Verizon - Q3 2024

Transcript

Brady Connor (Head of Investor Relations)

Okay, testing one, two. Yep. Good morning. Hello, everybody. Welcome to the Essex House, and welcome to our event this morning, and for everybody on the webcast, thank you for listening in. Got a couple of items that I need to cover up front first, and I'm missing the clicker. Is there a clicker? Okay, there we go. Safe harbor statement. So our presentation today contains forward-looking statements that involve risk and uncertainties. Those are covered on our website with the safe harbor statement. Couple of items. Also, we have some non-GAAP disclosures or non-GAAP items in the presentation. The reconciliations of those are provided on the website. Next slide, please. One administrative item for today, the camera's gonna be focused on the stage during live Q&A.

For the folks in the audience, I ask that you announce your name and your firm when called on for Q&A. With that, we're really excited for the content today, so let me hand it over to Hans, and we'll get going. Hans.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Thank you. It’s on the table. Good morning, and welcome to the Verizon third quarter earnings call, as well as a broadband update. Very happy to see so many in the room, but of course also happy for everyone joining on the webcast.

Verizon, of course, has worked tirelessly to ensure that our communications infrastructure is essential, that communication is working for public safety, but also for the communities that are affected. Initially, in some of the states, we had challenges, especially with power, but I think that our team did a fantastic job getting our networks up pretty quickly. So again, these are things that are happening constantly around the world right now with hurricanes and natural disasters. For us, building the networks, as we’re always doing, is extremely important, and seeing the resilience of the network during this time is critical. So starting with that, talking a little bit about the results. I have a tie today; that means it’s a good result. It is a good result. I’m really pleased with what I’ve seen.

I mean, I’ve talked to you so many times that there are years when you are a CEO where you’re performing better than others, and I know that 2022 wasn’t the highlight of my career at Verizon. But goddamn, what we have done is a great job since then. Starting in 2023, in the mid-year, of changing the products and all of that, and then coming around to where we are right now. Looking at the financials, growing 2.7% in the wireless service revenue is great. I’m also proud to report the biggest profit, EBITDA, in the history of Verizon, $20.5 billion in the quarter, which is really good, and it’s multifactorial. And of course, the team sitting over there has done a great job. Proud of that.

We continue to create good cash flow, $6 billion in the quarter. We continue with really strong cash flow generation, as that is part of our measurement and how we measure ourselves. On the operational side, we started getting an even better balance on the postpaid side. We were 239,000 net adds, positive. Sampath will talk about what happened in consumer, but I already know I’m going to tell him he did a great job in postpaid, but also in prepaid. We turned around prepaid. I got a lot of questions over the years. Now we’re around positive 80,000, ex-SafeLink. And of course, the business side did a great job on wireless again.

Kyle and his team are consistently between 125 and 150 thousand net adds every quarter, and I’m really pleased with that. On the broadband side, I promised you for quite a long time that as soon as I get into 4 million–5 million Fixed Wireless Access subscribers, I’m going to come back to what we’re going to do after that. Four slides down, I will talk about that. But first of all, I’m going to take a victory lap that we’re 15 months ahead of the target we outlined when we bought the C-Band with our Fixed Wireless Access. Again, a great product, great work.

Now we’re back to normal again. The team is doing great work with Fios. All in all, a great quarter for broadband. And we continue with the private networks and the Mobile Edge Compute. We announced two deals this quarter, but we had way more. FIFA and MSG, Madison Square Garden Group, are buying private networks, using our capabilities in dense areas to ensure that they can fulfill their fans’ or the customers’ experiences. All in all, we feel good about the full-year financial guidance that we gave earlier in the year. We even said, if you have read the press release, which I hope that all of you have done, that when it comes to the wireless service revenue and EBITDA, we are at the midpoint or above on both of them for the full year.

That’s how good we feel about the performance so far in here. That’s what I have to say about the third quarter. Tony will come back and go a little bit deeper. If I then come in to talk a little bit about the strategy, some of this is given for you, but for me, it’s a journey of where we are today. It’s a long journey with a lot of things, and we are a very organized, structured company in what we’re doing. The first phase, I call it sort of building the foundation. Some of you remember the heavy investment in fiber, the Verizon Intelligent Edge Network. All of that was enormously important for today’s work. I mean, on the table in front of you, you have your Consumer Connections Report.

That’s what we give out twice a year with all the stats, what’s happening in the network. Last time, we told you that our network, over the last five years, grew 129%. If you haven’t built it with our own fiber, with the transport networks we have done and all these fundamentals that Kyle and Joe have built, we couldn’t handle all this data and have the best network in the nation when it comes to wireless and broadband. So the fundamentals we did with go-to-market, with consumer and business, are really paying off today, and you see it when our product has started resonating with the market. It’s because we have Kyle and we have Sampath, both of them thinking about how to meet customer demands and what the customer needs to have.

All in all, that was important. In the second phase, all of you remember, we sold. We bought a lot of assets. We sold everything in Verizon Media Group. We bought TracFone, which is paying off right now. We also bought the C-Band, enormously important. You’re going to hear Joe talking about the C-Band, but we all know where we deploy the C-Band, we have the greatest financial success and customer impact. So very important movements we did in that. But we also launched a lot of new products: Fixed Wireless Access, myPlan, myHome, and a lot of other things that we now have as the base going into 2025.

And now we’re also extending our TAM with a couple of larger investments we’re doing, all the way from Frontier, but also what we want to talk about in a second.

The refreshed brand we did in June, that takes time to get the impact, but we see the positive movement with a refreshed brand that is supporting our new products. Really happy with that, and hopefully, some of you are looking at the commercials, either digitally or on TV, and see how we’re trying to recapture and rethink the way we’re showing up for our customers. We have the plan, the Frontier acquisition. We talked about that in a separate session. We’re excited about that and adding to our expanded TAM. We did a tower transaction, and just two seconds on that: of course, it was cash in, but more importantly, we only do the deal when we can see a deal that actually creates more opportunity for us, both by having a cost level that is predictable for us. Very important.

I like owner's economics in the network, and second, also creating more competition in the market. We're suddenly creating with this strategic partner in Vertical Bridge, another strong partner in the market, giving more optionality and seeing that we can have a predictable cost for our tower, tower leases, which is, one of the few things we don't having 100% ownership on. We also, just yesterday, I think, announced that we're buying some spectrum from USCellular. It's gonna take time until that come into fruition because it's hanging on another acquisition, so I don't think it's gonna be cash out until 2026. It's just adding capacity. It's a buy versus build in that region, so we're adding capacity there.

And then we will not speak so much about AI today, but I hope you're gonna ask some question to Kyle, because not only see the efficiencies that Sampath is talking about in the customer care and personalization, we see with our compute storage, with our power, and the Mobile Edge Compute, we see great opportunities when it comes to AI and revenues for us. We will talk a little bit about here, but we'll also do it in the future, coming back a little bit more structure and talk what we're doing. But we're already right now seeing good tractions on what we're doing on the front end of it. All in all, that sums it up where we are today.

I think we're having unmatched value proposition, all the way from our best mobility, America's best mobile networks. We created a satellite partnership recently. We have myPlan, plus all the business-to-business offerings, strong offering. And then on the broadband side, all the way from Fios to fixed-wireless access, we're now almost 12 million broadband customers, 11.9. The fixed-wireless access is generating more than $550 million per quarter in revenue, started three years ago. So we can see that we can build on this network, where we build the network once, and we want as many profitable connections on top of it. It started paying off with that. So we're uniquely positioned in the market with owner's economics. So all that said, where are we in the quarter? Where are we going as a company?

We know also that we hit sort of targets on broadband, so we're gonna talk today about what we're doing next. So our broadband targets going forward is basically gonna say that we're gonna double the fixed-wireless access targets by 2028 to eight to nine million fixed-wireless access subscribers. Joe will talk a little bit what we're doing and how we continue, and I expect that Joe, our head of network, continue to have capacity way beyond and continue to build for us, so we are ready to capture this opportunity that were created. We're also gonna talk about our acceleration on Fios. We think that's a great opportunity for us to do that is this moment. We will, as we have closed the Frontier acquisition, have more than 30 million passings, fiber passings.

And we also see a clear path somewhat to 35-40 million passings after Frontier and what we're doing ourselves. And if you combine Fixed Wireless Access, i think in the future, we're gonna cover more than 100 million households. So clearly, the broadband, together with the mobility, together with our offerings, we're putting ourselves up to a possibility to continue to have a sustainable growth on our service revenue, but also continue to expand our EBITDA and cash flow. And the ones that have been following us for some time, you know that those three are the things we're measured on. Those are the three things that management are measured on.

The board has decided those are the three things that is actually driving the most, shareholder value, and that's what we're focused on here right now. So I will let my team now explain a little bit about where we are and how we're gonna execute on these targets, and then we're gonna hear Sampath and Tony talk about the financials and the situation. So with that, I'm gonna hand over to Joe Russo.

Joe Russo (EVP and President of Global Networks and Technology)

Thank you, Hans.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Thank you, Joe.

Joe Russo (EVP and President of Global Networks and Technology)

Appreciate it very much. Good morning, everybody. The one thing I wanna first say up front is the network and technology team is super confident that the investments I'm gonna talk about over the next few slides, coupled with the best engineers in the industry, is gonna continue to deliver on the best, most reliable, highest-performing networks for our customers and give that experience to more and more Americans across the country. It's easy to make claims about being the largest this or the fastest that, but that's not what my team and I are about. We're about building the best, most reliable networks, and that takes hard work and a lot of strategic investments that I'll talk a little bit about today. But that's hard work around testing and optimizing the network each and every day.

It's strategic investments in things like generators and mobile assets for when there's emergencies, and this is why, as Hans said, following the hurricanes Helene and Milton, the Verizon network outperformed the rest of the industry, and I'm super proud that we were there when our customers, and first responders, and businesses needed us the most, so before I dive into the broadband plans, I first want to congratulate Kyle and Sampath for hitting Fixed Wireless Access target 15 months ahead of schedule, and that took a ton of work from a lot of people within the organization, but one of the things I'm very proud of from the network and technology team is that we built the coverage and capacity well ahead of schedule for them to deliver on that target, and as we look forward to the... There we go.

As we look forward to this new Fixed Wireless Access subscribers, my team's objective isn't changed. It's to build the coverage and capacity well ahead of schedule, and we're already doing that. We expect that to cover another 30 million homes over the next four years on our award-winning multipurpose network. We have to do a few things. The first is we will take a mobility-first approach, and I'll talk more about that in a minute. But getting to ninety million homes and Fixed Wireless Access will be accomplished with three key things we're doing today. The first is our aggressive deployment of C-Band and Millimeter Wave we call Ultra Wideband.

The second is a new MDU solution that's been in trial, and we'll be rolling out in 2025 to serve MDUs with up to one gig internet service with our Millimeter Wave technology And the third is technology advances and the use of our vast small cell network in order to add even more Ultra Wideband coverage and capacity between now and 2028. So I'm gonna shift gears a little bit to fiber. So I'm looking forward to the pending acquisition of Frontier and bringing these two great fiber assets together. The combined wireline footprint has approximately 48 million homes and businesses, of which 25 million of those are already served with fiber. And I know one thing: with our 20-year experience in building fiber across this country, that we will continue to deploy Fios in the new footprint after closing.

Post-close, we will take the appropriate pace to build based on the following criteria. The first is the profitability of the build, the second is the competitive environment that we see that we're operating in, and the third is our capital allocation priorities. But over time, I want to be clear, my objective is to bring Fios to 35 million-40 million homes across the country. So I want to bring the whole network strategy together for you. The first is we build a shared multipurpose network with owners' economics to serve as many profitable connections as possible.... That strategy is built on the foundation we call the Intelligent Edge Network, which is rooted in our rich fiber assets, both in the ultra-long-haul network and in the metro networks across the country.

It also encompasses our converged IP core and our owned and operated Verizon Cloud platform, and our Mobile Edge Computing platform that serves both today's and tomorrow's technologies. This foundation gives my team and I the capability to provide that best, most reliable, highest-performing network to two access technologies. The first is the radio access network, and again, as I mentioned, we take a mobility-first approach. What that means is I deploy coverage and capacity to enhance the mobile experience for our customers and to find new revenue streams. The good news is, Fixed Wireless Access when we do that, and as we've said, we've been awfully successful in that space. Customers just love that product. So we will be accelerating our Ultra Wideband deployment.

I expect that by the end of this year, we'll have covered 70% of our planned footprint, and by the end of next year, through acceleration, we will get to 80%-90% of that planned footprint covered. We also have just recently launched our 100% virtualized 5G core network with standalone and slicing capabilities, and we'll talk a little bit more towards the end of this year, how we're gonna put those to use in the market. And then finally, we are the only company in this country that's actually running virtualized RAN at scale. 40% of my C-Band sites are now virtualized in the network. Shifting over to the fiber access network. I've been building Fios for 20 years or so now, and we're on track this year to pass approximately 500,000 premises.

Frontier, as you know, is on their way to pass 10 million premises by the end of 2026, and we are in 2025 targeting an expansion of our Fios build up to six hundred and fifty thousand premises. Post-close, I see that pace growing to up to 1 million+ premises per year. But what excites me more than anything after 20 years of doing this, is our business case on Fios is getting better and better, and that starts with the fact that customers demand high-quality broadband services more now than ever. So what we see is, when I do a build today, we see higher and faster penetration rates than we have with prior builds, and we pull through mobility benefits on both churn and ARPU. But I'm also finding new and creative ways to bring down the cost of deploying fiber, and that comes in three big chunks.

The first is partnerships with companies like Corning and CommScope, where they're delivering technology to do both reduction in the amount of fiber I have to deploy to serve homes, and the techniques and technologies that make it easier for my team to deploy. The second is, we've made, with Shankar's help, 20 years of systems and tools improvements through the whole process of building, designing, operating the network, and we're seeing great benefits from those systems and tools enhancements in the reduction of rework and efficiency of our build and operating of the network. And then the third is, we've made some strategic decisions of how to get legacy costs out of our network without having to deploy fiber to the entire wire center. So I can use other techniques to move customers to new technologies and remove legacy equipment without having to deploy fiber across an entire footprint.

Our network strategy is clear: to build and operate the best, most reliable, highest-performing network to power and empower how our customers live, work, and play. Let me leave you with this. My goal is to ensure more and more Americans have access to that best, most reliable network experience by expanding the best mobile and broadband networks through a disciplined capital approach. We do that by building the best networks, and over time, that includes a 5G Ultra Wideband network that will serve 300+ million Americans with 5G advanced features for today's and tomorrow's Fixed Wireless Access and Fios network that will serve over 100 million homes and businesses. I'm gonna turn it over now to Sampath, who will talk through how he'll ensure more customers get access to those great network experiences. Thanks, Sampath.

Sowmyanarayan Sampath (EVP and CEO of Consumer Group)

Joe, thank you. Very good morning to all of you. There are two things that Joe spoke about that really excites me. The first one is America's best wireless network continues to get bigger and even better, and the second one is our ability to offer broadband to one hundred million homes and businesses over a period of time. So with that, let me get into how we go about this. Look, Verizon's in a very unique position right now, because we have two engines of growth: mobility and broadband. Both these segments, both these businesses have secular tailwinds. There's huge demand for both of the products, and more importantly, Verizon has a good position and a lot of opportunity to grow in front of it. Let's start with mobility.

Look, in mobility, we are number one, if you look at our share position, our total revenue, and it starts with our postpaid business. We are seeing continued momentum in our postpaid business. With this quarter, we would have had seven quarters of consecutive year-on-year postpaid phone gross add momentum that we have in the business. And why did that happen? Some of it has to do with our sales engine that we've gone and re-engineered, you know, got back to the local market structure, local sales incentives, local marketing, and then second is myPlan. You know, myPlan, as I say, is on plan. Customers love it. You know, they like the structure of it, they like the ability to get access to unique offerings, and it's truly differentiated in the market. And you saw us, we had a strong quarter, 81,000 phone net adds in the space.

We will be postpaid phone net add positive with second number, without second number this year as well, as promised in our plan to do that. Next, we turn our attention to our value business, our prepaid, and we've bought TracFone, we've integrated TracFone, and we had really strong momentum in our business. We had 80,000 net add positive in our business, the best in many quarters, and a lot of that comes down to a core performance of our brands. We saw almost all our brands have very strong performance and momentum in the space. Two are exclusive distribution with Total Wireless, has scaled up really well, and you can see those stores everywhere. And third is our unique distribution position that we have within Walmart, and you're gonna see continued progress and continued momentum in our value business going forward.

That brings me to our third topic, which is churn. Now that we have our postpaid engine working well, our value turnaround in progress, I can turn my attention to the churn. There is nothing structurally that prevents Verizon from being an industry leader in retention and lower churn. We've been in that position before. We know how it feels, and more importantly, we know how we get there. In the short term, we made some trade-offs, some strategic trade-offs that Hans and I feel very good about to drive shareholder value. We had some pricing actions that do drive some churn in the space, but on balance, we feel very good about how we executed those, and often, churn is way less than some of our business cases had come in. The second is we are very disciplined about our retention spend.

You see that in our upgrade numbers. It has to be demand-led, customers have to want it, and we link our retention, retention promotions to the plans and the price plans that they have there. But over a period of time, you should expect lower churn from us from couple of things. The first one is better experience. You know, we are using AI significantly, both at stores, at our call centers. Second is myPlan and perks. As more and more of our base gets into the myPlan construct and takes more perks, that helps with the churn. Third is My Access or Verizon Access, our loyalty program, which I'll cover in a bit, that's gonna give us traction in that. And then the last one, which is probably the biggest lever, is gonna be more Mobile + Home customers.

When those two customers come together, we see huge reduction in churn, and that's gonna apply to a larger base as we expand our broadband offering more broadly. The fourth is margin-accretive add-on services. You know, in form of perks, in form of adjacent services, it's a continuous growth, and it's being very innovative every time we do that. We are taking the same approach we have with mobility to our broadband space. It first starts with momentum in sales. You saw that this quarter, strong momentum in sales on Fios and FWA. Similar tactics, similar promotions, but the construct is that same momentum we have and the same energy we bring to our broadband business as well. myHome has been a very successful launch. A lot of our base tends to like the perks. They are taking on our new customers.

When they come on board, they take on perks, and they like the ability to share their perks between mobile and home. And also sustained growth in ARPU. Look, when you build a long-term, sustainable subscription business like we've done, you have to balance P/Q. Over a period of time, I've spoken about this 80-20 contribution to service revenue, 'cause that's the big measure we measure ourselves on, is service revenue. I think with a positive phone net add trajectory, strong FWA, and Fios performance, we are on track to get to that 80-20 mix over a period of time. Now, we are in a very unique position, I think the only company, the only carrier, who has a scaled position in both FWA and in the fiber business.

And both these are top products, and when you combine them together, you get access to 100 million homes and businesses in the country. No other carrier offers that amount of coverage and depth that we offer in terms of serving our customers. Let's dig into each of these one by one. The first is FWA. Joe just spoke about moving from 60 million to 90 million homes and businesses covered, but what's interesting about the FWA base is it's a quality prime customer base. Our FIos score on FWA is north of 700, so it's a really strong customer base there. And the reason is, it's a high price-value equation. There's a huge segment of the market who love that, and because of that, you see very high NPS scores. I mean, think about it.

You could finish this, you could go to a store in five minutes, buy it, and in ten minutes after that, you could be in your apartment connected with the 5G Verizon FWA product. It's a huge competitive advantage. High NPS is a competitive advantage. Our pricing construct is a competitive advantage. We do not like promotions that roll off. You know, you get a customer on one price point, and in two years, you, the price changes. It annoys customer, and that's one of the reasons why it's a huge competitive advantage for us, because we continue to lead with that... and then you have fiber. You know, Joe spoke about 20 years. He's been working a little longer than 20 years in the fiber business. Look, we're the OG fiber players. Some people think it's a new thing.

We've been in this thing for 20+ years, and every year we find that the new cohorts that we bring on have better penetration than some of our older cohorts even, 'cause we get better. Joe gets better with the build, we get better with selling it, with targeting it, using digital to bring those pieces to bear to do that. But what's interesting is it's a world-class experience. Very, very high NPS scores that we have, very low churn, and most, a majority of our customers who come in take our Gig+ plan. Again, that's a competitive advantage, you know, around high NPS, high customer satisfaction. So over a period of time, with 100 million premises covered, we have a differentiated offering. We have an offering that is tiered, we have an offer that is segmented, FWA and fiber, and customers will choose.

At the end of the day, we want customers to choose what's right for them, and we're gonna be very transparent on what the pricing is and what a value prop is to grow that. And talking of value prop, I wanna spend some time talking about the Verizon model of convergence. The Verizon model of convergence is margin accretive, it is revenue accretive, and has very exactive ROIC. And at the end of the day, it is demand-led. You know, I do not believe in giving away one product to sell the other, or giving away one product to hold on to the other. We think we have the best wireless network, we have the best broadband offering, customers want it, and they're willing to pay a very fair price for it.

We do have some advantages for customer when they take both of those products together, but at the end of the day, it is demand-led, 'cause customer want to buy the best from both of us to do that. Now, let me talk a little bit about how this convergence comes to life, how convergence comes to life. Look, the first one, as you see on the page, is myHome and myPlan. It's. We launched both, and it's not a coincidence that both the offerings look very similar. You know, you buy a base connectivity, then you have access to these really unique perks. I mean, it's becoming a pretty big business for us, and customers can share perks across both those plans. The second is our app. You know, My Verizon app, we have a single app now for both, you know, for mobility and home.

So once you get a mobility customer, they see a home piece, and they can try out the home, and they can buy the home, and then vice versa to do that. And also, home Wi-Fi can control everything in a single app, and it does very well. The third thing is transparent pricing. It is very clear to customers what their savings are, and we're gonna keep innovating in this space. Because at the end of the day, customers want the best product, but they also want clear pricing upfront, and we do that every single time with our constructs that we have there. Fourth is distribution.

You know, we have a large distribution of stores and a digital footprint, and you can see over a period of time, we are able to distribute our Fios offering through our store network as well, and that's a huge upside to the business case. So you see that we are building the Verizon model of convergence, which is demand-led, and it's accretive to us. But where does the value come for Verizon and shareholders? Two big buckets: revenue. The first one is we will see penetration well north of 40% in our business, and as I said, every new cohort that we bring in actually gets to that a little faster than the previous cohort we do that space. And once we do that, once we acquire Frontier, and when we close on Frontier, we will have that as well.

And then as Joe builds out new networks, we will see similar penetration levels as we do that. The second is, in some of our big markets where we have fiber, our wireless market share is 500 basis points, or 5%, better than if we don't have fiber. So we can cross-sell mobility to our Frontier base when we close it, to our new cohorts of fiber that are coming in, but also customers who have access to fiber but don't have fiber today, we'll be able to cross-sell them. So two revenue upsides opportunity for us as we build out, our converged offering. The second is churn. You know, a couple of data points.

We see a 50% reduction in mobility churn when we bundle with fiber, and that's a huge lever for us, even broader, longer term on how we take churn down in the space. The second is our fiber churn, which is already world-class, one of the best in the world, will go down another 40% when we bundle mobility and fiber. That's a very unique position for us, and we see churn benefits on FWA as well. So what we are essentially building here is one of the world's best franchises for broadband, with FWA as well as with fiber, with best-in-class metrics, but more importantly, it's demand-led, and that's the Verizon model of convergence. Talking about demand-led, lot of the reason it's demand-led actually comes from our unique value prop. Let me start with this. You know, the bottom of layer is our connectivity layer.

Best network, Joe always says, "We will be the most reliable network." That's where our value comes from. It's the same network we have for broadband, for postpaid through myPlan, and our prepaid value brands as well. We keep tiering these. We have segments that go after it, and over a period of time, we'll have new sources of revenue. Let me touch on two of these. The first is Network Slicing. You know, it's a new currency. It's something that, you know, we should talk a little more about soon, and that'll have upside opportunity for us. Second is satellite connectivity. That's another new form of connectivity, and then new ways to monetize our overall connectivity network. On top of that, you get to our entertainment and adjacent services. We call them perks because you have to be a Verizon customer to get them.

That's the perk you get for being a Verizon customer, and we right now have seven million perks subscriptions on our network. And then guess what? They're gonna double by 2025. So we have a large revenue stream that customers find very compelling, it reduces churn for us, and is very margin-rich for us. So it covers a lot of pieces for us. And we're not stopping still, you know, we're gonna keep innovating. But to be on our network, to be part of our perks, it's gonna have to be compelling, it's gonna have to be exclusive to Verizon, and something our customers want, and they can save money with it. On top, we have our loyalty program, Verizon Access, or if you are a customer, it's just My Access, because it's your access, because it gives you access to two things.

One is always-on deals to some of the best premium brands out there. But second is once-in-a-lifetime, my kids call it bucket list-type, opportunities they have. You know, for example, you can skydive with the Broncos, or you can go to London to watch the, you know, the Jacksonville Jaguars, or you can actually toss a coin, you know, for the opening game. These are once-in-a-lifetime events for NFL, NHL, NBA, and some of the best musical acts out there. I don't know if you can score tickets for Taylor Swift, but definitely check in on the Verizon My Access plan to do that. As I wrap up, I want to leave you with two thoughts. The first is, we at Verizon right now have two engines for growth.

Two engines that have secular growth in front of them, two engines that have tailwinds, and where we have unique market position, but huge opportunity as well. You're gonna see us do the Verizon model of convergence, which is demand-led, which is give customers choice, be transparent about pricing, and offer them a huge set of services on top of that. We're gonna deepen our relationship with our customers and extract value for them and for ourselves in the process. The second is, over the last seven quarters, you've seen our vision and execution on the business. You're gonna give a lot of confidence you're gonna get from that, that we will execute on that for our mobility business, our broadband business, and the Verizon Converge business. With that, I'm gonna pass it over to Tony to talk about two things: a 3Q update, and more importantly, capital allocation.

Tony, take it away.

Tony Skiadas (EVP and CFO)

Thank you. Thanks, Sampath, and good morning, so our execution, as Sampath said, is really strong, and it's fueling the momentum in our business. Our third quarter results, you know, before we get into it, I do want to talk about the third quarter. Our ability to demonstrate customer growth and financial growth once again is a hallmark to our testament of execution, day in and day out, and we delivered the highest-ever reported Adjusted EBITDA in our quarter. We're on track, as Hans mentioned, with our 2024 guidance, and at or above the midpoint of our guided range for both wireless service revenue and Adjusted EBITDA.

If I go to the operational metrics for mobility, if you think about business and consumer, gross add and churn both improved year-over-year, and that drove phone net adds of 239,000 in the third quarter. That's a significant improvement year-over-year. And as Sampath mentioned, we expect the consumer business to have positive postpaid phone net adds for the full year, and that's with and without the second number offering. And that's in addition to the continued strength in phone net adds from our business segment, and that's quarter-after-quarter of strong growth. If you think about broadband, we have almost twelve million subscribers in our base, and Fios and FWA are both growing. On broadband, we had three hundred and eighty-nine thousand net adds in the quarter. That's another strong quarter for us.

And inside of that, if you think about FWA, we've grown our FWA subscriber base over 1.5 million in that time period. And as you heard from the team today, there's much more opportunity for us to expand further. If we move to the financials, Hans talked about how we're measured: service revenue, EBITDA, and free cash flow. If I start with service revenue, our service revenue is very healthy. Our wireless service revenue is up 3.1% year to date, or $1.8 billion. Our EBITDA continues to be strong, and even in a quarter where we delivered a very strong 12.5 billion of Adjusted EBITDA, we took actions around revenue and cost efficiencies to set us up for 2025.

That strong EBITDA led to free cash flow of $14.5 billion year to date, and that's consistent with the prior year, and that includes an increase of $2.5 billion in cash taxes. The cash generation of the business continues to be very strong, and we have ample flexibility and funding to execute on our capital allocation priorities. The business is performing well, and we have good momentum as we close 2024 and head into 2025. If I shift over to capital allocation, as many of you know, we have four capital allocation priorities, and they remain unchanged. Our first capital allocation priority is to invest in the business, and that includes investments in our network infrastructure, if you think about C-Band, if you think about Fios.

It includes M&A to accelerate our strategy, if you think about the pending acquisition of Frontier. It also includes being opportunistic with wireless spectrum, as evidenced by the deal we signed last week with UScellular. As we said before, we're back to BAU levels of capital spend, and we're on track with our 2024 capital program. If we look ahead to 2025, in terms of guidance for 2025. We expect 2025 capital expenditures to be in a range of $17.5 billion-$18.5 billion for the next year, and that's an all-in number that includes all of our growth initiatives. That includes C-Band and the continuation of rolling out C-Band. Joe talked about having 80%-90% of our sites on C-Band by the end of 2025.

It includes our Fios continued open-for-sale expansion, up to 650,000 new open for sale on Fios, and it includes the broadband MDU solution, the multi-dwelling solution that Joe mentioned. All of these things are included in that 17.5 to 18.5 number, and that range gives us the flexibility to both invest for growth and be disciplined and efficient with our capital spend. Our second priority is our commitment to the dividend, and as you've seen recently, we've raised the dividend for the 18th consecutive year. That's an accomplishment we're extremely proud of, and as we said many times, our goal is to put the board in a position for further dividend increases. Our third capital allocation priority is having a strong balance sheet. We've made significant progress delevering the balance sheet since the acquisition of C-Band.

As of the end of the third quarter, our unsecured leverage stands at two point five zero times. That's the ratio of net unsecured debt to Adjusted EBITDA. Our focus is to continue to pay down debt between now and the closing of the Frontier deal, and today, we're announcing an update to our long-term leverage target of 2.0 to 2.25x. Given our cash flows and overall financial strength, this is the appropriate range for a business to provide flexibility to invest for growth and return capital to shareholders. Our fourth capital allocation priority is share buybacks, and as we've said many times, we will consider share buybacks when our unsecured leverage metric reaches two and a quarter times, and that target is unchanged. As we work towards that target, we continue to focus on generating strong cash flows and paying down debt.

Our capital allocation strategy is disciplined and deliberate, and as you've seen from our track record, we'll continue to focus on operational execution and performance and deliver on our commitments. We're excited about the opportunities we have ahead, and with that, I'll turn it back to Hans.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Thank you, Tony. Let me just summarize our updates before we come to Q&A. I think you hopefully got the feeling that we are setting us up well for 2025 and beyond to continue the leadership in this market and extend it. So we talked about the networks that we're building. It should be the best and the best performing. I think that's been a focus, and really now with the C-Band coming quickly and our Fios build-out, we feel really good about it. It's been important for us to focus the last couple of years on the differentiated value proposition for our customers. We know that they're more important services than ever. To have mobility and broadband is a necessity for every organization, every person on this planet and in the United States.

The differentiated offerings that we're doing are enormously important, and they come from deep research what our customer really wants. And of course, together with a refreshed brand, should support us for the continuation. Tony talked about capital allocation, and you've seen us being very prudent with the capital allocation. We promised to come down to BAU levels. We are on BAU levels. We had the hike of the C-Band because we saw a great opportunity to quickly come out with that, and that we're coming down. We're now doing investment to expand our total addressable market with the same offering, the same network. That's the strategy we have. We stay there, and we see that we can continue to grow well and continue to create profitability and cash flow. So that's the overall strategy.

We are measured on three things: the wireless service revenue, the Adjusted EBITDA, and the cash flow. We are very committed, the whole team here, to continue to grow the service revenue and expand the EBITDA and cash flow going into 2025 and onwards with the investments we're doing right now, and where we stand with our strategy, where we stand with our assets, and where we stand with our offerings. All in all, we feel very positive where we are right now. We feel positive where the market is and our products. By that, I gonna close, and we're gonna have an open Q&A. Brady will help us to manage that. I have my whole management team here, and we even have pictures of them if you don't know who they are. They're sitting to the left here.

For the ones on the webcast, you can see them here. So they're all here, so I'm gonna diligently distribute the answers to them. Probably I'm gonna take some myself. Any questions you might have for us. Brady gonna do it, and remember, present yourself when you're gonna answer so the webcast audience know who's asking the question.

Brady Connor (Head of Investor Relations)

Okay. Can you hear me?

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Brady, start.

Brady Connor (Head of Investor Relations)

Yep. Okay, so I love the folks in the front row, but we're gonna go back right to start with Simon. And again, just please announce your name and firm, and since you're not on the camera.

Simon Flannery (Managing Director)

Great. Thanks very much. Simon Flannery, Morgan Stanley. Hans, I was interested in your latest thoughts on the BEAD program. You're clearly leaning into broadband. We're starting to see some of the states open up their processes. So how do you think about that as an opportunity beyond this? And then the other question would be around these markets, like the Northeast, where you have Fixed Wireless and fiber, how do you start to bifurcate-

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Yeah

Simon Flannery (Managing Director)

that opportunity? Or, 'cause I think in the past, you'd- if you had fiber, you hadn't really done Fixed Wireless, but does that start to blend a bit?

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

I'm gonna take some help from Joe later on, but I'm gonna start myself first. The BEAD Program is, of course, contemplated in everything we have here. In the Fios footprint, it's obvious we will go for it when it makes sense for us, both from a return on investment and so in our Fios footprint, there's gonna be great opportunities for us for sure, and we will be active on it. On the second one, when it comes to fiber Fixed Wireless Access, i think i hope that you heard from Joe. Fixed Wireless Access is a secondary business case on mobility.

So we, first of all, we deploy our C-Band for mobility, and the agreement that Joe and I have, and the whole team, is that we, we build mobility for two reasons: revenue generation, as well as customer satisfaction. And then we get to Fixed Wireless Access opportunity. so it's not really thinking about where we do Fios and Fixed Wireless Access. we do Fios, and we do, and we do mobility, then we create opportunities. And, and I always love what we are doing because we give optionality to our customers. There are customers that just kills to get Fios, but there's others that Fixed Wireless Access is the solution they want to have because of simplicity.

So we're gonna create optionality, and you saw the consumer slide that Sampath showed with the customer offering framework, I think it's called, where actually everything is in the same model, regardless what it takes. So that's how we think about it. Do you want to add something? Yes, he want to add something.

Joe Russo (EVP and President of Global Networks and Technology)

Yeah.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

So please come up here.

Joe Russo (EVP and President of Global Networks and Technology)

Okay. Yeah, just on BEAD, so we've built a very good process for managing subsidies, and we've been already receiving and winning subsidies in our Fios footprint. So as BEAD starts to get deployed, we'll deploy those same kind of standards and processes to participate. When I think about the $35 million-$40 million, it'll be a very, very small % that we think is BEAD. And we, you know, foresee that getting $35 million-$40 million will be with or without BEAD funding. Yeah.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Thank you. Next.

Brady Connor (Head of Investor Relations)

Okay, we're gonna work our way up. I'm gonna go second row. We'll go Hodulik on the end over here.

Thank you. I didn't think you'd see me behind these tall guys. First, starting with Fixed Wireless, thank you, guys, for the new targets. You know, just on the quick math, it seems like that the cadence is slowing a bit. You guys are doing, like, three hundred and sixty thousand a quarter. It looks like that slows to just sort of doing it ratably to under three hundred thousand. I just want to make sure if that's sort of what we should expect to see or if there's something different in the numbers. Then, you know, these new initiatives are great. You guys did 1.7% service revenue growth this quarter. Obviously, you don't want to give 2025 guidance, full guidance here, but should we expect an acceleration in service revenue growth from these initiatives?

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

On the future guidance, I'm gonna leave that to Tony. On the first question, I'm gonna start. I think to some extent, you're right. So think about this: We have had a target to create and get between three hundred and fifty to 400,000 new broadband subscribers every quarter, and I think we've had that for I'm not sure how many quarters. Sometimes up to four hundred, sometimes a little bit north of three fifty. What is happening right now is two things. First Fixed Wireless Access is going into a second sort of transformation because the C-Band is now going to suburban and rural. Of course, the opportunity is equally big, but the density is way less.

So we're gonna see for a while that OFS is gonna be a little bit less. And the second one is, as we're ramping up the Fios, you saw that we're doing some $450-$500, go to $650. It's a ramp up. In the short term, I think you're gonna be in the lower end of that $350, and then I think when you see the ramping up of both of them, you're gonna see a little bit different. I wouldn't say that we have changed anything on the pace. It's just a technicality of how we build right now and how we're ramping up Fios and actually going suburban to rural with our C-Band, so those sort of things. Tony, do you want to talk about guidance 2025 now?

Tony Skiadas (EVP and CFO)

Sure.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Good, great. I'm eager to hear.

Tony Skiadas (EVP and CFO)

Hey, John, thanks for the question. So look, as we said this morning, we're on track with our service revenue. We said we'd be at or above the midpoint on service revenue. If we think about next year, I'm not gonna guide on 2025 right now, but in terms of puts and takes, we've taken a lot of actions to position ourselves for a sustained growth. So that includes the P/Q that you heard from Sampath, so volume improvements in pricing, and Fixed Wireless Access, and you see the great growth that Fixed Wireless Access. prepaid has now, Sampath mentioned, turned positive, so that's been a headwind this year. We would expect that to start to turn next year. We're still facing headwinds with parameterization.

So those are the puts and takes as we head into next year, and we'll bring it back to you in January.

That's great. Thanks, guys.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Next.

Brady Connor (Head of Investor Relations)

All right, we're working our way up to the front row. We're gonna go... We'll go Barden here on the end, the first tall person.

David Barden (Bank of America)

You don't have to sound so excited about that, Brady. David Barden from Bank of America. Thanks, Hans. So if my base case is that the tax regime remains the same, cash taxes are going up, CapEx is going up, working capital, if the iPhone becomes a bigger thing, it's not going down-

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

.might go up. There's a lot of assumptions here. Continue.

David Barden (Bank of America)

No, those are not so much assumptions. And then, then you're gonna do the Frontier deal, and they're not free cash flow positive. So is the message financially to you and Tony that 2024 is the high watermark for free cash flow at Verizon? Because it doesn't seem like there's a lot of dials to turn to kind of make it get a lot better. And the second question, if I could, would be, there's some agitators at Frontier that want you guys to pay a higher price, bid against yourselves, in that process. And you spoke a lot about how important it is to have this 100 million homes passed and the Verizon version of convergence. What are you willing to do to get that deal done?

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Okay, I'll leave the capital allocation for you, but I think that of course you can always find headwinds. We have a lot of... or tailwinds as well in cash flow, and we will be very focused on that. I will let Tony go through with the puts and takes on that. On the Frontier deal, I mean, first of all, if you have read the proxy, which you probably have done, it was a competitive process. We were asked for the best and final. We gave the best and final. We have a signed agreement and a contract for a merger, now it's up to Frontier's shareholders to make the vote. We always have different type of strategies. We will continue to have that. This fitting in well right now.

We're gonna see what's gonna happen, but we feel really confident that this is, it's fair and good for all stakeholders. Tony?

Tony Skiadas (EVP and CFO)

Hey, Dave. So we're not gonna get got on free cash flow, but a few things. I mean, you know, the same puts and takes that we shared at the beginning of the year still remain intact. So you see the EBITDA growth, and that's the, the focus for next year. Interest, you know, in terms of deleveraging, we'll have to see where rates go. That'll have an impact. And then cash taxes, as you mentioned, they're up this year. We'll have to see what happens on the legislative front. They're gonna be up, you know, we said $2.5 billion so far this year. We'll see where that goes. And, you know, working capital, we're not seeing a big upgrade cycle right now.

The upgrades are down 10% right now, and customers are choosing to hang on to their phones a lot longer, and that's by choice. The average upgrade rate, and Sampath can correct me, but it's probably 40 months or so. So that hasn't changed. So we're gonna continue to stay disciplined and segmented in our approach. And then we'll come back on our thoughts on cash flow back in January. Thanks.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Thank you. Next?

Brady Connor (Head of Investor Relations)

I'm going front row over here to Peter next.

Peter Supino (Managing Director and Senior Analyst)

Hi. Thanks, Brady. Thanks, Hans. Peter Supino with Wolfe Research. Question on fiber, and really about the rate of expansion. Your target, plus a lot of other publicly available targets,

And a guesstimate about how many private fiber passings there are in the country, summed over a hundred million homes. Population density observations, nobody has perfect information, lead us to think that maybe you should be in a hurry to build as many homes as you can, and yet your current velocity of expansion is still much slower than a couple of other companies. Wondering how you think about the speed at which you want to pursue the targets that you laid out here today? Thanks.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Thank you. I think about broadband. That's the thinking I have, and the team has that as well. That means that we include both our Fios as Fixed Wireless Access as broadband solutions. And as you have seen lately, they're doing well, both of them, and that's how we think about our customers, and we create optionality. So I think that nobody else is building on the pace that we are doing in the combination of it. That's how are we thinking. And remember, we build the network once, and then at the edge of the network, we decide what type of connections we have. Sometimes it's Fios, sometimes it's 4G, sometimes Fixed Wireless Access, and then we get the best return on investment on the invested capital because we do it once.

So that's the thinking we have, and that's how we serve our customers. So I feel good about the pace we have and the and how we're deploying this, again, with a financial mind in behind it to see that we get the best return on investment for our shareholders. Anybody want to add something to that? Okay, then you don't need to. Next.

Brady Connor (Head of Investor Relations)

Okay, come back in the middle of the room here. We'll do Jim and then Sebastiano.

Jim Schneider (Technology Equity Research)

Thanks. Jim Schneider from Goldman Sachs. Just a couple of quick questions on the network side, if I could.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Yeah.

Jim Schneider (Technology Equity Research)

The first is on, just in terms of the longer term, the Fixed Wireless targets, do those sort of include or not include any dedicated spending purely for Fixed Wireless? I know you said it's mobility-led-

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Mm-hmm

Jim Schneider (Technology Equity Research)

... but does it include any of that and talk about the part of that, which is small cells, if any and then maybe tactically for 2025, can you maybe talk about the drivers of the CapEx increase? How much of that increase is coming on the wireless side, on macro cells? How much of that is coming from fiber, et cetera? Thank you.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

On the first question, is no, Fixed Wireless Access in the plan that we're presenting today. That's an optionality we have for the future. Right now, again, we believe in our design principles, because that makes the operation easier, it makes it easier for our customer, it makes it better for our capital. That doesn't exclude it in the future, that we Fixed Wireless Access. and then, of course, I'm sure that Joe is building more capacity, so Kyle and Sampath has an opportunity to leverage on that. But in this plan, it's mobility first in all our C-Band. The second question is about the increase or the BAU level you have right now. How much is macro? You heard about what we said.

We were trying to go to 80%-90% of our planned radios having C-Band. And then you see the Fios up to 650. I think those are two important one. There are other things coming down to some extent in our normal build because we have sort of come pretty far on the 4G, and we see much more traffic on the 5G. We have gone very far on our small cell with Millimeter Wave that is capturing a lot of our traffic in dense areas. That's a little bit smaller today. That doesn't mean we don't believe in it. We think it's super important. So I think those are the puts and takes in the CapEx. Joe?

Joe Russo (EVP and President of Global Networks and Technology)

Yeah. I'll just add on small cells, and I mentioned it. But we started probably about six months ago now, deploying C-Band on small cells.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Mm.

Joe Russo (EVP and President of Global Networks and Technology)

And I've seen really good success with putting that technology on our vast small cell network, giving us more coverage and certainly more capacity for Fixed Wireless Access. so, my view is that'll continue in this four-year build program, as we'll leverage what we've done both with our Millimeter Wave small cells, and we had a pretty significant small cell network even for the 4G network, leveraging now C-Band on those has really proven to be a great tool to add coverage and capacity.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

One other thing that is increasing, which he mentioned, was, of course, the MDU solution we have now Fixed Wireless Access using millimeter wave. We have talked about it. We're going to put that in commercial use in next year. So that's, of course, also an opportunity, but of course, with a great return on investment.

Brady Connor (Head of Investor Relations)

Okay. Sebastiano, and then we'll go up here front row to Greg.

Sebastiano Petti (Senior Research Analyst)

Hi, Sebastiano Petti, JPMorgan. I guess just following up on Jim and kind of Dave's question as well, but help us think about the shape of CapEx over the next several years, because the $17.5, on a standalone basis, I guess, $17.5 billion-$18.5 billion includes the MDUs, the Ultra Wideband build, as well as the $650 million.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

It's a range between seventeen and a half and eighteen and a half.

Sebastiano Petti (Senior Research Analyst)

Yes, yes. So within that range, is there any maybe perhaps milestones or things like that that are more elevated next year that begin to peel off, like the MDU or the Ultra Wideband build? Should we think about it as being more steady state over the next several years?

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

As I said, I think that this is a BAU level that we have in a steady state. I'm not going to guide for future years. I always said that if we see an opportunity where we can grow faster and we can invest more in CapEx, we will explain that to you if we go outside the normal BAU levels. Right now, we don't see that. Remember, we have talked about there's no auctions for spectrum coming out at the moment. Usually, that is triggering or a new. We don't even think 6G is in any of the plan of records we have right now. So it's a lot of things that usually catapult to higher investment level. We don't see them right now. So BAU is this level we are right now, 17, 17.5, up to 18.5.

That, that's where we're going to spend it, but ultimately, if we see opportunities, remember the capital allocation priorities, we spend it in business, but we're also going to explain that is something additionally we can get and that we can share with our shareholders. But right now, the BAU levels are where what you see from us right now. The big triggering events that you sometimes have, it's going to come 5G, it's going to go on spectrum auction. I don't have visibility of anything on that at the moment.

Sebastiano Petti (Senior Research Analyst)

Okay, thank you. And then maybe one for Sampath. I mean, what underlies the confidence as we kind of think about the 820 service revenue growth and the sustainability of, I guess, the volume side of the equation as you kind of think about maybe tougher comps on the gross add side, you know, the EIP dynamics, and, you know, help us maybe think about the levers of sustained consumer volumes?

Sowmyanarayan Sampath (EVP and CEO of Consumer Group)

Yeah, look, I think it comes back. We've had seven quarters of strong growth side, year-on-year growth coming into this. And all the efforts that we've put in, whether it's local marketing, going back to market structure, sales incentive, myPlan, just better execution on the ground, we'll continue to see growth side improvement in our business going forward. So I think that's a machine that we've gotten back to the right phase, and you're going to see continued growth on that. The second comes down to churn. You know, as I mentioned, there's nothing structurally that prevents us from getting back to leadership position on customer retention and churn. We made some strong short-term strategic trade-offs, which are the right things to do.

Sebastiano Petti (Senior Research Analyst)

Yeah.

Sowmyanarayan Sampath (EVP and CEO of Consumer Group)

But over a period of time, churn will start coming down. Mobile + Home offerings, converged offerings, is probably the biggest lever that we have there, but then myPlan, some of our loyalty programs, and then just better execution on the churn piece as well. So you're going to see both things coming in, you know, continued progression on growth side, momentum, and then better churn. When you put both of them together, that's how we're going to sustain a net add growth over a period of time to do that. The second is on the price side. Look, we've had four or five price increases, depending on how you count it, over the last years, and in every case, the churn has been less than, less than what we thought coming in.

So customers like our product, they like our offering, and you're going to see continued ways in which we can earn the trust of the customer. The last one is there is another type of price increase, which is earned price increase. You know, if you look at the chart where I had the customer offering framework, we are able to upsell our customers, upsell them on the type of plans, but also upsell them on perks and other things. We have seven million perks in our business right now. That's going to double this time next year. So you're going to see a lot of momentum on the price side, just by our ability to earn those price ups that we have.

A combination of gross adds, better churn, and also ability to upsell our customer, both on connectivity and some of the other offerings that we have. When you put all of that in, I get really comfortable about the 820 framework that we laid out, that we are going to on a right path to get there.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Great. Thank you. Next?

Brady Connor (Head of Investor Relations)

Yeah, we're going to go Greg, in the front row over here, and then we'll start mixing around.

Sure, thanks. Another CapEx question, but more situated on the B2B opportunity.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Yeah.

One of your peers has been putting out a few press releases on GenAI fiber.

Yeah.

You have a lot of fiber, both in footprint and from the One Fiber build and your old XO acquisition. So I'm just curious on your latest thinkings on the economics and the opportunities there.

Thank you. I think I'm gonna ask Kyle to comment on that. If we talk about the Gen AI opportunities, I've talked about a three-pronged Gen AI strategy we have. We have employee experience improvements, they right now already in the market when it comes to call agents, et cetera. We have our personalization for customers, and then we have our revenue opportunity. And, as I alluded to, given the assets we have in, in our network, we see great opportunities for having a chance to earn business there, which we've already done. But maybe Kyle, you can talk a little bit more about it.

Kyle Malady (EVP and CEO of Verizon Business Group)

Sure. As you rightly bring up, you know, the investments we've made before in, say, One Fiber and all the other fiber, and all the COs and everything we've done, we're kind of reimagining those assets right now, as how do we... and how we can sell into this. Actually, right now, we're already selling into it. We're getting a lot of good orders from, you know, hyperscalers, either on dark fiber or lit, and we can, we're gonna see that growing. We have more than that, not just the fiber, it's the power space and cooling, which you know is in really high demand, and we have a lot of latent assets in that area. So at the moment, we're putting it together. I talked to somebody before, we're gonna measure twice and cut once.

We're figuring out exactly how we're gonna go into this market. It's a huge market, we can't cover it all, but there's certain segments we might be better off in than others, and that's. We'll be back here pretty soon talking to you about it. It's a great opportunity for us.

Got it. Thanks.

Brady Connor (Head of Investor Relations)

Okay, we're gonna go, we're gonna go over here. We're gonna go Brandon, and then Mike Rollins.

Brandon Nispel (Equity Research Analyst)

Thanks. Brandon Nispel with KeyBanc. I was hoping you could maybe unpack the Fixed Wireless targets in the homes passed from the perspective of maybe proportion of MDUs versus single family, Tier 1, Tier 2, Tier 3 markets, and percentage of Millimeter Wave versus C-Band.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

That's a lot of unpacking in that one. I'm not sure, Joe, you want to do it or something, but of course, we, as I said before, the C-Band deployment goes to suburban and rural because we start in urban areas, because that's where we got the spectrum first. That's another opportunity. It's a great opportunity, but less density. So I think that's one thing that's happening. The MDU is just adding to coming back to some of the places with dense areas where we can do the MDU solution. So I think it's a combination of them all. I'm not sure it's a special distribution or something, if somebody want to. We just deploy our technology from a mobility point of view, and then we get all the opportunities around it.

Again, there's no success-based sort of Fixed Wireless Access. it comes along with everything else we're doing. But again, it's a great investment. Mobility is performing better when we have C-Band, both from churn and from step-ups, and Fixed Wireless Access. so it makes all the sense for us to deploy it in the right way, where we find the revenue, and that's what Joe is doing. Anything else you want to add? You sure? Okay. I'm not sure. I understand the question, but you know, this is sort of we have the framework and a plan of record, how we're deploying this, and it comes along with that.

And then both Kyle and Sampath are selling into those open for sale that is coming out from either the MDUs or from the C-Band deployment.

Mike Rollins (Communications Services and Infrastructure Analyst)

Thanks. Mike Rollins from Citi. I want to follow up on this question, but maybe in a different way.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Uh-huh.

Mike Rollins (Communications Services and Infrastructure Analyst)

The Mobility First is gonna take Ultra Wideband to 80%-90% of population and presumably households end of next year, and maybe 90%+ over time. But the FWA target is roughly, like, 60% of homes. What holds that percentage back relative to the 90%+, and what would be the catalyst to try to unlock that additional 30 points of penetration? And then just a second question, if I could. When you look at building fiber, and the team mentioned some of the progress in building and dynamics, what's the base case for penetration-

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Yeah

Mike Rollins (Communications Services and Infrastructure Analyst)

... and ARPU's from the fiber builds, let's say, over a five-year period?

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

On the first one, I assume my team always want to beat the targets. We give you one target, the team is working to really beat and do it better and faster. You saw what we did last time. We said $4 million-$5 million. We beat that target with 15 months. So, I think the team and are building ahead. So but right now, that's the target. There's always a time lag from when you deploy the technology and when you get the revenue and the subscribers. So I guess those are two questions. On the second question, Sampath, I think you can answer on that. You can answer on the first one if you want to correct me.

Sowmyanarayan Sampath (EVP and CEO of Consumer Group)

Yeah. No, I will not do that today.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Okay. Okay, thank you.

Sowmyanarayan Sampath (EVP and CEO of Consumer Group)

Look, on the second, the way you think about first is penetration. You know, just have been in this business for 20 years. We see penetration well north of 40% in our space as we do that space. I think now we get more comfort because we'll have more mobility to bear into that space as well, so well north of 40% penetration, we do that. But the second thing we are seeing is every new cohort that we bring into the market tends to have better one-year penetration than the previous cohort. So it gives us more confidence that... And you would think, you know, when we get to the end of our build, we are getting to the less attractive, but that's not the case. Our first-year penetration is actually better this year than it was last year and other.

Some has to do with the way we market and the way Joe and my team work together to pre-sell some of that capacity to do that. In terms of ARPU, I know we don't report a specific broadband ARPU number, but look, we tend to do very well. We are industry-leading. If you look at Frontier, Frontier's ARPU numbers, we'll have continuous growth on top of that because our customers on broadband sit in the myHome framework, where they come, they buy the connectivity piece. And look, majority of our customers take the one Gig+ plan.

... coming in. So that gives us a boost in ARPU, and then we start selling perks and other adjacent services on top of that. So we'll see good, comfortable ARPU growth with a Gig+ plan, ARPU growth on that, and then north of 40% penetration pretty much across our fiber footprint as well.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Thank you. Next.

Brady Connor (Head of Investor Relations)

Okay, let's go. We're gonna go Frank, back here in the back row, and then we'll come back up to Tim in the front row over here.

Frank Louthan (Managing Director of Communications Services)

All right, great. Frank Louthan with Raymond James. So on the Fixed Wireless, what is sort of the outlook for that on the business side? Are those 8 million, 9 million, 10 million subs include business type two replacement? Can you comment on that? And then getting to 35 million or so homes passed with wireless is a pretty high percentage.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Yeah.

Frank Louthan (Managing Director of Communications Services)

Can you get there without additional M&A, or does that include BEAD or other government subsidy?

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

The second one, it doesn't include any M&A, and besides the one we have planned, that I have announced, and BEAD, as Joe said, there's no, they're small pieces. That will not rock the boat. We will make our numbers regardless of BEAD or not. We will, of course, participate in BEAD if we can, too. On the business side, those are in the number eight to nine, yes, business side is included, and I have to say, one of the things that Kyle and I are more surprised than others is, of course, the success we've had on the business side. Maybe you should talk Fixed Wireless Access on the business side, Kyle.

Kyle Malady (EVP and CEO of Verizon Business Group)

Yeah, listen, Frank, thanks for the question. We continue to see this as great opportunity. Like I said before, we actually did a little bit better with this product than we thought we might. And what's interesting is enterprises, small businesses are figuring out different ways to use this connectivity. It's just not for broadband like you would see in a consumer world. So we think people are gonna continue to innovate with it, and so these new open for sales that Joe and his team are putting together for us, we feel we can accelerate and really sell into this thing. I'm also excited about what you hear about using Millimeter Wave for MDU. A lot of these MDUs also have stores or businesses in them.

Frank Louthan (Managing Director of Communications Services)

Yeah

Kyle Malady (EVP and CEO of Verizon Business Group)

... and so we'll be able to leverage that that investment as well to increase our market share in this area. So a lot of work to do, but we're really happy with the plans that Joe's put out for us to sell into.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

The good thing from a sort of a utility point of view, many of the customers that Kyle have, Fixed Wireless Access on certain hours, the consumers are another hour. So this is just using the utility even better that we can sell in and we can monetize all hours of the day with our network. Next.

Brady Connor (Head of Investor Relations)

Come up here to Tim in the front row.

Tim Horan (Managing Director and Senior Analyst)

Thank you. Tim Horan, Oppenheimer. We're seeing pretty unprecedented improvements in technology across the board, satellite, AI, you know, what you're talking about here with standalone. Can these be material drivers to the business model? Both maybe just talk a little bit about incremental revenue from all of these, and maybe the ability to, you know, use AI to automate it and digitize a lot more. And specifically, your satellite direct to phone, direct to mobile-

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Mm

Tim Horan (Managing Director and Senior Analyst)

... you know, can that be a real needle mover in terms of overall, you know, growth rates for the company? Thanks.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

I think AI is definitely over a timeframe. So how Kyle and I think about AI, generative AI especially, in the beginning right now, we see large language models going to the big data centers out to the market all the time. As soon as there're gonna be an application that you're gonna use as an enterprise, you're gonna put it much closer, for the main reason of the transport cost, for privacy, for security, and in some cases also latency, maybe not equally much. But then you're gonna see a big opportunity for us, given what Kyle talked about. We will come back a little bit more specific on it, but definitely. But it's gonna take some time from all these large language models to be real product and sitting in the edge of the network. So that's clear.

Slicing is another area we talked about. We believe that we will probably start more in the business side, and then we'll come to consumer side, and that we see as an opportunity as well. On the satellite, little bit too early to see how large opportunity can be. I have to say, because, of course, we're gonna offer satellite to our customers in the white spaces where we are not allowed to build, for example, and see direct to device. Little bit too early on the consumer side to see if that's a business case. On the business side, yes, we can see that already for remote enterprise or things like that. So those three are new revenue opportunities on top of everything we've talked about here.

Brady Connor (Head of Investor Relations)

Okay, we're doing fine on time, so we're gonna get to everybody, so just be patient. So we're gonna go front row with Walt right here.

Walter Piecyk (Partner and TMT Analyst)

Walt Piecyk from LightShed. So the 2% to 3.5% growth you had historically, there was a lot of doubts whether Sampath was gonna deliver on the units. Obviously, it's gonna come down in the fourth quarter, but it looks like the Q of the P/Q is happening. Just had a price increase, which should accelerate the post-paid growth.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Mm-hmm

Walter Piecyk (Partner and TMT Analyst)

... in the fourth quarter at a time when people are concerned about the economy, right? So you've got, it seems like, some decent strength there. Now, you're investing in fiber, you're investing in Fixed Wireless. Who knows where inflation is, but is the board now expecting you to deliver higher than this 3% growth? Again, you've got postpaid working, now you're talking about prepaid growing. You're making new investments. Shouldn't the expectation be that the, that total wireless number, not 2025 guide, Tony, but like... you know, at some point, getting to a, a, what is considered... I mean, T-Mobile is considered a growth company, and what are they doing, like 4%, 5% growth? Like, so... delivering that type of growth? That's my first question.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Yeah, it was a good question, Walt. There was a lot of things to unpack there, but ultimately, you're right on many things we're doing. You're right. We're trying to turn everything right, but we also had some headwinds, you know, that with the promo amortization, for example, that is a headwind for us. So, but all in all, our focus is to really do right and do more value for our customers, and I think we have proven now the last six, seven quarters that we talked about, that we can do it. Not gonna go into confirming any of your growth numbers or percentages, but we are incentivized to grow our wire service revenue. That, that's part of it. All the teams sitting there and all the V teamers, that's, they are incentivized to do that.

So of course our focus is gonna be that because we have a leverage model. If we grow, it basically falls down even more to the bottom line, and then we can both improve our cash flow and our Adjusted EBITDA. So all the things you're saying is what we're doing on. I'm not gonna commit to any numbers, but clearly that's our is to grow faster over time or be sustainable. That's very important for us, because that is how we return both cash flow to our shareholders and continue to be an attractive stock to invest in.

Walter Piecyk (Partner and TMT Analyst)

Okay, and then just one quick one, because you know I, like, care about the Apple stuff. I think Tony was very clear on where the current upgrade rates are, but the new narrative is, "Oh, even though AI sucks now, it's gonna be better over the next couple of years.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Uh-huh.

Walter Piecyk (Partner and TMT Analyst)

Just kind of your viewpoint on... 'Cause you have to manage cash, right, based on upgrades over the next two years, do you think, you know, AI is something that is gonna stimulate the upgrade rates within the wireless, whether it's Verizon or just broadly in the industry? Thanks.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

It's a little bit too early to say. I mean, many of the AI application, of course, are very helpful, but when it comes to consumer devices, we also need to think about the processing power for this application if you want to do something really innovative. So I think it's a little bit too early to call that. I usually say historically, when we're seeing sort of cycles in our industry, it has been 4G to 5G or hardware redesign. Those are the things that have triggered it. Now we're talking about, is a software cycle gonna do it? It's too early for us to say, at least. We're so far, and I'm looking at my colleagues here, we haven't seen that. We haven't seen that it's creating the cycle, but it's too early to say. We're gonna be...

If it's gonna happen, we're gonna continue to be very disciplined in how we do promotions. We're gonna have the right promotions for the right customers at the right moment, in the right segment, with the right type of value. So we will continue the work we started somewhere in 2023 with segmenting approach on everything we're doing. Remember, I look at this as a customer sort of investment that we have, all the way from promotions, retention, and media. For me, that's one bucket, how I drive the market, and that's tight budget for us, but it's very flexible. I see Leslie is here in marketing, Sam is here, Kyle is here. We sit down all the time and say, "Should we put more on retention? Should we do more on promotion?

Should we do more on media?" That is an ongoing work for us that is dynamic nowadays. Historically, it has been a little bit more static, but where the market is right now, this is super important to be good at this. And then AI comes in, so you can be even better to see that we're targeting our customer segment here needs more offerings here. We need to come from here. We need more media, we need more retention. All that is a new world, where we are in a world where wireless and broadband is such a necessity. Everybody needs to have it, if you're a business or if you're an individual consumer, and we have the best products in both of them. We just need to see that we are creating the value for our customers, and we can go with them upwards.

This is something we spend enormous lot of time on because we are getting into a new phase of our industry, where I think that... I don't think we have ever been as good position as we are right now.

Brady Connor (Head of Investor Relations)

All right, we're gonna go. There's still hands up. Okay, we're gonna go, we're gonna go Kannan over here, and then Kutgun, then we're gonna come back to Laurent, and then we'll finish with Jonathan and John. Eventually.

So maybe, I guess, to start with on Fixed Wireless, I mean, I don't know if this understanding is correct, but it just feels like the approach or the go-to-market strategy is mutually exclusive between fiber and Fixed Wireless, in the sense that, you know, I don't think that's the approach some of your peers are taking, where Fixed Wireless is, you know, top of the funnel. You upgrade people to fiber and, you know, it becomes a different path. For you, it seems like a TAM opportunity where you expand the market. So first, I want to get an understanding of, you know, whether that's the go-to-market approach.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Yeah, we can confirm that one.

Okay.

Yeah, that, that is it. I mean, we want to create optionality, and that's how we build the networks. Different customers want fiber or Fios, Fixed Wireless Access. we want to create that opportunity.

Got it. And then in-

We don't want to miss out on any of the segments because they like one product and the other. We are trying to address both of them, and that's what the plan you see here.

Got it. And then from a capital allocation perspective, I mean, when you think about your peers, they're obviously using a slightly different approach when it comes to investing in fiber with JVs and, you know, maybe more localized kind of an approach in different parts of the country using these JVs, and you've followed more of an on-balance sheet approach. Is that an option you have in the future to look at some of these structures, or is this something that you've made a deliberate choice on, that this is-

No, it's not a deliberate choice. It is. We look into everything, and it's an option, but again, it has to be a good return on investment. So far, we haven't found any third-party partner models where we don't own the capital and somebody else own the capital, that is really attractive with our return on capital, because we have one of the best returns on capital in the industry, and we want to see that that continues. So far it has been organic, we're doing it, but nothing is excluded here.

I mean, I usually say that, as a CEO, you can never say that I'm never gonna do it or - and then suddenly you do it, then everybody say, "You told us not." But so I couldn't exclude it, but so far we haven't found any of those models that we think is attractive in our capital allocation and our return to our shareholders.

Brady Connor (Head of Investor Relations)

Next. We'll go to Kannan next.

Kutgun Maral (Equity Research Analyst)

Thanks. Kutgun Maral with Evercore ISI. Maybe for Sampath, I had a question about the, your perks portfolio. And, you know, the 7 million subscriptions you mentioned is pretty impressive, fairly ambitious targets to double that going forward. You know, are you happy with the portfolio now? Do you see that changing? And as you expand that, does your relationship, wholesale partnerships, you know, does that dynamic change and your economics evolve, especially with the entertainment partners that you have?

Sowmyanarayan Sampath (EVP and CEO of Consumer Group)

Look, I think, you know, when we started launching myPlan, our sales teams were getting used to this. It was selling more. Our customers were also getting used to it. So, if you look at our attach rate, it has grown significantly from when we launched at the beginning of the year to where we are now. Teams are getting more comfortable in that. So that's why we get the seven million. We'll double that. You know, at $10 a pop, you can do the math on where it goes. What we tend to find is the perks that do well for us are ones that are exclusive to us, ones that have maximum savings, and then one just have a very strong value prop for the customer.

So you will not see us have a very long tail on that, because what it does is it doesn't focus the attention of the sales teams and our digital efforts to do that. So we'll continue with our approach of having fewer, deeper relationships. Like, right now, we have deep relations with Apple, with Disney, with Netflix, with Max, some of our own perks as well. And look, also, it has to be margin accretive to us as well. You know, we've been quite open about this. This is a margin play as much as it's a revenue play for us. So fewer, more concentrated perks makes a lot more sense, and that, in effect, kind of answers your second part of the question. We tend to have more leverage over our partners, and that drives better economics for us in the process.

But we are really excited about getting to double this perk portfolio with a pretty margin-rich pool that we have right now.

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Then adding also, Sampath, that some of the combinations, we are unique. We're the only one can do those combinations that we have had. For example, Max and Netflix in the market, nobody can combine that. That's how we have negotiated, so we have this flexibility and exclusivity to do it, and that is what is driving quite a lot of things. All in all, every perk we have, it's a saving for you, for our customer. And of course, it's also a saving for our partners, because ultimately, they're wholesaling to us. They don't have the cost of acquisition. But again, we only do it when we... it's accretive for us, as well.

Has to be accretive for the customer, has to be accretive to us, and then we go forward. And we're creating a very unique model, and sometimes you might think this is pretty simple, but I'm looking at Shankar with his our head of IT. Just imagine you can come into the store and actually be a Netflix customer and move over to be a Netflix customer through Verizon. We take care of all of that back end. The only thing you need to remember is your password, and sometimes that might be a problem, I know. But just imagine how much work we have done to make this a unique offering that is hard to replicate.

First of all, some of them are exclusive, and number two, you need to replicate a lot of things behind, because if you're gonna go home, and then you log off, and then you log on, and cancel, and everything, I think I can tell you the hit rate is low, extremely low. And that's why we have worked so much with the customer experience here to do this in the right way. And I think that Sampath, and Leslie, and Shankar, and the whole team has thought about how we make this simple for our customers. So I think this is just the beginning of us using the distribution as a strategy. We have the network, we have the distribution, we're just gonna continue to do the right thing for our customers, and that's gonna pay off long term for us.

Brady Connor (Head of Investor Relations)

All right, so the clock is ticking down. We have time for one more. We're gonna go to Laurent here in the back.

Laurent Yoon (US Media and Telecom Senior Analyst)

Sorry, Sampath, one more question for you. This is Laurent Yoon from Bernstein. You mentioned the 500 basis points incremental penetration of wireless and where you have fiber. Can you give us some color on correlation versus causation?

For that number? And secondly, how important is that observation, or more explicitly, is any of that, you know, the expectation of incremental wireless built into your fiber business case, you know, going to 35 million to 40 million passes?

Sowmyanarayan Sampath (EVP and CEO of Consumer Group)

Yeah, let me answer the second part first. Look, we feel comfortable between Joe, Tony, and I on this 35 million-40 million, is fiber economics is getting better over time. Two reasons. The first one is, you know, cost. As Joe said, we're getting better on technology, better systems. We're able to take cost out of the process. Second is penetration. You know, A, north of 40% penetration, but also how quickly we get to that north of 40%. That's another important factor. Another important factor, Laurent, is the first-year penetration, how quickly we get to first-year penetration. And as I said, we keep getting better every year on how quickly we get to year-one penetration in that. So those are some of the factors that make fiber really attractive.

On top of that, now you have the Mobile + Home benefits that historically we've not had or not spent enough time on. So that's kind of a cherry on top of the whole sundae in terms of why fiber... cherry on top of the whole sundae in terms of why fiber economics looks really strong going forward to do that. To answer your first part of the question, if we see 500 basis points, a 5% better wireless market share, in tier one, large tier one markets where we have fiber, look, I think there is a lot of it is driven by causation, because you have better brand. We're able to spend more money on marketing in those local markets. Two is also distribution. You know, historically, we've not had our stores get involved in fiber sale.

Now, we have a sales motion where all our stores, especially in the Northeast, get more involved in the fiber sale. You saw that this quarter. We actually launched it this quarter when we do that. So better marketing, we're able to double down efforts, but also you tend to get the cross-sell opportunity in that. So I think a lot of it is causation going forward. So there will be upside at, in our mobility case, as we continue to get to 35 million-40 million homes of fiber, definitely.

Brady Connor (Head of Investor Relations)

Done?

Hans Vestberg (Special Advisor, Former Chairman, and CEO)

Thank you. I guess we are wrapping up. First of all, thank you everyone on the webcast, everyone coming here face-to-face in New York. Hopefully, you got more insights, both to our third quarter, but also to our expanded broadband strategy. And for sure, we'll be back with more information as we have more quarters to come and other activities. So once again, thank you so much, guys, for coming. Thank you.