Verizon Communications Inc (VZ) — Q3 2021 Earnings Call Transcript

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 Matt Ellis, our Chief Financial Officer. As a reminder, our earnings release, financial and operating information, and the presentation slides are available on our Investor Relations website. A replay and transcript of this call will also be made available on our website. Before we get started, I'd like to draw your attention to our Safe Harbor statement on Slide 2. Information in this presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Discussion of factors that may affect future results is contained in Verizon's filings with the SEC, 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 3.45 gigahertz spectrum auction, 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. In 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 million and a net pre-tax 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 these special 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 third quarter.

Thank you, Brady, 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 3.9% year-over-year with earnings growth. This was supported by strong net additions in wireless and broadband, which both translated to bottom line 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 on all five vectors of growth. We have more paths to grow than anybody else and we're confident with our growth targets throughout the years based on our third quarter and continued momentum into the fourth quarter. As evidence, we're updating financial guidance for the full year. We now expect total wireless service revenue growth of around 4%, which is on the high end of our prior guidance, and adjusted EPS of $5.35 to $5.40, up from $5.25 to $5.35. We remain on track to achieve our targeted CapEx levels in 2021, assuming no further disruption in the supply chain. Our team is working diligently and doing fantastic work with vendors and suppliers to ensure we have adequate equipment to meet our C-Band build and that we 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 by since I joined Verizon. And in times like this, it matters. Let's talk about business. We continue to provide the best-in-class experience across the board. On the network front, third parties continue to recognize us as the best network experience, including RootMetrics for the 16th consecutive time and J.D. Power for the 27th 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 5G-capable device. This is tracking well ahead of the 4G adoption, as I've said before. For context, 12 months after the 4G launch, 10% of the devices were on 4G. Less than 12 months after 5G DSS launched, more than double that were on 5G devices and it's growing at a rapid pace. These combined with our millimeter-wave strategy is an important combination and that is paying off. In the third quarter, the total millimeter wave usage more than doubled sequentially. We're doing more gigabit of usage 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 usage on 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 the business segment, we continue to add wireless subscribers and take broadband share in our ILEC footprint with Fios. Finally, we delivered significant value creation and strategy refinement with the sale of the Verizon Media Group in September, the pending TracFone acquisition, and also the issuance of our third green bond, which is a vital step towards our net zero goal in 2035. All this was accomplished in tandem with strong quarterly results. When it comes to financials, we're on track to meet and exceed all of our 2021 guidance. We expect to have a strong finish to the year as we approach the launch of C-Band. We continue to deliver excellent revenue performance in wireless service and within Fios. We have a diversified path for revenue growth with all five vectors contributing. EBITDA was up 3.3% year-over-year. On an 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 dividend, which we did for the 15th consecutive year. Matt and his team are working diligently on our debt reduction. As we said last quarter, our guidance remains broad-based and across all our five vectors of growth. Consumer segment EBITDA increased by 2%, driven by positive trends in customer acquisition, premium plan adoption, products and services, and content, as well as prepaid and reseller growth. The service revenue momentum in the third quarter was driven by continued execution of our migration strategy to higher-valued price plans, as well as high-quality net adds. Our growth is more than that. Much of our long-term growth is in fixed wireless access and mobile edge compute. Our strategy is becoming a national broadband provider with the best access to the tech for our customers, which includes Fios, fixed wireless access on 5G, 4G millimeter-wave, and C-Band. When it comes to mobile edge compute, we are the mobile edge compute leader, both in public and private sectors. Thanks to great partnerships. We just announced a private mobile edge compute partnership with Amazon that we're pleased with. This just scratches the surface of how we will continue to utilize our assets. We're confident in our growth opportunities as we move into the investment cycle with C-Band. Before I hand it over to Matt, I want to briefly touch on our broadband expansion. We're on track to meet our fixed wireless access household coverage targets with an expected 15 million homes passed by the end of the year between 4G and 5G. To date, five-year home is in 57 markets and the 4G LTE home in over 200 markets across all 50 states. In addition to fixed wireless access, we're pleased with the great performance of Fios and continue to grow the open for sales volumes within our footprint. We're on track to exceed 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 21 earnings call. And now, Matt, over to you.

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 is 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 experience to customers with additional services and products, like Disney+ that others can't provide, our strategy is focused on 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 4.3% from the prior year. Our results are inclusive of two months of Media revenue, which approximated $1.4 billion on a segment basis. Excluding Verizon Media, total revenue grew 5.5%. Our service and other revenue growth rate was 0.5% and 1.6% without Verizon Media. Equipment revenue growth was approximately 30% compared to the prior year, mainly due to the timing of iconic device launches and the continued pandemic recovery. Fios revenue was $3.2 billion, up 4.7% 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 up in speed tiers. Total wireless service revenue, which is the sum of consumer and business, was $17.1 billion, an increase of 3.9% over the prior year. The results were driven by higher access revenue, volume growth, and products. We are creating more paths to growth with connectivity and non-connectivity services. Adjusted EBITDA in the third quarter was $12.3 billion, up 3.3% from the 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. 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 429,000 wireless retail postpaid phone net adds, up more than 50% from the 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. Churn continues to benefit from several 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 better than pre-pandemic norms. Total broadband net adds, defined here as Fios, DSL, and fixed wireless, were 129,000. Fios Internet net adds were 104,000 compared to 144,000 last year. As a reminder, last year's Q3 Fios results included a benefit from a higher backlog entering the quarter, as we had largely paused installs in Q2 2020 due to COVID. Fios has continued momentum driven by our best-in-class value proposition, built on network quality, and our Mix and Match pricing structure. This combination is helping us to take share and deliver historically low churn rates. For the first time we're providing fixed wireless net adds, which include both consumer and business fixed wireless products. We are building momentum and our pre-C-Band success in Q3 demonstrates there is demand for the product from consumers and businesses. Both our 5G 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 Fios. Total revenue was $23.3 billion, up 7.3% year-over-year. Service and other revenue was $18.8 billion, an improvement of 2.5% versus the prior year. These results include strong wireless revenue, as well as growth in Fios. Fios revenue was $2.9 billion, up 4.3% year-over-year, mainly driven by growth in our Internet base of approximately 400,000 or 6.2% over the past year and migration to higher speed. Our actions around Mix and Match, which include a broadband-first approach, are helping us to grow Fios revenue and Consumer EBITDA. We still see plenty of room for additional growth within Fios as we continue to increase our share Mix and Match penetration rates and our open-for-sale locations. Wireless service revenue is $14 billion, up 4% 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, over 30% of our account base is now on premium unlimited plans. Our growth in access is being complemented by product revenue, which includes items such as protection plans, content, and others. Our wide range of product offerings 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 2% year-over-year or more than $200 million, driven by our 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 for both wireless and Fios provides tremendous opportunity to migrate customers to higher-value tiers and bring customers to higher value plans. We're 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 phone net adds were 267,000, above our Q3 performance in 2019 and 2020. The performance was consistent during the period, as 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 we're adding, with approximately 66% of new accounts taking a premium unlimited plan. Q3 was another quarter in which we saw strong acceleration in our 5G penetration, exiting the quarter with over 25% of our phone base now equipped with a 5G capable device, which is great progress in advance of our launch of 5G service from C-Band spectrum in the coming months. Fios Internet net adds were 98,000 for the quarter, up slightly from the prior quarter. We continue to be pleased with the results we're seeing, especially on retention. Now, let's move to Slide 11 to review the business group results. Our business segment 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, our small and medium business unit, private wireless, and the Mix space, or enterprise customers, as well as building momentum for fixed wireless access to serve multiple 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 3.6% year-over-year. We saw quarter-over-quarter expansion driven by small and medium business, which was partially offset by distance learning prices in the public sector. Wireline revenues continue to be pressured by secular trends, while also facing elevated year-over-year comps due to 2020 COVID spending. Consistent with our focus on driving high-value business, in the wholesale space we continue to rationalize our international voice traffic, which is contributing to the revenue decline shown on the slide. Business segment EBITDA was $1.9 billion, down 2.4% 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 position 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 Q3. Phone gross add volumes were above pre-pandemic levels, up 11.4% year-over-year and up 3% versus the same quarter in 2019. Total postpaid net adds for the quarter were 276,000. To better highlight some of the trends, on the slide we've broken out the net adds by public sector, and our higher-growth commercial businesses, which includes small and medium business and enterprise. During Q3 2020, the commercial space primarily within small and medium business was suppressed, while the public sector, buoyed by distance learning programs, saw elevated net adds. In Q3 '21, 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. A portion of distance learning disconnects also impacted our phone churn and net add performance. Despite this, we delivered postpaid phone net adds of 162,000. Now, let's move to our 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. Year-to-date capital spending totaled $13.9 billion as we continue to support traffic growth on our 4G LTE network while expanding the rates and capacity of our 5G 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 us confidence that we will be within the previously guided incremental CapEx range of $2 to $3 billion for the year as we accelerate our C-Band deployment. The net results from cash flow from operations and capital spending is $17.3 billion of free cash flow for the 9-month period. Net unsecured debt at quarter-end was $131.6 billion, a $5.2 billion 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 costs and our debt profile, our net unsecured debt to adjusted EBITDA ratio was approximately 2.7 times. Our cash balance at the end of the quarter was $9.9 billion, which included the proceeds associated with our sale of Verizon Media Group. We expect lower levels of cash on hand as we progress through the fourth quarter and approach the close of the TracFone acquisition while continuing to execute on our business strategy within our capital allocation framework. Let's move onto Slide 14 for an update on guidance for the remainder of the year. We continued our strong first-half performance momentum in the third quarter. Hans and I are very pleased with the hard work our team is putting forth. We're excited about the opportunities that lie ahead as we prepare for the C-Band launch. Our strong year-to-date results and momentum heading 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%, at the higher end of the prior guidance. Adjusted EPS guidance is being increased to $5.35 to $5.40, up from the prior range of $5.25 to $5.35. Our guidance for the effective tax rate is unchanged. CapEx guidance is also unchanged. Though I'd note that our assumption for our BAU spend of $17.5 to $18.5 billion is dependent upon no material changes in the current state of our supply chain. Our team continues to execute on our strategy and deliver 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. I look forward to continued momentum as we wrap up the year and position our base to take full advantage of all the things 5G Built Right has to offer. With that, I will hand it over to Hans to wrap up our prepared remarks.

Thank you, Matt. As you heard, we delivered solid third-quarter results and we're on track to meet or exceed all our 2021 commitments to the investment community. Our strategy is working and I'm confident in the strategy we have to deliver both strong results and premium experiences going forward. As we look ahead, we continue to focus on expanding our 5G leadership, capitalizing on wireless momentum, working towards our C-Band launch, deploying differentiating experiences for our customers, and executing our network as a service to actually deliver all five vectors of growth. We look forward to delivering on all fronts and sharing our results in the coming months. With that, I hand it back to Brady.

Thank you, Hans. Brad, we're ready to take questions.

Hi. Thanks, guys. Hans, you discussed 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 the recurring revenue businesses, does it make sense to be less aggressive on reducing leverage and maybe allocate some free cash flow to buybacks given the low multiple on the stock? Thank you.

Thank you, Phil. Let me start with the competitive landscape. There is indeed a bit more competition right now, but I want to remind you of a few key points. Firstly, as history has shown, broadband and mobility are crucial infrastructures for individuals both in this country and worldwide, so it's understandable that competition exists. Secondly, we are currently in a phase where 5G is expanding and the economy is strong, which naturally brings increased competition. However, if you examine our numbers, we are competing very effectively. We are attracting high-quality customers despite the various types of competition we face. Furthermore, our growth of 3.9% is something we are pleased with as well. We have been adjusting our promotional strategies, as Roman and his team on the consumer side focus on long-term profitability and attracting high-quality customers through these promotions. Right now, we are confident in our market competitiveness and will continue to run promotions when we believe the timing is right. Additionally, as Matt mentioned regarding our increased guidance, we feel optimistic about our performance in this environment. The past couple of quarters have shown strong results in the consumer segment, and Ronan and the entire team have been doing a fantastic job, which makes me feel good about our position. Regarding capital allocation, our focus is clear: we prioritize investing in the business. This year, we are investing in areas such as CapEx and spectrum. Importantly, we have also achieved our 15th consecutive year of dividend increases, and both Matt and I are in constant discussions with the board to ensure this continues. Furthermore, we have the capacity for buybacks as well. I want to emphasize that we will have discussions with the board about optimal capital allocation strategies and priorities, aiming to provide the best outcomes for our shareholders. Matt?

Yeah, Hans, I think you hit on the key points there. We're always going to look at the pillars of our capital allocation policy. Right now, we continue to see a lot of opportunities to invest in our business. You see what we're doing there around the C-Band investment, for example, not just the spectrum, but also the CapEx associated with that. Obviously, we said long-term, we 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 Phil, you should expect us to continue to be thoughtful about capital allocation as we go forward.

Great. Thanks, Phil.

Great. Good morning. Thanks so much for the disclosure 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 ARPU to a smartphone? Are we looking at mostly LTE, or is this a mix of LTE and millimeter-wave? And then perhaps just coming back to the C-Band, I think you said before 7,000 to 8,000 towers this year, getting to 100 million covered POPs by the first quarter. Perhaps, if you just update us on that and then how quickly do you really turn that into an expansion of your fixed wireless footprint as the marketing really starts coincident with that, or is that a steady ramp during the year? Thanks.

Thank you, Simon. Regarding fixed wireless access, you are correct that the average revenue per user is comparable to our mobility plans. Currently, the fixed wireless access consists of a mix of 4G and millimeter wave. When discussing our 5G fixed wireless access, the network usage is very similar to Fios, with even higher gigabyte consumption on 5G fixed wireless access compared to Fios. Our performance and quality are excellent. It's important to note that we are introducing a different model for fixed wireless access that includes self-installation options for our customers. Our vision for Verizon is clear: we aim to be a nationwide broadband provider, offering various access options based on customer needs and deployment speed. We continue to invest in Fios, as evidenced by the addition of 129,000 net broadband customers this quarter. This sector is thriving for us, and we are ramping up fixed wireless access. As for C-Band, once we activate it, we will expand our fixed wireless access footprint. We are on course to cover 100 million points of presence with C-Band, despite some supply chain challenges. However, I want to emphasize that our long-term planning with vendors and our two-year forecasting for equipment has been effective. We have collaborated closely with our vendors and increased our network resources and inventory, allowing us easier access when needed. Over the past few years, we have implemented several strategies in our supply chain to mitigate current challenges. Overall, this is our current status. Matt?

Yes, Simon, I think Hans has summed it up well there. We've got good momentum in the fixed wireless business there. You saw the 55,000 net adds in the quarter. That means we're approximately 150,000 total subscribers on fixed wireless access at the end of the quarter. Good momentum is being built there. As Hans said, as soon as we turn on C-Band, we will immediately be adding that to the technologies that we're selling on fixed wireless access. So good momentum buildup and then we've got that extra turbo booster coming here in the next few weeks.

Yes, thanks, Simon. Brad, ready for the next question.

Thanks. And just actually a follow-up here on your broadband business. You mentioned you're getting a mix of both LTE and 5G subscribers. I'm curious, who are these customers? Specifically, are you upselling into existing accounts or are these primarily new relationships for Verizon? And then, it's also notable that you are continuing to expand the Fios footprint. It looks like you're going to add over 400,000 locations open 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 could the Fios footprint be? And is 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 they are probably roughly half and half. Half meaning coming from our existing base and half we’re taking from other suppliers. That's basically how they're coming in right now. Let's see how the mix goes going forward. But we have the optionality that we've talked about before and we have ownership's economics to work with convergence if that's what our customers want to have. We basically have all of those optionalities right now, and I feel really good about that. As for the Fios footprint, we have constantly, of course, deployed Fios in our ILEC, to be honest. What we see right now is very strong demand, and we’re winning the business. The team is deploying, as I said, we're heading towards 400,000 open for sale this year, and we will continue with that because we see great demand, and our win share is extremely strong in the Fios footprint.

Yes. So just a couple of things that are out there, Brett. On the mixture of the customers, as Hans mentioned, a good mix of 50-50 split there between new and existing customers. Also, our comment that a good split between not just being in rural areas but also seeing good traction in suburban and urban areas too for those products. When you think about those customers in the first 46 C-Band markets that will come online, the customers taking the LTE product there are getting a router that also has C-Band in, so they could immediately step up to those speeds when we turn on C-Band there soon. The Fios expansion, there are a couple of pieces. We see great opportunity, as Hans mentioned. The other pace it's a great cost opportunity as well as we continue to upgrade the network technology in that footprint. We've been investing in there for a number of years; we may not have spoken about it quite as much, but it continues to be a very good growth driver for the business, and we see very strong line of sight for it to continue to do so. 4.7% growth in Fios revenues this quarter is certainly something we can continue to build on.

Great. Thanks, Brett. Brad, we're ready for the next question.

Great. Thank you, everyone. I have a couple of follow-up questions regarding the C-Band deployment. First, are you experiencing any supply chain or labor shortages that might impact the rollout timing? Additionally, thank you for the update on the 15 million homes passed with fixed wireless by year-end. Can you provide insight into the first phase of the C-Band deployment? Will that enable you to reach more homes once it launches? Lastly, how will your go-to-market strategy be affected by this deployment, and do you anticipate that it will influence your net additions for both fixed and mobile services when we see it next year? Thank you.

On the C-Band, there are challenges in the supply chain, but our team is incredibly skilled at operational excellence and is managing those challenges effectively. We have secured all major equipment and radios, which are stored in a warehouse. Our long-term planning with suppliers began years ago, so we feel confident about that aspect. Although there have been some challenges in meeting material needs, our team is actively working to find solutions for deployment. We secured our resources a year in advance to prepare for these types of deployments, and we are deploying more than ever before. This year, we will launch 14,000 mmWave deployments and we are also expanding fiber and improving our 4G and Fios services. The team is accomplishing a remarkable amount. Our end-of-year goal is to pass 15 million households with various technologies, and we aim to reach 50 million households in the future, which includes all technologies, particularly C-Band, as well as the integration of different devices. The team is proactively creating opportunities for us. While we won't discuss 2022 yet, the C-Band opening presents significant new opportunities. As mentioned during Investor Day, this will allow us to accelerate and enhance our business case for 5G, and the team is focused and prepared for this.

So just following up on the bit about the open households covered. As you saw in the prepared remarks, we're at 11.6 million at the end of the third quarter. Obviously, we'll continue to add some millimeter-wave and 4G for the rest of the year, but C-Band certainly will get us well over 50 million as we turn that on.

Thanks, John. Brad, we're ready for the next question.

Hey guys, thanks for taking the questions. I just wanted to return Hans to the competitive landscape. I guess, year-over-year, I think most observers would say that the promotions kind of look very similar as they did a year ago. If anything, the wireless landscape is probably less competitive now than it's ever been in terms of postpaid phone net add availability. As we look ahead, I think the things that people wonder about what’s going to change as the EBP, the TPP, and the renovated programs all go away, the super-normal kind of sport for the postpaid market might ebb. And second, you've got the cable companies coming in with new pricing plans. And then third, we’ve got the Dish 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.

Yes, there are many factors at play. Let me start with the consumer aspect, as your question focuses there. First, we've established and maintained the best network, and we are currently enhancing it by adding more spectrum, particularly with C-Band, which is crucial. Additionally, the value we offer, alongside having the top network, comes from the various offerings we've developed over time, like Discovery and Disney Plus, which contribute to our profitability and customer retention. The share numbers this quarter reflect our success. We believe we've identified the right approach with our Mix and Match model, which has proven beneficial for both customer loyalty and upgrades. As Matt mentioned, one-third of our unlimited plans are now premium, while we still have about a third of more basic plans, providing many opportunities to encourage our customers to upgrade. This has been our strategy from the start and distinguishes us from our competitors. We are confident about our competitive position, regardless of the changes in the market landscape. Our ownership of our operations is significant; from the start, we assumed responsibility for our own fiber and full network, allowing us to navigate fluctuations effectively. Our strategy aligns well with the market's direction, where mobility and broadband have become essential for everyone. We possess the best assets, positioning us favorably.

There are a couple of other points, Dave, if I can. You mentioned the EBBP impact on the marketplace, and certainly, we're supportive of all efforts to make digital connectivity available and accessible to everyone in the country, and we're participating in those programs. I would though say that in terms of our gross adds and new customers coming in, it's a very small portion of that. The majority of our EBBP participation is with existing customers rather than new customers. So it's not a driver of gross adds for us. You also mentioned that in the marketplace, there's been new plans that have come to market in the past 6 months to 9 months. What I would say is just look at the volumes we've had, especially in the last 2 quarters. Even with those new plans in place, you see the high-quality volumes that we've put in that environment. You have to look across both the service revenue and handset components of the offering to customers. You add in the other values into products and services that we bring to customers too. This is the strategy we've been working on for 2 to 3 years now. It was a bit of a dip when we hit the pandemic, but the strategy was driving revenue growth before the pandemic and 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 the results.

And if I could just a quick follow-up, Matt. As we look at the implied performance in business wireline, is a portion of that related to Verizon's willingness to be more aggressive on price and throw more elbows to hang onto customers, knowing that those enterprise relationships are the groundwork for potential new wireless relationships as we think about enterprise 5G?

Yeah. No, I think there's a couple of items when you look at the wireline part of business revenue results for the quarter that are not related to what you mentioned. One, last year during COVID, we saw a little bit of a step-up in some of the cold voice data revenue that we hadn't seen in quite a while. We're now lapping that and those volumes are returning to their pre-pandemic trends. The other thing is we've stepped out of some of the wholesale international voice business that had revenue, but not significant margins associated with it. So we wanted to focus on value-driving activities. We continue to compete effectively in the enterprise space in wireline, but on the quality and reliability of the service, we provide, obviously we aim to be competitive there, but I'm not seeing us do anything out of the ordinary compared to what we were doing previously. As you mentioned, those relationships are very important to us as we go into the 5G era, and we've already seen those relationships pay off with the work being done through those opportunities with a broad array of enterprise customers.

Great. Thank you, guys. Thanks, Mike. Brad, we're ready for the next question.

Great. Thank you. Two if I may. First, you're starting to talk more about access. They disclosed more on fixed wireless, which we appreciate, but you've also talked about the other 5G growth applicant being Mobile Edge Compute, MEC. When will we start to see that show up in the numbers and actually start positively contributing to growth, and where do you expect that to show? What line items would you point to where we will be able to see that? And then secondly, Hans, 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; you're going to be seeing incremental headwinds, particularly EPS tied to some accounting, I believe on the spectrum. Just curious if you believe guiding to EBITDA and or free cash flow is something that might become more important when we see that guidance for next year. Thank you.

Great question, Colby. First, on Mobile Edge Compute, first of all, we're making great progress in Mobile Edge Compute, and you've seen that we've made announcements in the quarter with the biggest cloud providers in the market, both on the private 5G Mobile Edge Compute. As you remember, there are basically 3 use cases. One is public Mobile Edge Compute, then it's private Mobile Edge Compute, and then it's private 5G networks. All of them are in execution right now. We're working with customers. We have announced a couple of commercial contracts already, like coordinating the British Fort, etc. That's already happening. It takes some time because we are actually creating a new market, and we're actually alone in this market. Nobody else in the world has launched mobile edge computing at this moment. We feel really good about that. The team is working through the funnel from proof of context to new applications. When we create new markets, it takes time, and we will come back as soon as we feel it's time to start reporting it similar to what we've done with five-weeks' fixed wireless access, but I'm even more excited about Mobile Edge Compute based on what I've seen the last year here with technology solutions we have, and also customer interactions with our main partners. We have the biggest partners you can ever think about in this, that are equally much invested as us, because that was part of the strategy to bring different parties together with us, so we will continue with that. We will come back and report, and we will give you new deals and how all this is progressing with partners over time. Ultimately, of course, it's going to be financials, and that's going to show up. Initially, it's going to be predominantly in the Verizon Business Group. Matt, on guidance, have you thought through what you're going to do next year? He hasn't told me yet.

Colby, great question. We'll get into guidance at the next call. But as you mentioned, we always look at what year-over-year pressures may be embedded there, especially things that are accounting-related rather than cash flow-related. We'll make sure we have the appropriate level of transparency around that. The important thing for us to demonstrate that guidance is how our strategy is working and it will show up in revenue growth and cash flow growth. You see that this year, and we'll find a way to make sure that we can communicate clearly that we're continuing to grow the top line of the business, and it's flowing through into the cash generation of the business as well, which is ultimately what it's all about.

Great. Thanks, Colby. Brad, we're for the next question.

Yes, hi. I have two questions, both related to strategy. First, could you provide an update on your expectations regarding what you will do differently with the TracFone asset? How do you plan to approach the go-to-market strategy in the prepaid market? Secondly, reports from sources like Opensignal indicate that T-Mobile's 5G network has faster speeds and wider coverage. How do you plan to maintain the network advantage you have? What assurance do you have that you can communicate this effectively in both business and consumer markets?

I can begin with the second question. First, we rely on RootMetrics as the most advanced and scientific method of measuring the network, and we are clearly the leader in this area. Without discussing my competition, it's evident that one remains behind. Concerning TracFone, which represents an exciting opportunity for us pending closure, we recognize that we do not possess the go-to-market strategy and brand presence that TracFone has. They excel in the prepaid sector, as evidenced by their performance. However, we will provide them with comprehensive back-end support, including supply chain, IT support, user experience, and customer care. Our goal is to maintain the points of sale and offerings while serving the value market. While I cannot elaborate further due to pending approvals, we will provide you with more details as soon as we finalize this acquisition.

Great. Thanks, Craig. Brad, we're ready for the next question.

Thank you. I have a long-term question. When we examine your growth strategy on the consumer side, it appears that your average revenue per user is on an upward trend, along with revenue, which is currently lagging. This trend may continue as you roll out C-Band. Additionally, as your costs rise, general and administrative expenses are likely to increase as we move into next year. The competitive landscape might allow for capturing market share. Considering this growth strategy, how do you maintain margin stability when your revenue growth is essentially behind?

Yes. So to work with our team, we have tremendous opportunities, and you see it manifest in the results we've delivered now for a few quarters. The ability to bring high-quality customers in and then step them up gives us the increase in ARPU. The service and revenue are a combination of growth within the base, the impact of new customers coming in. We expect to continue adding scale to our business, which is already best-in-class from a scale standpoint, and that will show up in the margin profile of the business moving forward. I expect us to continue to have a very strong margin profile going forward. It's built on executing the strategy. You see that in the results this year. You compare consumer margin in Q3 this year to two years ago, and you see that strategy is working and delivering results at both the top line and the margin line.

Great. Thanks, Kannan. Brad, we have time for one more question.

Great. Thank you. Can you give us a little more color you mentioned there was a split in the fixed wireless, the team, the consumer, and business. How is that shaking out? And then on the business side, it's still a little bit weaker there. Is that just continued pricing pressure in the market, or is it a share issue? Walk us through how you're looking at the enterprise space going forward.

I talked about the fixed wireless access on the business side. It's called BCC Internet on that signed offering. We started off with our fixed wireless access on the consumer side, and we later on added it to our business to have access to it. That's why, because that's what we want to restart. I'd say we have really good traction on the business side with fixed wireless access, especially in small and medium businesses. We see a great opportunity for our Verizon Business Group as well. Again, we are adding products and solutions for Verizon Business Group that over time should offset the wireline decline that Matt talked about. When we talk about the Verizon Business Group, I haven't talked enough about them, but the momentum on wireless there is really good. Our small and medium businesses are continuously returning. They're doing a great job. On the enterprise side, the wireless business is doing well as well. The only area that's coming a little bit back is the public sector, but that's a very natural thing because the increased demand from home education, etc., during COVID had a spike in wireless connections, which you see is naturally coming down a little bit right now. The momentum on wireless in the Verizon Business Group, combined with new opportunities, everything from applications on top of the network, mobile edge computing, fixed wireless access, over time, we have more opportunities outside the ILEC on Fios, or at least on fiber. This provides a very good opportunity for us, and that's what we outlined already in 2019 when we decided to transform that business to be prepared for capturing those opportunities and those transformations that all enterprises will need as they digitalize over time. We're feeling pretty good about this.

Great. Thank you.

Thanks, Frank. That's all the time we have today for questions. Thanks for joining the call and everybody be safe.