traveling will be there and we'll get our fair share on the churn side to just put it in perspective, the pricing actions we took.
Across both the metered plans end of fees.
More than 75 million phone customers and so the uptick in churn that we saw in the quarter was highly expected we kind of mentioned that 90 days ago do we expect it to happen, but the financial benefits came through as well, which was exactly as we expected and was the right to the right approach to take so.
Obviously the impact of those changes will mitigate as we go forward here and we'll continue to make sure that our churn is where it needs to be to ensure the right results in terms of the first part of your question you're right we will speak to.
More specifically about 'twenty 'twenty three on the next call. We're obviously in the middle of our in the middle of that planning cycle right now, but you should certainly expect us to build on the momentum that you saw us deliver in the third quarter you saw that our wireless service revenue up sequentially, 2% as Hans mentioned EBITDAR.
Sequentially about 3% that gives us a good platform to build on here and for Cube and then as we head into 'twenty three and then you know you mentioned below the line there'll be some pressures next year I'm not going to quantify those now but as you think about the specifics of those some of those we've spoken to all of you about.
Before when we came out of the C band auction, we said that we would expect depreciation.
The increase in capitalized interest to reduce as we deployed C band sites and put them on that and really having kind of significant year over year impacts in 'twenty three 'twenty four so that's in line with what we've been talking about for a while and then you lay on top of that obviously interest rates are higher.
And we'll have a full year impact of that next year and that impacts both the interest expense line, but also other noncash below the line items.
Around pension and OPEC, where the.
Imputed interest cost.
M will be high up with the higher macro rates and then also starting the year with lower assets because of the performance. This year. So we'll obviously quantify those things, but you know as we think about 'twenty three we had good momentum coming out to three Q on a sequential basis look to build on that and <unk> continue to generate significant.
The amounts of cash flow that puts us in a position to be successful going forward.
Great. Thanks for all the details guys Yep, Thanks, John Brad we're ready for the next question.
The next question comes from Brett Feldman of Goldman Sachs. Your line is open Sir.
Yeah. Thank you for taking the question, it's about your sort of emerging nationwide broadband strategies. I think you mentioned that you can now offer the fixed wireless product to over 40 million potential customers I think from your analyst day last year. The ultimate target is $64 million with 50 of that being residential and the recipe in business. You also and you made it.
About this youre deploying a lot of fiber primarily split your mobile network on a national basis.
So the real question is you know now that you have seen the fixed wireless product perform and what it does.
On the network side of things how are you thinking about that target is essentially reaching 64 million homes do you think it could potentially be greater and then yesterday AT&T talked.
<unk> talked about evaluating opportunities to do more of a fiber to the home strategy out of region I imagine leveraging some of the fiber they're deploying in their wireless network, considering how expansive your national fiber footprint is becoming is that something you're evaluating as well. Thank you.
Thank you Brett.
And it comes so our national broadband strategy first of all I think it's working really good for US you saw in the quarter, adding 377000 are the fires footprint continued to be extremely high quality customers and continued to grow women continue to expand that footprint.
Outside that we will of course have a very high focus on fixed wireless access because the speed the market because the demand in the market right. Now he is high for broadband and of course, we haven't had a disruptive model where he takes a low single digits me needs to actually get broadband at home and it's a totally different products when it comes to fixed wireless access so we capture.
The market as soon as we can right now and you see on the growth rates are that.
It is happening both the consumer asks for business, but as you rightfully said, we are deploying the network as we speak and we are you'll see into certain markets given on the C band, we would have more and more markets and and as we stated in the in the states in the in the remarks I mean, we all know it covering 40 million households, with the.
With our fixed wireless access so we will continue to expand that and we have plans in execution, it's working well the quality is improving the customer satisfaction is really high on fixed wireless access and of course.
Or are there are the competition in these areas.
Or of course, not equally equally good customer satisfaction, so no I think.
We think we're confident that this is a good strategy to pause now and when it comes to our fiber you're absolutely right. We have done enormously investment in fiber, we want owners' economics on a network and we are getting that way because we're the majority of all the 50 sites have our own fiber and we're not passing 50% by year end on all our sites some side.
Never need fiber, so it's not like hundreds of scientists and gold, but in order to have a good experience for our customers. That's what we do then we're going to see opportunities, especially for <unk>.
The business side too to use that fiber footprint outside of I like to see that some customers can get the better our weekend substitute a third party fiber that we are getting from others, but clearly focus on fiber in defiance footprint fixed voice access going as fast as we can oh.
So yeah.
We're confident about our strategy and it's working we have talked about for several years, we come out with new products, that's going to be multi.
From that is going to handle everything from four D. C band millimeter wave sort of resilience and performance and call. It on the product is even getting better so.
Yeah, that's the way we are.
And Brett I'll, just add one thing you mentioned fiber to the home of course, our files team had another good quarter has 61000 net.
Net adds despite a low move or environment. So as Hans said, we're very focused on doing broadband through fixed wireless access, but all files business continues to perform very strongly and add customers to that network and we continue to build more more open for sale in our files footprint and just as a.
Point to note.
<unk> was a milestone for files in terms of going over 7 million connections.
With for for that business. So it continues to perform very strongly and then we supplemented with fixed wireless access around the rest of the country.
Great.
Yeah, Thanks, Brett Brad we're ready for the next question.
Thank you. The next question comes from Simon Flannery of Morgan Stanley . Your line is open Sir great.
Great. Thank you. Good morning quick one for you on any changes to the 'twenty 'twenty three Capex guidance you gave out for that significant drop from this year and then more broadly back in March you talked about a clear path to 4% plus revenue growth in 2024 and beyond.
Could you maybe update us on how that looks how the kind of things like mobile edge compute b to b applications are scaling and watch what you can do to get there and give us more visibility around that.
I can start on the enterprise side would be mobile edge compute, which we are and and the private <unk> networks as I said, a couple of times before right now our we had three different sort of use cases on the edge computing one what's private networks in other words public mobile edge compute and a third was the.
The private Italian mobile edge compute we see clearly a very strong demand on the private <unk> networks, which is the prelude to go into all others and the family is strong and we talked about a couple of examples this quarter, which we have gained and it's.
It's a normal typical enterprise would be to be cycle, where you start with one a proof of concept Daniel started deploying it and then you roll it out so that that's going to continue to happen over the years is of course are not going to be any significant revenues in the short term, but over time, we're building a totally new opportunity.
For sampling and his team are to be with the customers.
In larger sort of turnkey projects to reform and and and transform their digital assets for enterprises. So we are really still really confident this is a good strategy for us and needs. It again, we're building on the same network. We're building epic wants and we have seven different use cases, where the mobility now.
Because a lot of taxes both are growing.
In our high speed and now we're adding the mobile edge compute that it's starting to get yeah. It gets off to a good start there, especially with private <unk> networks and then it will move into mobile edge compute so that's how I see that market continue for us yeah.
Simon So your first question around Capex are obviously won't be more specific on 'twenty three guidance in January but nothing has changed around our view of Capex. So I'm very much in line and that's because of the great work. The team has done this year I mean, we said we'd be at 100 and Sue.
Two 5 million Pops covered by the end of the year.
You heard Hans say on it already at more than 160 through three Q not only will we be ahead of the 175 will be at a 200 at some point during the first quarter. So phenomenal speed that the team has built a network there that means a.
I couldn't chunk of the 10 billion Capex for for C band.
<unk> will have been copper between last year and this year. So it'll just be a small.
Small stub piece of that life next year, and then we'll be at those be IU levels will be smoking.
To all of you about numerous times in terms of the longer term revenue growth I mean, obviously, we'll come back to that but certainly encouraged by.
What we saw in the third quarter as I mentioned in my prepared remarks wireless service revenue growth. When you are obviously the year over year, 10% number has the noise in there from closing on the Tracfone acquisition in November of last year, but mentioned, even if you ignore all of the track revenues up more than 3%.
Year over year, and so we're building.
The right momentum that obviously will have significantly more customers on F. W. A that will be billing next year than we did this year Hans mentioned the positive momentum around our five key private networks and Mac. So we'll.
We'll get 23 plan locked down here and then we'll be in a position to talk about longer term, where we see things as well, but certainly continue into built on the momentum that we've seen.
In the last quarter.
Thanks, Scott Yeah, Thanks, Simon Brad we're ready for the next question.
Thank you. The next question comes from Phil Cusick of J P. Morgan Your line is open.
Hi, guys. Thank you first a follow up please on John's question, you're still losing accounts in consumer despite pushing pretty hard this quarter. What did you see an impact from the introduction of unlimited plan and how did that contribute to your gross ads improvement. This quarter and then second can you give us any any.
The idea of what's going on in business Youre seeing really strong as AT&T as well and T. Mobile staying the same thing is this second lines being bought by businesses for their employees.
What type of usage do you see in those lines.
Just give us an idea of what's going on in the industry. Thanks very much.
I can start on the business side, we have seen strong business.
Growth on the wireless side 4445 consecutive quarters, so clearly.
What we see is that both from the government from large enterprise and small and medium businesses are they rely on the on high performing networks is extremely important and that's what we're giving them and and that's why we're growing I mean, we have had a really good run on it and the team is doing a great job number this quarter was 197000 net full now.
Dogs in the in the BC segment and as Matt said, it's cross over all the three segments government.
Enterprise and small and medium businesses so.
Clearly we have a good transformation there with our customers and of course, adding to that we have a great.
Sales force out there every day with all these accounts because it's it's about the network and it's about to go to market. Then we have the strongest in both so we feel really good about that.
Yeah, and just building on that maybe a little bit I'm, sorry, Hans if I can just go ahead go ahead Phil.
I was just wanted to follow up on <unk>.
The question was more.
What are people using this for the.
Industry penetration is very high everybody's looking at around trying to figure out where were going are these do you think these are our second lines being bought or maybe sort of high security measures.
What's the usage look on on the growing lines in business versus maybe the new lines and consumer were just trying to get an idea of what's driving the strength and it's not just you it's across the board no. It's the same normal it's a normal we see more of course as any company would go more mobile it's not like with.
And secondary lines or something like that.
Remember, we if it's sort of an Iot line etcetera. That's all tied this we're talking about phone net adds here. So this is normal lines that is coming into our customers for a normal usage.
We haven't seen any difference in that compared to previous quarter that is something something strange there no. It's actually normal lines coming in that customers are transforming more to mobility.
And Phil just maybe building on that a little bit certainly the continued strong employment position feeds into this that's very much supports it but look I think the other thing as you think about business to think about is the depth of the relationships, we have with business customers over many years from both.
Wireless and legacy wireline relationships and the quality of the network continues to matter to our business customers and our team have been very effective at selling into those customers, but you know.
If you're a if the suggestion.
From anything that you've been hearing a these are secondary lines with low usage on it that couldn't be more further from the truth. These are absolutely primary lines, we see it in the usage.
Certainly as businesses continue to more and more people in mobile.
And we see that but these are absolutely prime reuse lines and we know that from the usage, we see on there in terms of on the consumer side on accounts.
Certainly that that trend.
It's something that continued into three Q and but you also saw the positive momentum from a gross adds standpoint and that feeds through into the the account trend also are moving at a better line and it was and as we said in the prepared remarks, we expect for Q to have positive phone.
It adds and that should show up in the trends on the account side as well so.
The overall gross adds were up 5% and they were up on a year over year basis consumer. So there's a lot of good things going on and then within our base. We just have to keep reminding people of the value of the team is doing an outstanding job there and they've got more to bring to the market here as we go forward.
Any idea of what the contribution from welcome unlimited wasn't out thank you.
It just makes you you got to think about the contribution from welcoming two ways. One obviously in terms of the number of ads are the people who signed up for but more importantly, the number of additional visits to the stores that had shrunk because certainly some people who came in to welcome but it also gave us the opportunity to talk to them.
More customers coming to the stores about all of our plants. So we'd have a good number of customers that came in because it would seem to welcome our pricing.
But then actually purchased one about a mix and match price plans as well so.
Don't really have a specific breakout there for you, but definitely a contributor to the increase in store traffic and the increase in gross adds.
Great. Thank you yeah, Thanks, Phil 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 Sir.
Hey, guys. Thanks, so much for taking the questions I guess, two if I could I'd like to ask a corollary to Phil's question, there which is.
Obviously, we had like negative 11% gross adds last quarter positive, 1% consumer this quarter wireless gross adds coming from I think you highlighted that you felt there was a hole in the portfolio with respect to be Y O D.
I would suggest that the B y O D concentrated players maybe the cable players are maybe ones that are giving you market share or maybe you've seen something else in the porting ratios that have changed the game or be interested in where you think this saga.
Shift is coming from and then the second piece Matt.
Your your exposure on the balance sheet to variable rates rising rates is not because you have floating rate debt per se, but because you took actions in terms of swaps and hedges to to create that variable rate exposure theoretically you could.
You could buy your way out of that if you felt that was an economic way to go arguably you could maybe take those losses through your adjusted EPS you can affect your earnings per share trajectory is there any part of you that thinks that there's an economic opportunity that might present itself to two <unk>.
First gear and some of that variable rate exposure. Thanks.
Thank you.
A couple of things what drove the gross adds on my first of all I think as Matt said the welcome plan drove because that was a segment that we were ever were softer in the first and second quarter and that's why we addressed it and that was probably the quickest turnaround will happen down there to bring out a new a new plan.
Dedicated and nationwide.
And that should be a reflection of how we plan to work with.
We will be very agile when we quickly move into segments, where we see softness in our consumer base and.
I have to what I've seen so far but also the marketing work because if you think about the growth we had both in gross adds but also as Matt said when it comes to store visits it was up more than double digit in the quarter compared to the second quarter.
So.
All of that to get their work and that's what we need to continue to work and see if there are other weaknesses in the consumer portfolio remember now we are going all the way from the premium down to the the lowest and most cost efficient plants on the prepaid and the work. We're doing we have integrated that consumer group right now and we.
Into that we're doing the right things for every segment and see that we had the rightful francois customers that might be that we're aggressive in certain segments and not in others and that's sort of weibo com with our size right. Now we can do that and Oh I was I was happy with seeing what happened in the second quarter because already in the third quarter.
With some of the action, we're taking but we're not finished yet we need to do more of these we need to be more surgical we need to attack the areas. When we see weakness, but that was growing the gross adds in the quarter clearly.
Yeah, Hey on the question around interest rates so.
We've absolutely had a targeted them.
Targeted rates are.
Effective variable to fixed and that served us very well.
Continues to serve us very well over the course of the economic cycle, and we think that creates value over the course of the cycle for the company and obviously shareholders as well.
And as you mentioned, Dave obviously this year has seen significant increase there and so some of those hedges have obviously moved around him value I couldn't be happier with what the treasury team has done not just this year, but over many years now to not just manage their food debt profile, but also the interest rate expense you see that.
In the income statement over the past.
Few years, where even as our debt has gone up to pay for the C band acquisition and so now our total interest expense costs has actually remained relatively flat. So we'll continue to manage the balance sheet, there and as you mentioned that there's opportunities to create incremental value I think our track record would would tell you.
Strongly that you should expect us to be doing everything taking full advantage of those.
Thanks, guys. Thanks, Dave Brad we're ready for the next question. Thank.
Thank you. The next question comes from Michael Rollins of Citigroup. Your line is open.
Thanks, and good morning.
When you look across the strategic products postpaid phones for consumer and business insights broadband, what's the risk that customers trade down in rate plan curious if the U S goes into recession.
And then pivoting over to the value segment has Verizon began to migrate any prepaid customers to postpaid base and can you size that future opportunity and timing.
It is possible migration and then just one more if I could on prepaid is there.
Pete on the size and timing of savings, especially for roaming when you think about the tracks on integration.
Okay, let.
Let me start my everybody first of all on a as.
As we said earlier I mean, the welcome plan worked very well for us and we didn't seen many of our customers trading down actually it was more about a softness in the marketplace, there and that's where we actually gain a gain success and then but on the other half with so many of our customers.
Customers coming into the store and then we are.
After our conversation of course, we saw them actually doing it step up and then going for another plan. So it's actually worked we didn't see that that step down so you've seen the market has happened so far away I think we're segmenting it up with the with the values were having each and every segment so but if they would do it all the time given the economic situation we would be.
Better prepared than anybody else I mean, we are actually addressing all the segments of the market. So we can work with that when it comes to the prepaid to postpaid migration and that is Oh of course, one of the pillars in in an in in our strategy to see that our customers can can can do that and part of our acquisition of <unk>.
<unk> to see that we can offer to customers and that will take some work.
What I've said before that.
Technically meaning that you cannot eat more easily at work in between prepaid and postpaid that would take some time before it finished but already today of course, we have a collaboration between our groups. As this is sort of under one roof, our the whole value and premium segments. So I think that that's what we're going to do but that's.
Of course, an opportunity for us over time to have more of that but already right. Now we're seeing good sign on our value segment that we start growing in the third quarter and what you have to have the new products, including total wireless which is a higher end or the or the value market as well as adding now our fixed wireless access.
Due to to some of the brands. So there's much more to do and we're encouraged with what I've seen so far about the potential and that was the reason we acquired Tracfone because we saw these potential to play in all the consumer segments, and adding product in different ways and scaling.
Oh platforms. The more we can scale the platforms the network and our products are the more efficient we're going to be on the return on capital invested a couple of fallout was there Mike so the risk of trading down we've obviously seen a number of different economic cycles during.
The life of the wireless business and we don't historically see significant amounts of trade down during a macro downturn. So I don't expect anything different.
Again, because the value that people place I'll make connectivity products, whether that's broadband or wireless is higher than ever. So we'll obviously monitor it closely but history would suggest the risk of that is is not are not that high and then your last question around our integration on roaming we should largely have.
The roaming.
Integration all of the customers over onto the Verizon network. During 2023, we havent quantified the benefit of that but obviously is significant.
But that will be a that should be in the financials by the end of next year.
Thanks, very much thanks, Mike Brad we're ready for the next question.
The next question comes from Tim Horan of Oppenheimer. Your line is open Sir.
Thank you so C band buildups going faster and it sounds like better than expected. So Matt can you talk about when you think you will largely be done with that spending and maybe just the ultimate.
Thinking on the ultimate our pops covered and and capacity that you're adding any color there would be great.
I can start and that's where it will come in there as well, but when it comes to receive on spending if you will.
Remember, we said, we're going to do an additional 10 billion AR.
On the Capex.
The original down there, but you have seen them more or less what we're guiding so it's going to be some portion less left for the next year on capex, but that's a smaller part and then Dan is going to be are you because that went down all our initial what's happening after that because of course, we're getting a much more spectrum to the sites and we get some more markets, but then we're down to be a U S.
We have always been building capacity and network on 43 D. Now, we'll do it in five years with respect and we have so feel good about that situation and how were had been doing it and this was part of the strategy. We laid out for the network already 2017 in order to draw the benefit though the unified.
Network with a strong social edge capability with different type of access technologies and now of course with a C band, we're adding that strength so.
We're going to have passed the 200 million Pops in the in the first quarter 'twenty three and then we will continue to deploy our absolutely get things specced more spectrum and still today. We're using mainly 60 megahertz are there are some places where they've started a trial out 100 megahertz, but as you know we have 160.
Megahertz nationwide and in some cases, we're too long to make it so.
<unk> much more spectrum and capacity, but the guys have been building smart so when the spectrum comps, we turn it up is not going out to decide to again, so we're ready for that.
So Tim just on the exactly what Hans said on the timing if you think about it we're still spending on the LTE network today.
And that's obviously 10 plus years from when we launch so that's because the usage on the network continues to grow the utility people get from it continues to grow and that's why you see all of our customer base are expanding as a result, but as you think about connecting the dots here.
As we said, we'll be close to 200 million, we crossed 200 million pumps in the first quarter of next year. The 10 billion will largely be spent we said there'd be a stub leftover to good next year, so that kind of overlaps there. So think about it from the standpoint of 10 billion.
Care of covering the first roughly 200 million pops than the rest of it goes into be a U and you create space and B are you because those 200 million Pops now called C band coverage, we said over half of our bases of five G compatible device in their hands and so the the the.
The usage growth in those areas is going on C. Band that means we don't have to continue spending on LTE and those markets are and then combined with other programs that are coming to an end on the peak spend such as one fiber intelligent edge network, that's the space it for.
The C band continued build both from a coverage and a capacity standpoint to be in to be a new level of spend just like as we continue to expand the LTE network for many years. It was part of the P. A new level of spend so absolutely peak level. This year Capex comes down next year, and then I would expect even further.
In 'twenty four is the 10 billions completely gone as we spoke about earlier this year and.
That obviously has a positive impact on free cash flow and the the are the decisions, we'll be able to have in front of us as a result of that going forward. So couldn't be happier with the pace at which the team has built it out and spend that money unbelievable work the teams down there and it puts us in a great place to reduce capex going forward so any update.
On the ultimate amount of coverage that you.
We'll have our pops covered in rough timing on that I think Karl has said pretty clearly that you should expect what you get for G. Today, you should be expecting to get five to you in the future as we as we continue to build out our C band spectrum is nationwide.
Every market every state so where he was going to close complete that and see that we're obviously matter.
As a as a fortinet to what guests might say good. Thank you yeah. Thanks, Tim Brown.
Brad we're ready for next question.
The next question comes from Craig Moffett of Moffett Nathanson. Your line is open hi.
Hi, Thank you.
Hans I Wonder if you could talk about converging a little bit and then particularly on the consumer side of your business.
There's certainly a broad sense that.
That the industry is moving toward converged offerings of wireless and home Internet. How do you think about that and how do you think about it differently in areas, where you have by us and where you have fixed wireless broadband is that in some ways, what's driving the <unk>.
Ireland broadband.
Deployment or do you see them as still somewhat two separate services that are trying to fill two separate need.
Hey, Greg I think that first of all we have seen some early steps of convergence in the market, where more mobility and home is going together are.
Of course ultimately the customers will define is that the best mode that I think we're in a great position.
For for obvious reasons, where we deploy our fixed but remember when we deploy our network on the C band, we start in urban and suburban and that's of course also where the fixed wireless access opportunity arises for them the combination of fixing and home and mobile is emerging there. So we're going to play on that.
Scene, we have offerings on that in the market and also working with our <unk> footprint equally much that we have the optionality and the customers will decide if that is a good way forward I think we are in a very strong position, we have owners economics, when all our home broadband and all our mobility and be able to see that.
Can follow the market and it goes back a little bit what I said before we need to badger and be surgical in different segments. If we see that for example, convergent is happening in certain segments, we quickly come up and offering them do that and that's what the team is working with constant there right now and if that is a trend going there and it's just accentuated.
Are we going to be super well positioned for that if it's not we're also super position for keeping it separate are we going to see that the market, we're going to drive the market. We think is a strength for us that we have owner's economics on both mobile and broadband so we will drive it where we see a good traction on it and as you have seen already we have already all offerings out there and we'll continue to do.
Do so.
Thanks, Craig.
Operator, Brad we have time for one last question.
Thank you your last question will come from Frank Louthan of Raymond James Your line is open great.
Great. Thank you what are the largest factors impacting your churn in your base right now and it kind of after we get through this bump from the pricing action, what do you need to address to get the churn back down and how soon can we see those tactics begin to work.
I think when it comes to the consumer shown as Matt explained the vast minority in the third quarter was coming from the price adjustments, we did which was a deliberate decision we took in the second quarter.
Most of that I expected that most of the larger piece of it are in China, and as Matt said before all our job right. Now is to continue to drive this downward trend and see that our that is evaporating out there we'll have some leakage into the into October from it because given how the.
Price adjustments came out in the market.
Yeah, just trying to build on that a little bit so absolutely we expected to see that increase.
But it was certainly a good.
A good trade for us because it drove the gross that increase that we spoke about earlier it was that drove a 2% sequential increase in service revenue and 3% in EBITDA. So we'll walk through the bubble from that as we go forward, but obviously the actions produce the type of results that we wanted a we'll expect to get back to more normal levels.
Going forward, we constantly have to come.
Communicate to our base of customers the value of being on the Verizon network.
And that's something that we got many years of doing as we just spoke about a couple of questions ago, the quality of that network with.
With the C band buildup is expanding our reach.
Rapidly and we have the opportunity to continue to demonstrate to customers the premium service they get on Verizon.
And as we do that I'm very confident that we'll get back to the levels. We would expect it to be and combined with the improved gross add performance, we'll see that show up in the financials and more importantly, and strong cash flow from the business. So really happy with the sequential trajectory we have.
We need to keep building on that as we go forward here, that's what the team's focused on.
Alright, great. Thank you very much yeah. Thanks, right Brad that's all the time, we have today.
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.