Verizon Communications Inc (VZ) — Q2 2023 Earnings Call Transcript

Thanks, Brad. Good morning, everyone, and welcome to our second quarter earnings conference call. I'm Brady Connor, and I'm joined by our Chairman and Chief Executive Officer, Hans Vestberg, as well as our Chief Financial Officer, Tony Skiadas. Before we begin, I’d like to draw your attention to our Safe Harbor statement which can be found on Slide 2 of the presentation. 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. Earlier this morning, we posted to our Investor Relations website, a detailed review of our second quarter results. You will find additional details in the earnings materials on our Investor Relations website. With that, I'll now turn the call over to Hans.

Thank you, Brady, and good morning, everyone, and welcome to our second quarter earnings call. My team and I are pleased to report another solid quarter as we continue to advance across all of our strategic key performance indicators. Our newly appointed leadership team remains committed to delivering on our key metrics, growth on wireless service revenue, and expansion on consolidated adjusted EBITDA and free cash flow. We're seeing operational improvements throughout our business, and our results are strong. Wireless service revenue was up 3.8% year-over-year, and adjusted EBITDA was $12 billion for the quarter. Cash flow from operations was very strong in the quarter at $9.7 billion, and free cash flow was $5.6 billion. The actions we’re taking to accelerate growth, improve operations, and ensure a solid balance sheet are working. Our results today illustrate our ability to adapt, innovate, and excel, even in times of economic uncertainty, and we're encouraged by the growing importance of mobility, broadband, and cloud services in the 5G era across all customer segments. Based on our results this quarter and what we see ahead, I'm confident that we will deliver on our 2023 financial guidance. This is a testament to the hard work and dedication of our team. Now, let's look more closely at the performance in mobility, private networks, and national broadband. Our consumer wireless strategy of segmentation and financial discipline is paying off. This quarter, we saw a year-over-year growth in postpaid phone gross adds, significantly lower promo upgrade levels, and a sequential improvement in postpaid churn, all according to our strategy. This work is a continuous process, and we're always looking for ways to improve. In May, we launched myPlan, a first-of-its-kind customized offering that gives our customers the value, control, and simplicity they want. This aligns with our strategy of providing our customers the best value on America's best network. While we are in the early days, myPlan has already helped our Verizon Consumer Group deliver notable operational improvements by encouraging customers to take on premium plans, driving higher ARPA. We're really excited about what's to come with our new platform for selling consumer wireless services, and we're constantly evolving our offerings to fit customers’ needs. We will also continue to invest in prepaid to improve performance and expect sequential improvements in the second half of the year. Customer payments remain healthy, showing both the financial strength of our customer base and the high value they place on our services. Our ongoing and effective strategy execution by Sampath and the consumer team supports a stronger Verizon where we are the premium provider, with elements like the new myPlan, strategic regionalization, and persistent cost transformation combined with reinforced focus on customer satisfaction. We are strengthening our operational blueprint with a local emphasis, effectively positioning ourselves for sustainable growth. Wireless access had yet another strong quarter, driven by continued solid phone and fixed wireless access performance, even as the secular decline in wireline continues. For the eighth quarter in a row, Verizon Business contributed more than 125,000 postpaid phone net adds, demonstrating the resilience of our service offering across all types of businesses and the value of our world-class network. On private networks, we won a mandate from the US Department of Veterans Affairs and recently completed work to launch a next-generation private networking solution at the Cleveland Clinic that will support their mission for years to come. As a trusted partner to enterprise businesses and the federal government, we work closely to transform networks and bring organizations onto the leading edge of technology development. The total addressable market of private wireless is expected to grow significantly, and Verizon is well positioned to capture meaningful share. Our broadband strategy delivered more than 400,000 net adds in the quarter on Fios and fixed wireless access, marking another quarter of remarkable broadband performance. This represents the third consecutive quarter with more than 400,000 net adds, demonstrating the momentum of our growth trajectory. It’s clear, fixed wireless access is here to stay as a proven competitive broadband product. We're well on track to meet our target of 4 million to 5 million fixed wireless access subscribers by the end of 2025, from a current base of nearly 2.3 million subscribers. We also now have an opportunity to segment the fixed wireless access market based on price and speed tiers so that our customers can choose the service that best suits them. Further, we continue to see net promoter scores of Fios and fixed wireless access that significantly exceed those of traditional cable offerings. We have the best network in the market. In the next couple of quarters, we will extend our lead with a large tranche of the C-Band spectrum. For the 31st time in a row, Verizon was the most awarded brand for wireless network quality in J.D. Power’s US Wireless Network Quality Study. No other wireless provider has achieved this, and for 2023, we received top scores across all J.D. Power’s study factors in all six regions. Additionally, our team continues to innovate within our network, upgrading our infrastructure around the country and successfully testing our ability to slice our 5G network. Slicing will allow us to serve customers with dedicated 5G service on a large scale and meet the diverse needs of the largest base of wireless customers in the United States. Next, I want to address the recent news about the legacy lead cable in our network. We take these matters seriously, and to be very clear, lead infrastructure makes up a small percentage of our copper network, and we began phasing away from installing new lead cable in the 1950s. At Verizon, the communities we serve and our employees are at the heart of everything we do, and we're using a fact and science-based approach in our assessment. You'll hear more on this topic from Tony later on. Our accelerated plans for efficiency with our new structure, which we implemented over the last couple of quarters, are already paying off. Verizon Global Services has taken action on numerous opportunities company-wide, realizing significant savings by focusing on IT platform transformation, leveraging artificial intelligence, rationalizing our real estate portfolio, and improving our supply chains. We're on track to achieve our forecasted $2 billion to $3 billion in annual savings by 2025. These savings, in combination with the completion of the $10 billion C-band spend, position us to generate strong cash flow, continue to invest in our business, and pursue dividend increases as we execute our capital allocation strategy. Now, I will turn the call over to Tony to discuss our operations and financial performance in more detail.

Thanks, Hans, and good morning. Our results for the second quarter demonstrate our progress towards our three priorities of growing wireless service revenue, delivering healthy consolidated adjusted EBITDA, and increasing free cash flow. Our focus on execution is working, and we remain on track to meet our financial guidance for 2023. We are pleased with our progress, but we have more work to do. We are focused on continuing to improve our performance while remaining financially disciplined. In the second quarter, our consumer segment demonstrated better operating results, both sequentially and year-over-year in postpaid phone net adds. Additionally, we experienced continued strong performance within our business segment, both in terms of mobility and fixed wireless access subscriber growth. The results reflect the benefits of our ongoing C-band deployment and improved go-to-market execution. Consumer postpaid phone net losses totaled 136,000 for the quarter, compared to 215,000 net losses in the second quarter of 2022. Consumer postpaid phone gross adds were strong once again, up 6.9% year-over-year, driven by new-to-Verizon gross adds, which increased approximately 19% over the prior year period. We also saw notable growth in consumer postpaid ARPA, which was up 6.2% year-over-year. The recent launch of myPlan reflects a more segmented and targeted approach. While it's still early, myPlan is driving a significantly higher premium mix, with nearly 70% of myPlan customers taking the Unlimited Plus option. We are also encouraged by the step activity we are seeing. Consumer postpaid phone churn for the quarter was 0.76%, up one basis point compared with the same period last year. Higher involuntary churn drove the year-over-year increase, offsetting a modest improvement in voluntary churn. Our involuntary churn rates remain at pre-pandemic levels and were flat for the third consecutive quarter. It is important to note our performance in existing C-band markets. In the 46 markets where we initially deployed C-band, postpaid phone gross add growth was more than 100 basis points higher in the quarter than in non-C-band markets. Additionally, phone churn was four basis points lower in C-band markets, and our premium mix in C-band markets was 11 percentage points higher. Let's now look at our business results. Verizon Business once again delivered solid performance and continues to expand on its industry-leading wireless market share. Demand continues to be strong across all three customer groups, resulting in 144,000 phone net adds for the second quarter, compared to 227,000 for the same period last year, which benefited from some large deals. As Hans mentioned, this marks the eighth consecutive quarter where we have delivered over 125,000 business phone net adds. We continue to win high-value business based on the strength of our network performance and value proposition. Notably, we had a recent government contract win where we took share from two of our competitors at attractive ARPUs. Moving on to broadband, we maintained our strong performance, with 418,000 total broadband net additions in the second quarter. In the past four quarters, we've added more than 1.6 million broadband subscribers, growing our total broadband subscriber base by more than 21% during that time. Growth in fixed wireless access remained healthy, with 384,000 net adds, up from 256,000 in the prior year period. We now have nearly 2.3 million customers on our fixed wireless access product, and we expect growth to continue at a fairly similar pace in the third quarter. On the Fios side, internet net adds for the second quarter were 54,000, up from 36,000 in the second quarter of last year. Despite continued softness in household move activity, gross adds rose year-over-year, and our retention levels continue to be strong. Our value market team continues to take steps to address some of the softness we saw in the first half of the year. Prepaid net losses totaled 304,000 in the second quarter. Our year-to-date net add performance should represent the low point as we continue to make progress integrating TracFone while taking actions to better position us for growth, including scaling our Visible and Total by Verizon brands. As Hans mentioned, we expect to see sequential improvements beginning in the third quarter. Let's now look at our financials, starting with consolidated revenue for the quarter, which was $32.6 billion, down 3.5% year-over-year. The decline can be attributed to reduced wireless equipment revenue, which was nearly 21% lower than the prior year, as postpaid phone upgrade activity declined 34% versus the same period last year. Service and other revenue grew 0.8%, driven by wireless service revenue growth. Total wireless service revenue was $19.1 billion, up 3.8% year-over-year and more than $200 million sequentially. In the second quarter, we continued to benefit from pricing actions, including a recent change to our Verizon Mobile Protect offering. Additionally, the larger allocation of our administrative and telco recovery fees from other revenue into wireless service revenue, as well as growth in fixed wireless access, drove revenue improvements. These benefits were partially offset by continued pressure from the amortization of handset promotions. We are on track to deliver our wireless service revenue guidance for the year. We continue to assess opportunities to take targeted pricing actions to better monetize our products and services while delivering great value for our customers. For example, we recently announced an increase in our fixed wireless access bundle pricing for new customers, which we expect will provide service revenue benefits in the second half of the year. Additionally, we expect less pressure from the amortization and promotional costs in the second half of the year, given the softer upgrade environment and our disciplined approach to promotional spending. Consolidated adjusted EBITDA in the quarter was $12 billion, up 0.8% compared to the prior year. Adjusted EBITDA margin improved by 160 basis points over the prior year, primarily driven by lower consumer postpaid upgrade volumes and improved service revenue. These benefits were partially offset by higher marketing expenses in the quarter related to the myPlan launch, as well as a $194 million increase in bad debt year-over-year. Bad debt was relatively flat from the prior quarter, and payment trends remained consistent with recent quarters and pre-pandemic levels. Operating expenses, excluding depreciation and amortization and special items, were down 5.9% year-over-year, primarily due to lower cost of equipment from reduced upgrade volumes. As Hans mentioned, we continue to execute on our cost savings program, including through initiatives within our Verizon Global Services organization. During the quarter, we took actions to rationalize our workforce as we continue to see benefits from rationalizing certain legacy wireline products. We are on track to deliver $200 million to $300 million of savings this year from our transformation efforts and continue to make progress towards achieving our goal of $2 billion to $3 billion of annual cost savings by 2025. Cash flow from operating activities for the second quarter was $9.7 billion, and for the first half of the year totaled $18 billion, compared to $17.7 billion in the prior year period. The increase continues to be related to working capital improvements associated with lower inventory levels and fewer upgrades, which were offset in part by higher cash income taxes and interest expense. CapEx for the quarter came in at $4.1 billion, which reflects the completion of our $10 billion accelerated C-Band program. Capital spending for the first half of the year totaled $10.1 billion, which was over $400 million less than last year. We continue to expect 2023 capital spending to be within our guidance of $18.25 billion to $19.25 billion. Our peak capital spend is behind us, and we are now at a business-as-usual run rate for CapEx, which we expect will continue into 2024. The net result of cash flow from operations and capital spending is free cash flow for the quarter of $5.6 billion. Free cash flow for the first half of the year is $8 billion, a nearly $800 million improvement from the previous year, driven by a combination of lower CapEx spend compared to the prior year and operating cash flow benefits previously mentioned. While we do not normally guide free cash flow, our strong results give us a clear line of sight to more than $17 billion of free cash flow for the full year. Net unsecured debt at the end of the quarter was $126.6 billion, an improvement of $3.2 billion compared to the end of the previous quarter, and $4.1 billion lower year-over-year. We ended the quarter with $4.8 billion of cash on hand. We are well positioned with respect to our unsecured debt maturities, with no remaining obligations for the rest of the year. Our net unsecured debt to consolidated adjusted EBITDA ratio was 2.6 times as of the end of the second quarter, a 0.1 time improvement both sequentially and year-over-year. We continue to monitor the current interest rate environment closely, given recent comments from the Federal Reserve on planned rate increases later in the year. As previously stated, we expect higher interest expense to impact our full-year earnings per share by $0.25 to $0.30, and there's no change to that view. Our strong second quarter results support our capital allocation priorities, which remain unchanged. Before I hand the call back to Hans, I'd like to address the recent media reports on lead sheath cables in our network. Here is what we currently know. We still have some legacy lead sheath cable in our copper network. As a result of the age of this infrastructure and the history of the industry, records are incomplete as to exactly how much of the cable in our network has lead sheathing. However, to give you a sense of the scale of the infrastructure we are talking about, our copper network is composed of less than 540,000 miles of cable, roughly half of which is aerial, and lead sheath cable makes up a small percentage of our copper network. This number excludes the network elements previously owned by MCI and XO communications because we are still reviewing the historical records of those companies. When not disturbed, the likelihood of exposure to lead from lead sheath cables is low. Additionally, since the lead sheath cable was used as a feeder and distribution cable and does not run into individual homes or apartments, it is generally in locations that minimize the potential for public contact. We are working with a third-party expert to conduct our own testing at our sites that were identified by the media. We will not have the results of our testing for several weeks. When we have the results of our testing, we will work closely within our industry and others to address any concerns and issues. Now, I think it's important to address a question we've received from a lot of investors, which is about the process for and potential cost of removal of the lead sheath cable in our network. Given where we are in this process, it is far too soon to make any projection on what the potential financial impact might be for the company. There are a number of unknowns in this area, including whether there is a health risk presented by undisturbed lead sheath cable, and if there is a risk, how that risk should be addressed. As a result, we do not believe there's a meaningful way to estimate any potential cost to the company or that any such estimate would even be useful. We won't be able to provide any additional color during the Q&A session. As we have more information we can share on the topic, we will certainly do that. I will now turn the call back to Hans for his closing thoughts before we open it up to your questions.

Thank you, Tony. As we pass the midpoint of 2023, I'm pleased by how we're effectively delivering on our priorities, and I'm confident that we will meet the financial goals we set for ourselves for the full year. To summarize, in mobility, our segmented and disciplined approach to the market is working, and our efforts to improve the consumer group's performance will continue throughout the second half of the year. In broadband, the combination of fixed wireless access and fiber is winning as we capitalize on the unique strength and capabilities of both technologies. We continue to have the best network in the market, and our leadership position will only get stronger as we continue to roll out C-band. While we're encouraged by the quarter’s results, there's more work to be done. My leadership team and I are laser-focused on delivering what we committed to you at the top of the year: strong wireless service revenue, EBITDA, and free cash flow, as well as meeting our 2023 financial guidance. By that, I hand it over to Brady for questions.

Okay. Thanks, Hans. Brad, we’re ready to take the first question.

Great. Thanks. Good morning, guys. Looks like a nice beat on the consumer side, really driven by the postpaid ARPA growth of about 6%. Could you guys sort of pull that apart a little bit and maybe talk about the sustainability of that and the service revenue growth you saw as we head into the second half? I mean, I think you've got some - you lapsed some price increases, but you've got some other price increases coming through and some of the promotional stuff rolling off. And then maybe just quickly on the lead. Obviously, you guys can't quantify it, but when you guys say low exposure of the 540,000 miles of copper, is that single-digit? Can you guys tighten up that number for us a little bit? That'd be great. Thanks.

Thank you, John. Let me start with the service revenue. I think we have been extremely focused on the service revenue. As you’re seeing this quarter, we are expanding the growth from the first quarter, but it comprises many components. I understand you want to know a little bit more about the ARPA expansion, but we definitely see broadband adding to our growth. And of course, our wireless business side is performing extremely well as well; I mean, for the eighth quarter, we’re at 125,000. So, we're actually doing many things in different areas. But then if you go to the consumer group, they have been really good the last couple of quarters to segment and target the right offering with the right pricing for customers. And myPlan has been playing well to that. As you heard Tony talking about, 70% are taking the premium plan. So, that’s just the start of it. We're not done, but clearly, I’m confident that the team knows how to manage this given how much we invested in research on the consumer side to understand our consumers better. And that's why we launched myPlan. So, all in all, I have to say the team is doing well. I'm confident we'll continue on this stride, but maybe Tony can give you more on that and then we can come back to the lead.

Yes, thanks, Hans. Good morning, John. So, on the service revenue, we're very confident in the guide. You mentioned tough comps that we face in the second half. When you think about the second half of the year, let me unpack some of the drivers for you. As you know, we executed a number of targeted pricing actions between the price ups on the Legacy Unlimited plans that we did earlier in the quarter, as well as most recently changes to our handset insurance program and price changes on fixed wireless access bundles. Secondly, we had the introduction of myPlan back in May. That's helped with premium mix, and you heard that we're roughly 70% taking the Unlimited Plus plan. As Hans mentioned, we see an increase in contribution from fixed wireless access. We have 2.3 million subscribers in the base, and we have great momentum on FWA. And then fourth, we see continued improvements in year-over-year consumer postpaid volumes, and you saw that in the quarter. And lastly, when you think about the promo amortization, the revenue impact from promotions and the promo amortization has decelerated in recent quarters, and that's - it's a function of our disciplined approach to promotions and retention. So, when you put that all together, we're very confident that all the initiatives here will continue to drive meaningful revenue growth in the second half.

On the lead, as I said, we take this matter very seriously, and we're doing exactly what you expect from Verizon. We're making this scientific and fact-based. As Tony said, we're reviewing the different places that were pointed out by the media and conducting our own measurements with internal and external experts. And that's where we are. We will do this very thoroughly. We always do things thoroughly. We do it fact-based and scientifically, and that's how we're going to do it, and that’s what you should expect from us.

Yes, and to add on to that, John, we're still reviewing the records, and we mentioned that we're still reviewing the historical records of the former MCI and XO network. So, that work is still ongoing as well. So, we still have more work to do there, and as we learn more, we'll keep you updated.

Okay, great. Thank you.

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

Thanks for taking the question, and I think I'll follow up on consumer volumes mentioned in response to John. It was great to see the consumer phone losses improve year-over-year. But I know your ambition is to do better than that. How do you think about the path to getting back to net growth in consumer postpaid phones? Do you think you're going to need to take further actions in terms of the product mix or pricing or even any additional internal adjustments, or do you think you have the pieces in place and it's really just a matter of driving better execution against that framework? Thank you.

I think it's about execution on the framework we have built right now. The team has everything. Sampath and the team, together with Tony and me, have their full support. We have a new platform in myPlan. We're segmenting the market, and we are working with financial discipline. The target we have, our team is to continue sequential growth. And as you recall, Sampath and the team said before, ultimately, we want our fair share also on the net adds. But ultimately, we measure ourselves on service revenue growth. And as you can see, we continue to improve that. So, it's more about now executing on this, being patient, and seeing that the network is the best in the market, and it's just improving. Some of the numbers that Tony talked about show the impact we have when the C-band is coming out. And then with myPlan, you also see that what we talked about is actually giving us good confidence that we're in the right place. So, all that is in place. Then we are doing regionalization as well at the same time. So, a lot of things are in place. It's more about execution and doing it with the financial discipline that you should expect from Verizon.

And how do we think about a timeline for getting to sustainably positive net adds in consumer? Is that something that would be a reasonable expectation once you have C-band fully deployed?

Yes. Hi, Brett, it’s Tony. So, volumes are important to the business, and as we said before, we're going to be very disciplined on how we approach the market. Our focus is on volumes that drive profitable revenue growth. It's too soon to call the third quarter positive for consumer. But as we said, we expect improvements year-over-year in consumer net adds. The team and Sampath are very focused on that.

All right, thank you.

Yes, Brad, we're ready for the next question.

Thank you very much. Good morning. I wanted to come back to the second phase of C-band. It was helpful to get those statistics. Could you just help us a little bit more in terms of what this is going to mean in terms of your footprint, both on the wireless side and on the fixed wireless side? How do we think that's going to help both coverage and also capacity? I know there's concerns in some quarters about fixed wireless facing congestion. It'd be great to let us know what your experience has been with usage and how you feel good about handling that 4 million to 5 million and beyond over the next few years. And then maybe a quick one for Tony. Obviously, the stock's been under some pressure here, pretty high yield. Perhaps remind us about how you're thinking about potentially going to buybacks. You're seeing some deleveraging now, strong free cash flow. Is that going to be an option here in the not-too-distant future? Thank you.

Thank you, Simon. When it comes to the C-band, I said we’re ahead of the plan. As soon as we get hold of the next tranche of spectrum, the team is ready to continue to deploy that. That's going to give us both more capacity and, of course, more coverage as well. So, it gives us both. And as you have seen from the numbers we talk about here, as soon as we deploy C-band, we get better uptake from our wireless customers. And of course, it will open up fixed wireless access. So, that should be positive over time for us. And regarding this lingering question about capacity, we don't have any capacity problems. The team is doing an enormously good job, as always, when it comes to Verizon and capacity network planning. Joe and the team are always on it, ensuring that we're doing the right things for our customers. Remember, we are building a multipurpose network, which means that we have one radio that serves multiple opportunities, including wireless, fixed wireless access, and in some cases, private networks. So, all that is in one, and that's the efficiency and scale we're bringing right now, which we expected when we started with 5G and the C-band to see that we have a leveraged model over time. But, of course, it's going to roll out over the next year. So, I’m confident that this will create more opportunities for us once we get hold of the next tranche of the C-band spectrum.

Okay, Simon. And then on your question on the cash generation here, we're very pleased with the cash generation of the business. Cash on hand at the end of the quarter was $4.8 billion, which was very strong and reflective of our strong free cash flow results that are running higher than normal. As a reminder, we do have about $4.5 billion of the C-band clearing obligations remaining and due soon, and that's obviously a priority for us. The cash generation, as I said, is strong, gives us optionality and supports a much-improved dividend payout ratio. Our capital allocation priorities are unchanged. We stated that the first priority is to invest in the business. The second priority is our commitment to the dividend. Our third priority is to deleverage, and you'll see us focused on that. Once we reach the leverage metric of 2.25, we will consider buybacks at that time.

Great. Thanks so much.

Yes, thanks, Simon. Brad, we're ready for the next question.

Hi, guys. Thanks. With the price increases and the impact of the new pricing structure, it looks like you're trending above the midpoint of service revenue growth. I mean, it could be closer to the high end. Any reason to think it decelerates from here? And then second, Hans, you spoke on private wireless. Can you dig into the market opportunity there and how long it takes for that to be a billion-dollar business? Thank you.

I’ll start with the second question, and then Tony can come back on the first. On the private wireless, what we have learned during the work we've been doing is that private 5G networks are incredibly valuable for enterprises and SMBs. The main reason is the capacity, speed, and security they offer; it basically starts as a Wi-Fi replacement on a licensed spectrum, and then you start adding onto it. It usually starts with one factory, and if you see that it’s working there, they implement it in all factories. We have a growing list of new customers coming in during the first phase. I would say this is a new business for us that again, is building on the same investment, the same Verizon Intelligent Edge network. I don't think we should expect that it will be a billion-dollar business this year, but that definitely over time, it is a very important lever for Kyle and his team to drive growth in service revenue and do even better with enterprises. So, it will take some time, but I’m really pleased with what I've seen over the last couple of quarters as it's developing. We have established an ecosystem with devices, radio-based stations, and integrators, which we haven't had before. So, I'm more optimistic than ever that private networks will be successful. And as you know, I mean, we were ahead of everybody else in this field, and that’s why I feel really confident we will take our fair share.

Yes. Good morning, Phil. And then on the service revenue, as mentioned upfront, we have some tough comps as we lap the price increases from last year. We do expect sequential improvements in the third quarter. One thing to note, just on the prepaid revenue, we did see a headwind in the quarter of about $125 million. I would expect that to be at a similar level in the third quarter before it eases up in the fourth quarter. That's probably one additional data point for you.

Thanks, Tony.

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

Great, thank you. Can you walk us through the correlation between the broadband adds and the business wireless adds, including both the Fios and the fixed wireless? And then you mentioned expecting some softer upgrades. Are you anticipating having to subsidize for handsets anymore to get adds as the year goes on? Thanks.

On the broadband side, I think I got the question regarding the correlation between fixed wireless access and Fios. Let me say that, on the fixed wireless access, we are growing that base mainly outside the Fios footprint because that's just how it is due to the strength of Fios. So, we're doing great on the Fios business. As you've seen, even though it's a softer housing movement season than before, we're doing great; I mean, over 50,000 additions again on Fios. So, Fios is doing really well. Then, of course, we have a portion of converged customers that is now growing. It's not growing to the extent seen in European levels or something, but it's growing. The good thing for us is we have ownership economics on everything, fixed wireless access, wireless, and Fios. We have one network with our own fiber, which gives us the opportunity to meet customer demands whether they want convergence or not, which nobody else has in the industry. So, we're really pleased with the development of broadband for us. We outlined this as one of the most important 5G innovations we've made. We are adding substantial new customers there as well. So, this is a great opportunity for us. As we mentioned, we now have 2.3 million customers on fixed wireless access. We can begin with different tiers and different pricing, allowing us to meet customer demands with varying requirements. This is good for us and for our customers because they can choose between different models based on what they need.

Yes, we have a great rhythm with 400,000 broadband net adds in the quarter. And again, that marks the third consecutive quarter of over 400,000 broadband net adds. We continue to see good momentum with customers taking wireless alongside FWA, and we see great progress there as well.

You had a question on upgrades as well, and as you've seen in promos, that is clearly down in the second quarter and the first quarter as well. There are many reasons for it. Some are that we are much more financially disciplined, which is very important. Additionally, there haven't been any major new devices coming out. We expect to see some new devices in the second half. It'll likely be one that comes out in the second half. So, we'll see that. However, I don't foresee that we will return to the levels we've seen before from the perspective of Verizon. We plan to offer devices and promos and upgrades where it is best for the segment and the customer, but we won't return to the levels of the past.

All right, great. Thank you.

Yes, thanks, Frank. Brad, we're ready for the next question.

Hey, guys, thanks for taking the questions. So, I wanted to come back to the relationship between Verizon and the cable industry. Before the lead, this was the big issue. There were two pillars to the idea behind the relationship between Verizon and the cable industry. One was that somehow, Verizon had negotiated a deal with the cable industry that they would guarantee to make money no matter how much data cable consumers took. And the second was that that deal would never end; it was going to be forever. It seems like the messaging on that has started to change from Verizon a little bit, maybe suggesting that the idea that the cable industry is guaranteed to make money in the relationship between Verizon and cable, regardless of data consumption, that that's not true, and that this deal isn’t permanent, that it could change at some future time, even though the DOJ obviously requires some deal, but it doesn't have to be this deal. I was wondering if you could kind of just address that for us right now. Thank you.

David, thank you for the question. This is a complex area. Remember, many of these things we cannot disclose. The only thing I can confirm is that Verizon is making money on this. That, I can tell you. And we think this is an important business. These are important customers to us. Again, I go back to what I talked about previously: we build the network once. The more connections, the more usage, and the more revenue we have on it, the better the return on capital. As long as we see that happening, we will continue with what we're doing. However, I cannot go into specifics about the contracts because first, I am not permitted. But clearly, you should feel confident that Verizon is doing its best for the interests of our stakeholders and shareholders. We want to maximize our return on the capital invested in the network.

Thank you.

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

Thanks, and good morning. Two questions if I could. First, just following up on the comments around tiering of fixed wireless and potentially on speed. Is there also an opportunity to begin tiering mobile 5G wireless in terms of megabits per second rather than a historical way of tiering on gigabytes per month of consumption? And then just secondly, you mentioned that the cash CapEx is tracking to guidance, but just curious, as you're deploying the mid band spectrum, the depth of it and seeing what the propagation is, are there opportunities to get further efficiencies in capital and potentially go below the business-as-usual indication of CapEx for 2024? Thanks.

Hey, Mike, thank you for the question. On the question about different models over time and how we can charge for 5G, I think we've found a good model with myPlan right now, featuring different types of network options. Then you can choose your perks. All of it is accretive for us. You should see this initial launch as the first step in our offerings. We see multiple opportunities on how to diversify these in various ways to meet different customer demand. So, you will likely see more of this going forward. It is very important to us to meet our customers' needs with new plans and options as we continue to develop. But now we have a great base with myPlan. As for CapEx, I think we have moved past a substantial investment phase, coming from the Verizon Intelligent Edge network, as we invested in fiber and all components on millimeter wave, leading up to the C-band ramp. Now that we’ve reached a business-as-usual level, we're projecting around 17 to 17.5 billion. This level will enable us to effectively deploy the C-band, allowing us to enjoy the benefits we discussed. The costs associated with 4G are declining, while fiber is becoming more success-dependent. There are many movements in this area, but we are confident about the levels, and our team is doing a great job.

Yes, Brad, we're ready for the next question.

Hi. Two questions if I could. First, if I could return to the lead topic for one moment. Can you just talk about the extent to which you used over-lashing of fiber to what might potentially be lead cables, particularly in your aerial plant in the Northeast? And then second, I just wonder if you could help us think about the trajectory going forward of fixed wireless, which has seemingly sort of steadied out to a relatively stable number. Is that what we should expect? Because that would take us a bit higher than your guidance by the end of 2025. So, I'm just wondering how we think about the pacing of fixed wireless.

Thank you, Craig. I’ll start with the fixed wireless access question because I think that is an important one, and Tony will address the lead question. Regarding fixed wireless access, you are correct; we are currently adding at a solid rate for broadband subscribers. Remember, we have defined that we are roughly in, I would estimate, a little over 70 of the PEAs of C-band so far out of 402. That helps us to determine the number of primary access points that can be sold to customers. Therefore, we can look forward to further expansion that is likely to be suburban and rural in the upcoming tranches. I stated we’re ahead of our targets for 4 million to 5 million. The team is doing great work here. From our latest data, we are implementing efficient methods to address multi-dwelling units, which is something we started recently. Overall, I think that fixed wireless access is performing excellently, and we continue to provide good customer satisfaction alongside this service. It's important to remember that this is among the most important 5G innovations we've made, and now you can see what that looks like in practice.

And then Craig, on the lead, as we stated earlier, it comprises a small part of our network, and it covers about 50% aerial. We mentioned that we’re still reviewing the historical records, both from the former MCI network and the former XO copper network. Therefore, we still have work to do there, and we will carry on with our careful approach. Rest assured, as we uncover more information, we will keep you updated.

Yes, thanks, Craig. Brad, we’re ready for the next question.

Hi, good morning. I want to ask too, if I could, I guess first just on the lead issue. I was wondering if you thought this might lead to an acceleration in copper network retirements and, therefore, an accelerated reduction in fixed costs for legacy networks. It seems like an opportunity in cases where communities might want to not have lead cable in their areas, even if it isn't actually shedding any lead. And then secondly, I just had a follow-up to Simon's question earlier. Can you talk about how the remaining C-band deployments will affect the fixed wireless opportunity in rural areas? Specifically, how much of an expansion in the rural footprint will that represent versus the available footprint today for fixed wireless? And would that include a lot of areas that aren't served by anything today except for copper infrastructure? So, kind of the true rural areas. Thank you.

On the first question, we have always a plan for network transformation that is continuously ongoing. That has not changed. When it comes to this lead-sheathed cables discussion, we are going to go through this scientifically. We're going to perform tests, and we will proceed accordingly based on the findings. In general, we consistently pursue a normal network transformation to adapt to the declining wireline business. Concerning the second question about fixed wireless access, yes, of course, when we—the first 70-ish C-band marketed PEAs are primarily located within urban areas and are where we have good traction regarding fixed wireless access. The next step will predominantly consist of more suburban and rural areas. Of course, this is a great opportunity for us, especially since these regions have fewer choices for customers. Thus, this will certainly create greater opportunities for us moving forward. But that doesn't alter our guidance. We will still plan for 4 million to 5 million by 2025. The team is always driven to achieve better outcomes, and as a leader, I expect that as well. But right now, that's the forecast we have, and we believe we are well-positioned.

Great. Thank you very much, Hans.

Yes. Thanks, Bryan. Brad, we’re ready for the next question.

Thanks. On the wholesale on the cable side, maybe just discuss wholesale wireless ARPUs broadly speaking. Do you think you can grow wholesale wireless ARPUs? And then the $10 increase in fixed wireless pricing, do you think that would slow kind of subs growth quarterly? We’ve seen obviously good strength there. And then lastly, on the lead side, can you just qualitatively talk about how often are your workers exposed to lead? I’m sure you have to log that. What do you do to protect workers? Have you ever seen any claims from workers on lead poisoning? Thanks.

There were many questions in there. So, let me start with the change of discounts that we did on fixed wireless access. Again, we have a premium product. We have different types of optionalities for our customers to pick and choose what the best tier is or what the best service is. We think this is just a natural progression given that we have surpassed 2 million subscribers on fixed wireless access. Think about this transition when we began with Unlimited; we started with one plan and then we began to work on different segmentation because ultimately we are in a very, very big consumer business with numerous differentiated customers that require various types of services. So, simply put, this is a very natural step for us to effectively serve our customers. Now I will hand it over to Tony for the next question.

Yes, on the cable partnership. As Hans mentioned, we won't go into specifics. However, we continue to see volume growth in the relationship, and we're highly satisfied with the relationship, as we continue to monetize the network, as Hans said earlier.

And then on the worker lead exposure.

We continue to work across the company and are taking a methodical approach. We're not going to get into any specifics around employees or anything, but as we said, we'll keep you posted as we learn more.

Yes, thanks, Tim. Brad, we’re ready for the next question.

Hi. Thank you. I wanted to ask two questions, one on upgrade rates and the other on FWA. On upgrade rates, I wondered if you could discuss why they've fallen so much and whether it's sustainable and what the risks are to the recent trend. On FWA, I also wonder if you could discuss the service price increase that we learned about this week. Thanks.

Yes, on the upgrade rates, as I said before, I mean, first of all, we at Verizon have been very disciplined in how we offer products and services with the right price at the right time. So, definitely, our reduced promotions and upgrades have also played a role. However, it has not hampered our way of growing our business or attracting customers. We will continue to work on that, and we hope to see a product launch in the second half. We are excited about those releases as they will attract store traffic, and when traffic comes, we excel in conversion rates, adding to our customer base, which is truly important. Regarding fixed wireless access, increasing pricing and eliminating discounts to arrive at a level of 2.3 million fixed wireless access customers is part of the moral obligation we have to provide various services to different categories of consumers. Thus, this pricing structure is simply aligned with meeting customer demands effectively.

Thank you.

Okay. Hey, Brad, we have time for one more question.

Thanks, Hans. I just want to actually follow up on that upgrade question. I think the last two years, the upgrade rate has actually declined in the third quarter. So, I just want to kind of piece this together; like you said, you're not going to do handset promotions earlier in the call. Obviously, everyone knows Apple comes out with a new product, but in the last answer, it sounded like you thought people would upgrade more. What seasonal trend should we see here? I assume you're still expecting it to be down year-on-year, but what about sequentially, because it's been typically down sequentially in the third quarter for the last two quarters. Maybe Covid had some impact on that; I don't know. And then my second question on CapEx. There's some debate, I think a lot of the tower companies specifically are trying to drive this narrative of like, oh, your C-band's going to get deployed, but they're doing fixed wireless and all these things. You're going to have to come back and do densification very quickly. So, any lull in CapEx will be short-lived. I'm just curious; I mean, obviously, we saw the CapEx drop very quickly here in this quarter. How long do you think this kind of CapEx holiday will exist before you need to come back and use densification in the absence of additional spectrum sourced by the FCC? Thanks.

Yes, thank you. On the upgrade rates, I cannot - I don't know anything about any launch or product, nor how exciting it will be, but ultimately, that usage usually drives more upgrades. We will see what happens this time and when it comes out. But we're always excited for Apple coming out with a new phone. Hopefully, they will launch one this time. I cannot reveal what they are doing, but clearly, we're excited. Regarding the CapEx, yes, you should discuss this with us. We know more about this than other companies. We have a really good sustainable level of CapEx. Densification is part of our strategy already. Many things that we already deploy on C-band include full spectrum preparations from the beginning. Therefore, there is a lot our team has done over the years to enhance the efficiency of CapEx. That’s why I feel really good about our business-as-usual forecast around 17 to 17.5. I feel very confident because we have delved into the details extensively. So, we feel optimistic.

Great. Thank you.

Yes, thanks, Walt. Brad, that was all the time we had for today.