Verizon - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 delivered modest top-line growth and stronger profitability: revenue rose 1.5% year over year to $33.8B, GAAP EPS increased to $1.17, and adjusted EPS to $1.21; consolidated adjusted EBITDA was ~$12.8B.
• Against S&P Global consensus, Verizon posted a slight EPS beat (+$0.02), a revenue miss (~$0.45B), and near in-line EBITDA (slight miss) for Q3 2025 (see Estimates Context)*.
• Management maintained its previously raised full-year 2025 guidance (wireless service revenue growth 2.0–2.8%, adjusted EBITDA +2.5–3.5%, adjusted EPS +1.0–3.0%, FCF $19.5–$20.5B, CFO $37–$39B; CapEx $17.5–$18.5B), emphasizing debt reduction and dividend discipline.
• New CEO Dan Schulman outlined a customer-first turnaround focusing on churn reduction, cost transformation, capital efficiency, and profitable volume growth; leverage improved to 2.2x net unsecured debt/adjusted EBITDA by quarter-end, positioning for Frontier closing and further FCF gains in 2026.

What Went Well and What Went Wrong

• What Went Well

  • Profitability and cash generation: adjusted EPS increased to $1.21, adjusted EBITDA to ~$12.8B, and year-to-date free cash flow reached $15.8B, up from $14.5B in 2024.
  • Broadband momentum: 306k net adds, including 261k FWA and 61k Fios internet (best in two years); broadband base exceeded 13.2M (+11.1% YoY).
  • Leverage and capital returns: net unsecured debt declined to $112.0B (2.2x LTM adjusted EBITDA), and the quarterly dividend was raised to $0.6900 (19th consecutive year).
  • Strategic clarity: Schulman committed to “aggressively transform our culture, our cost structure, and the financial profile of Verizon…to put our customers first,” targeting lower churn and profitable volume growth.

• What Went Wrong

  • Consumer postpaid phone volumes: 7k net losses (vs. +18k in Q3 2024), impacted by churn (0.91%) and promo amortization, despite stronger gross adds and upgrades.
  • Business segment top line softness: Verizon Business revenue fell 2.8% YoY to $7.1B amid public sector disconnect pressure, though margins improved (EBITDA margin 23.4%).
  • Wireless equipment cost pressure: wireless equipment revenue grew 5.2% YoY, but higher upgrade activity and promo amortization were headwinds; management flagged ongoing cost-reduction work in services and SG&A.

Transcript

Speaker 4

Good morning and welcome to Verizon's third quarter 2025 earnings conference call. At this time, all participants have been placed in a listen only mode, and the call will be open for questions following the presentation. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Brady Connor, Senior Vice President, Investor Relations.

Speaker 6

Thanks, Brady. Good morning and welcome to our third quarter 2025 earnings call. I'm Brady Connor and on the call with me this morning is our new Chief Executive Officer Dan Schulman and Tony Skiadas, our CFO. Before we begin, I'd like to point you to our Safe Harbor statement which can be found in the earnings presentation on our investor relations website. Our comments this morning may include forward-looking statements which are subject to risks and uncertainties. Factors that may affect future results are discussed in our SEC filings. This presentation also contains non-GAAP financial measures and you can find reconciliations of these measures in the materials on our website. With that, I'll turn the call over to Dan.

Speaker 1

Thanks Brady, and good morning everyone. On behalf of the Board and everyone at the company, I want to start off by thanking Hans for his leadership and passion and his many contributions to Verizon over the past eight years. Hans executed a series of technology-related investments that have positioned Verizon for success by building an enviable network and a strong foundation we can leverage going forward. Hans has been a friend for many years, and I appreciate his support as we enter this new chapter. Personally, I could not be more excited about the future of Verizon, and I am honored to be its next CEO. As most of you know, I come to this role with extensive experience in the technology, telecommunications, and wireless industries.

In fact, I began my career as an Assistant Account Executive at New Jersey Bell and then spent 18 years at AT&T, eventually becoming the President of its Consumer division. I have deep roots in the telecom sector, and in many ways, this is like coming home for me. In the years since, I've had the privilege to help lead and grow some of the most iconic consumer brands in the world, including AT&T, Priceline.com, Virgin Mobile, American Express, PayPal, and now Verizon. Those experiences have provided me with a strong perspective on customer-centric growth. Of course, I've served on the Board of Verizon for the past seven years.

While I am only a few weeks into my tenure as the company's CEO, I've had a front row seat into the company's evolution since 2018 and therefore come into this role with a rich perspective of where Verizon is coming from and what the opportunities are. For many years, Verizon has led the industry with our reliable and scalable network, and we will continue to advance our network leadership. As you know, we're significantly investing in fiber and in the power of convergence with our acquisition of Frontier, which we expect to close early next year. Verizon has deep strengths and incredible potential, but the blunt truth is we haven't captured the customer growth opportunities this strong foundation enables. Verizon is at a critical inflection point. For years, our priority was clear: build the best and most reliable network.

With that foundation firmly in place, our next chapter is about serving and delighting customers by building the industry's best overall value proposition and the best customer experience on top of it. We must shift to a customer-first focus and redefine our trajectory. This is not a course correction. It is a fundamental change in our strategic approach to customers. The only way we can drive sustainable value for our shareholders is by significantly raising our game and winning responsibly in the market. This is about financially disciplined growth, winning with the right customers at the right economics. Volume growth and profitability growth can go and will go hand in hand. We are fully committed to achieving both simultaneously. Before I elaborate on my vision for a revitalized Verizon, I'm going to hand it over to Tony to cover our third quarter performance.

Speaker 6

Great. Thanks Dan, and good morning. Before I begin, I just want to take a moment to congratulate Dan on his appointment as CEO of Verizon. The leadership team and I are excited to work with him in creating this new chapter for our company. First and foremost, we remain on track to deliver our full year financial guidance, which includes our previously raised expectations for adjusted EBITDA growth, adjusted EPS growth, and free cash flow in consumer mobility. We delivered strong postpaid phone gross adds, up 8.4% from the prior year. However, gross add growth was offset by churn of 0.91%, which resulted in postpaid phone net losses of 7,000 in the quarter. We continue to see healthy retention benefits from our converged customers.

At the end of the quarter, more than 18% of our consumer postpaid phone base took a converged offering, more than 200 basis points above last year. We see significant opportunities to increase convergence in the Frontier footprint after we close the transaction. Importantly, converged customers on fiber have a mobility churn rate that's nearly 40% lower than our overall mobility base. We also saw a 16% year over year increase in consumer upgrades in the third quarter tied to our best value guarantee, which is resonating with customers. Moving to core prepaid, we delivered 47,000 net adds, our fifth consecutive quarter of positive subscriber growth. The strength of our key brands as well as the continued expansion of total wireless distribution positions us to continue to grow our prepaid business. Verizon Business delivered 51,000 phone net adds.

As expected, we continue to see disconnect pressure in the public sector, in part from ongoing government efficiency efforts. This was more than offset by strong demand from small and medium businesses and large enterprise customers as we continue to be the provider of choice for businesses. Shifting to broadband, we once again delivered solid results with 306,000 net adds. Our broadband base is up 1.3 million subscribers from a year ago and is now over 13.2 million subscribers. FiOS Internet delivered 61,000 net adds, our best quarterly result in two years. Given the demand for FiOS, we are working to bring it to more and more premises within our footprint. In addition, we recently announced an initiative with Tillman that will enable us to bring our best in class FiOS broadband offerings to even more households and businesses.

The agreement combines Tillman's network design, build, and operations capabilities with Verizon's scale, distribution strength, and brand power. We will focus on markets outside of the Verizon and Frontier footprints, expanding our FiOS business to new places across the country and driving more convergence in these markets. Fixed wireless access net adds were 261,000 for the quarter with approximately 5.4 million FWA subscribers. Our annualized revenue has surpassed $3 billion and continues to grow. We believe FWA can be a long-term sustainable business. In addition, we recently announced an agreement to acquire Starry, which will enhance our MDU capabilities, combining our scale and resources with Starry's technical and go-to-market expertise. Moving to financials, our third quarter performance keeps us on track to deliver on our financial guidance for the year. Third quarter consolidated revenue was $33.8 billion, up 1.5% from the prior year period.

We delivered over $400 million of year-over-year wireless service revenue growth in the quarter. Wireless equipment revenue was 5.2% higher than the prior year, driven by higher gross adds and upgrade rates. Wireless service revenue is up 2.1% from the prior year, driven by continued ARPA growth from targeted pricing actions and further adoption of fixed wireless access and add-on services. Perks continue to provide a high-margin revenue stream, and we look forward to offering additional benefits for our customers. Additionally, prepaid revenue grew year over year for the first time since the Tracfone acquisition. As expected, we faced a promo amortization headwind in the quarter, and we expect this headwind to continue. However, our underlying customer economics remain healthy. On the expense side, we have work to do to further reduce our cost of services and SG&A.

As Dan will outline, we will be looking at costs with a new lens and will be focused on driving significant cost savings across all aspects of our business. Consolidated adjusted EBITDA was $12.8 billion, up 2.3% year over year. Year to date, we have generated almost $1.3 billion more in adjusted EBITDA compared to 2023, driven by a combination of pricing actions and cost reduction. Our adjusted EBITDA growth of 3.5% through the end of the third quarter is at the top end of our guided range. Adjusted EPS was $1.21 in the quarter, up 1.7% year over year, driven by growth in adjusted EBITDA. The cash generation of the business continues to be strong. Cash flow from operating activities was $28 billion for the first nine months of the year, up over $1.5 billion or 5.8% compared to the same period a year ago.

CapEx through the end of the third quarter totaled $12.3 billion compared to $12 billion in the prior year period. We're on track to meet all of our investment goals for the year and deliver within our guided range or better. The combination of our continued CapEx efficiency and our ability to drive profits to the bottom line resulted in third quarter free cash flow of $7 billion. This represents a nearly 17% improvement year over year and the highest reported in our industry by nearly $2 billion for the period. For the first three quarters of the year we have generated $15.8 billion in free cash flow, an increase of 9% compared to the same period a year ago. In September, we raised the dividend for the 19th consecutive year, reflecting our continued commitment to shareholder returns.

Net unsecured debt at the end of the quarter was $112 billion, a $9.4 billion improvement year over year. We continue to make meaningful reductions to our debt throughout the year, resulting in our net unsecured debt to consolidated adjusted EBITDA ratio dropping to 2.2 times as of the end of the third quarter. This puts us inside of our target leverage ahead of schedule and before the Frontier closing. We're focused on generating strong cash flow and committed to paying down our debt. We also remain committed to our long term net unsecured leverage target range of 2.0 to 2.25 times. This is not going to change. Looking ahead, we remain on track to close the Frontier deal in the first quarter of 2026. We have received approvals from 11 of 13 states and are making good progress in the remaining jurisdictions.

Integration planning is on track and through the third quarter, based on their public disclosures, Frontier is performing extremely well across both their fiber build and customer growth. While we continue to execute within the parameters of our financial guidance, we recognize there is significant opportunity ahead and with that I will turn the call over to Dan.

Speaker 1

Thank you, Tony. When I look at our performance objectively, Verizon is clearly falling short of our potential, and as a result, we are not delivering the shareholder returns our investors expect. Despite investing significantly in network leadership, we have not been able to translate that into winning in the market, and consequently, we are not generating the financial profile necessary for share price appreciation. Our stock performance reflects this reality. My mandate from the Board is clear: unlock the growth potential of our platform while delivering strong financial results. Today, I intend to discuss my priorities and areas of focus. Our plan will not be about incremental change. We intend to aggressively transform the culture and financial profile of our company, operating under the principles of being bold, customer centric, and executing with financial discipline with a focus on shareholder value.

For the past few years, our financial growth has relied too heavily on price increases. A strategic approach that relies too much on price without subscriber growth is not a sustainable strategy. Every year, it gets harder to grow as we lap past price increases and experience higher churn. This cannot continue, and there is no question that meaningful change is needed. As we shift to a customer first culture, we will simultaneously drive a much more efficient cost structure that fully supports our incremental investments in delighting our customers. I reject the premise that delighting customers and winning in the market means that margins will decrease. I think this industry, and clearly Verizon, are only scratching the surface of increased bottom line performance. My top strategic imperative for Verizon is to grow our customer base profitably across our mobility and broadband subscription businesses.

I strongly believe that growing volumes is essential to drive sustainable long term revenue and adjusted EPS growth. We are going to compete and grow responsibly across all market segments and over time meaningfully increase our share of net adds, particularly in postpaid. We aim to win fairly by having the best overall value proposition and delighting our customers across all elements of the marketing mix. This is not going to be about promotional activities that can be quickly imitated. It is about true innovation not easily replicated by our competitors. We will leverage our network excellence to drive growth, but we cannot rely on it exclusively. Network quality is now foundational. Winning in the marketplace demands a revamped and superior customer value proposition and requires full attention to the entire customer experience. We will significantly elevate our game across multiple dimensions.

We will work relentlessly to serve our customers, ensuring that every customer is fully satisfied with their Verizon experience. We must make it much easier to do business with us. You should expect bold execution powered by sophisticated and smart marketing actions that strengthen loyalty and the elimination of practices and processes that detract from the customer experience. Raising rates without corresponding value rarely if ever delights customers. Our primary objective is to build loyalty and drive significant improvements in retention to optimize the lifetime value of our customer base. Verizon will no longer be the hunting ground for competitors looking to gain share. We are reinventing how we operate to make Verizon more agile and efficient. You should expect disciplined execution across marketing, operations, and service.

We will invest significantly across all elements of our marketing mix and customer experience to drive mobility and broadband growth, and we will fund these investments by aggressively reducing our entire cost base. We will be a simpler, leaner, and scrappier business. This work is overdue and will be multi-year and an ongoing way of life for us. In addition, as some of you know, I am a strong believer in the growing power and resulting opportunities created by AI. We have barely scratched the surface of how AI-powered innovation can transform our customer experience. I intend to use AI as a key tool to simplify offers, improve the customer experience, and reduce churn through smart, consistent, and more personalized marketing and offers.

We will leverage AI throughout the company to make it easier for our employees to delight our customers and to dramatically improve service while reducing cost and complexity across the vast majority of our business processes. While we narrow our focus to invest in key growth areas, we will also aggressively sunset or exit legacy businesses where we don't see a clear path to profitable market leadership. We have a large opportunity to unleash meaningful margin improvement by doing so, and we will talk about this in more detail in January. Convergence is one of our most significant near-term growth opportunities. The pending acquisition of Frontier will enable us to serve approximately 29 million fiber passings, creating a massive cross-sell opportunity. Our wireless share significantly under-indexes in Frontier's territory, and we intend to address this on day one.

This will create a significant runway to capture mobility volume from our broadband customers and cross-sell broadband to our existing mobility base, driving meaningful revenue synergies. I recently met with the Frontier senior leadership team. Their focus and performance is impressive. The results are trending above the expectations when we signed the deal, and I am looking forward to having them join the Verizon team. We will continue to expand our fiber footprint through our own build and with strategic partnerships. I expect the actions we are taking will enable us to generate higher free cash flow in 2026 than 2025, even when we include Frontier. Our business is generating strong cash flow today, but I believe it can be even stronger. I am committed to prioritizing the customer experience while maximizing returns for our shareholders and doing both in a fiscally responsible manner.

I am closely examining not just our operating expenses but also our capital spend and our capital allocation framework. I believe that elements within our framework can change to optimize our capital structure and shareholder returns. This includes an ironclad commitment to our dividend, continued debt repayment, and value-creating capital return. In short, we will be much more deliberate in how we allocate our spend to execute our strategy. Of course, we'll continue to invest in the business. We will do so with a critical eye towards growth areas. You can expect our capital envelope to support the completion of our C band buildout and our long-term objectives for fiber expansion while preserving our financial capacity and flexibility for strategic investments as the landscape evolves. To summarize, we understand changes are needed, and we are aggressively making those changes. Our goals and our priorities are clear.

First, delighting our customers to meaningfully increase our share of industry net adds. Second, cost transformation, fundamentally restructuring our expense base. Third, capital efficiency, optimizing how and where we invest, and fourth, accelerating shareholder returns by increasing our bottom line growth and a steadfast commitment to our dividend. You can expect to see a tangible difference in the way Verizon competes going forward. We will aggressively compete and fundamentally redefine what it means to be a Verizon customer. I'm confident in our strategy, our assets, and the team's ability to execute. We have the network, the scale, the brand, and now the strategic clarity and commitment to drive sustainable growth. We are planning to win and this will be a different Verizon than the market is used to. This will not happen overnight and there's no one silver bullet. It will require hard work, strategic focus, and thoughtful execution.

Importantly, much of the critical planning and evaluation is already well underway. We will provide 2026 guidance during our January earnings call and we will report progress against these objectives quarterly. Our shareholders and our customers have been patient. It is now time for us to deliver. Thank you and Tony and I look forward to your questions and comments.

Speaker 6

Brad, we're ready for questions.

Speaker 4

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press Star one on your touch tone phone. Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question. If at any point your question has been answered or you would like to withdraw your request, you may remove yourself by pressing Star two. One moment please for the first question. Your first question will come from John Hoodlik of UBS. Your line is open, sir.

Speaker 1

Great.

Thank you and good morning, guys.

Good to talk to you again, Dan.

Dan, can you expand on your vision?

Of the company and what you expect.

To accomplish, say, over the first hundred days? Specifically, if possible, can you touch on or provide more details in terms.

How do you expect to turn consumer volumes?

Thanks.

Nice to hear from you, John. Good to work with you again. Let me take just a quick step back. I'm extremely excited about Verizon's potential. We are building off tremendous assets. We've got an excellent network, we have got an iconic brand, we've got tens and tens of millions of loyal customers. We have a really talented team. It's clear we need to enter a new chapter. The existing status quo is not acceptable for us. I wouldn't be here if I wasn't fully confident in our ability to pivot. The vision has three pillars basically to it. The first pillar is about shifting from being a technology centric to being a customer centric company. This is about delighting our customers. This is about growing through retention. Basically my aspiration is I want us to have the lowest churn rate in the industry.

When you talk about growing through retention, it is about creating the best value proposition segmented by the various segments in the market, looking at all elements of our marketing mix quite thoughtfully and looking at creating the best customer experience possible. This is a full reboot of what Verizon means in the marketplace. This is not about one time kind of non economic promotional activities. That's not how you're going to win over the medium long term in this marketplace. It's about being thoughtful across all elements of the value proposition and marketing mix and winning responsibly. That's kind of what we intend to do. We are well underway throughout the organization in making that shift. I don't want to underestimate or underplay how big a shift that is for us.

It is the way that we win over the long term. The second pillar that happens simultaneously with delighting customers is that we want to drive shareholder returns simultaneously. I want to deliver sustainable revenue growth, accelerated bottom line adjusted EPS growth and as I mentioned in my script, the dividend is sacrosanct to us. We're going to examine every element of our OpEx and our CapEx and we are going to fully fund all of our initiatives with OpEx savings and drop some to the bottom line so that we can accelerate EPS growth as well. Finally, the third pillar kind of supports all this, is a full review of our CapEx spend and our capital allocation.

You can expect us to continue to invest heavily in growth areas with a path to profitability, whether that be completing our network, expanding our network fiber aspirations, other opportunities as they come available to us in the ecosystem. We have a tremendous amount of financial flexibility on the balance sheet. We're going to do a hard look at portfolio rationalization and divest and exit legacy businesses where we don't see a clear path to profitability. As Tony mentioned, we'll continue to pay down debt, we'll continue to be steadfastly committed to our dividend, and we will review, frankly, other opportunities to return capital to shareholders. I think just to summarize, we want to win responsibly in the market, we're going to do that through, let's call it kind of growth through retention, looking at all elements of how we delight customers and at the same time drive shareholder returns.

We think we can do both and we're committed to that.

Great.

Thanks Dan.

Speaker 6

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

Speaker 4

The next question comes from Ben Swinburne of Morgan Stanley. Your line is open.

Thank you and good morning, Dan. Thanks for all the helpful commentary in your prepared remarks. I had two questions tied back to your comments. You made the point, Dan, that you think the reliance on price increases has been misguided or not productive and not sustainable, I think was your phrase. I think there's a view in the market that Verizon's back book is overpriced relative to where the consumer is, and I'm curious if you agree with that probably oversimplified generalization. More specifically, how do you drive share for Verizon higher, particularly in consumer, without going through a painful back book repricing exercise, which I'm hearing from your financial commentary about accelerating earnings growth and free cash flow that you're not expecting.

I was curious, you guys were very clear on your balance sheet and leverage targets, but would you be open to flexing the leverage higher if the right opportunities presented themselves? There's a lot of spectrum in the market, more coming from the FCC down the road. You have this Tillman agreement. Just curious if you could talk a little bit about the potential to take leverage higher, at least temporarily, if the opportunities were there. Thanks so much.

Speaker 1

Yeah, you bet. Thank you for all of your questions. I hope I remember a couple of them at least. Look, I think my view on our approach into the market is to be quite thoughtful and financially disciplined. I think that we need to look at the reasons why customers are leaving us. There are basically four that customers leave. There are more, but the top four are price increases that we've done. Customers run into some friction in the experience with us and we need to fix that. There's a value perception. I call it a value perception, not pricing, because value is all about price to value. I feel we offer good value, but there's a value perception and then there's obviously competitive intensity. There are a lot of offers in the industry.

Our game plan is we want to address all of those pain points for our customers. We want to have the best in class experience. I want to leverage things like convergence. I want to create segmented and targeted value props and offers. I want to think carefully across all the marketing mix. There are four marketing Ps. I always throw a fifth one in there, which is prayer. I think pricing is the last refuge of the marketing desperate. It is what you pull when you have nothing else in your quiver. Frankly, we have a ton of things to pull in terms of creating incremental value for our Verizon customers.

Although I won't go into specifics on how we're thinking about this because it's still early days and I'm actually never going to go into specifics because I don't want to tip off our competitors on what we're trying to do in the marketplace, I think that we can begin to take our fair share of the new to the industry postpaid ads. We're going to start off by increasing it because today we take somewhere between 0% and some very low % of the new to industry postpaids. We're clearly losing share and that's not a sustainable path for Verizon. We'll win eventually our fair share of industry net adds. I want to reduce our churn to being the industry best and I want to responsibly win in a fiscally prudent manner. Hopefully I hit a couple of your questions at least there, Ben.

Anything else that you want me to hit on, Tony?

No, that was really helpful, Dan.

I appreciate it.

I was curious on the balance sheet, any openness to flexing up if you had opportunities.

Sure.

Speaker 6

Hey Ben, it's Tony. Good morning. A couple of things. They're very comfortable with the long term leverage target and as you know, we've had a long and demonstrated track record of execution with the balance sheet. The target is very appropriate for the company of our size and the way we expect it to perform in the future. I think you heard Dan talk about that. We have strong cash flows as you've seen. We reiterated our guidance for the year at $19.5 to $20.5 billion for 2025. As you heard Dan in his prepared remarks, we expect to have higher cash flows in 2026 versus 2025. That leverage target gives us the ability to invest for growth and it also gives us a lot of flexibility and balance sheet capacity to be opportunistic should the need arise from a strategic standpoint.

As we talked about, the deleveraging is on track. We're now inside of our long term leverage target at 2.2 times. We have Frontier coming in. As we said previously, that'll add about a quarter turn to the metric and that'll be for a short period of time. You are going to operate outside of it for a period of time. The overall goal is not going to change. The focus is generating strong cash flows and execute across the entire capital allocation framework and that includes continuing to pay down debt.

Speaker 1

Thanks, Tony. Thanks, Ben.

Speaker 6

We're ready for the next question, Brady.

Speaker 4

The next question will come from Michael Ng of Goldman Sachs. Your line is open, sir.

Hey, good morning. Thanks for the question and good to be reconnected with you, Dan. I just have two. First, are there any parallels between Verizon and PayPal that informs your view of the opportunity for improvement? Where in the Verizon business do you see the biggest need for a change agent? Second, Verizon's perks and my plan seems like a strategy where it puts it closer to a super app strategy relative to peers. Is this something that is important to your strategic blueprint? Any opportunities or key benefits that you would call out? Thank you.

Speaker 1

Nice to hear your voice again, Mike. Look forward to seeing you again as well. I think when I think about when I first started at PayPal and now first starting here at Verizon, there are definitely some similarities. One of the big things that we did at PayPal when I first came on was declare that we were going to be a customer champion. Declaring you're going to be a customer champion, they're kind of easy words. If you're really going to be a customer champion, it takes hard work and it takes challenging your business model as well. It means doing what customers expect and addressing all of their pain points and then figuring out how to delight and surprise them going forward.

At PayPal, that was giving customers full choice on how they could pay, not by forcing them to pay with what was the highest margin funding instrument that they had in their wallet for us. That unleashed a huge amount of growth for the company. I think the same thing can happen here. We're going to invest heavily in our value proposition. We're going to fund all of that cuts in our cost structure. We have a tremendous amount of opportunity to be more efficient, to be scrappier. In many ways, this is a turnaround for us and making sure that culturally we're ready to make that move from being technology centric to being customer centric.

It takes some time, but there is no question that what I saw on PayPal I see here in Verizon, too, the team here wants to reclaim their market leadership, and they will do anything that they can. Big companies are extraordinarily good at responding to a crisis. They're not necessarily good at day to day, but responding to a crisis, they're amazing. This is really a clarion call to the company to refocus, regain our leadership by focusing on customers, delivering what they want, not doing things that don't delight customers. There are a lot of similarities, obviously, very different industries, different ways of thinking about it. When you talk about the value prop and things like super app versus how we might think about that, just give us a little bit of time to develop our thoughts more from where we are.

We got a full effort underway right now, and you'll hear more about that as we go into January and beyond.

Speaker 4

Great.

Thank you, Dan.

Speaker 1

You bet, Mike.

Speaker 6

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

Speaker 4

The next question comes from Mike Rollins of Citigroup. Your line is open.

Thanks.

Speaker 1

Good morning.

Dan, welcome back and congratulations on taking over as CEO. You've mentioned a few times the importance of convergence and I'm curious to get your perspective on where you would like convergence to go over time in terms of the physical fiber footprint, how many passings you want to see that get to, and the path potentially to get there, as well as how you're looking at fixed wireless and whether it's time to incrementally invest in fixed wireless as also a way to drive more broadband business for the company. Secondly, following on your comments about accentuating the growth side of the business and deemphasizing or exiting legacy businesses, I'm curious if you could put more context around that.

As you look at the Verizon portfolio in totality, how much of Verizon do you view today as strategic and growing versus legacy, and what are the ways you're trying to better frame that internally as well as externally for shareholders? Thanks.

Yeah, Mike, it's great to hear from you again. You've been around this industry for a long time and I appreciate your thoughts and your questions. I'm a very big believer in convergence. I think it is extremely powerful. I think it offers not just meaningful revenue synergies, but as Tony mentioned and as we see when you combine mobility with fiber, you see churn rates that are almost 40% less than what we see with our traditional mobility. I think thinking innovatively about how we bundle together broadband writ large and that includes both fixed wireless and fiber with our mobility to drive both incremental broadband revenues as well as incremental mobility revenues will definitely be on the plate.

Expect us to continue to invest in our broadband footprint, in our fiber footprint as well as our fixed wireless as well, but also expect us to think about that innovatively, as I mentioned, because I think there's a ton of opportunity in that. As I mentioned in my opening remarks, we'll continue to invest appropriately and aggressively in that expansion in terms of kind of portfolio optimization. I think that's what you were talking about and kind of, you know, legacy versus, you know, broadband and mobility. Clearly we're focusing on broadband and mobility. There are other areas, by the way, that I think we can focus that are maybe potentially large opportunity areas. Clearly AI infrastructure is booming and we can be a part of that and should be a part of that.

We have parts of our business that are costing us billions of dollars of margin and I think we can think much more clearly about how do we invest in growth areas and divest or exit those that are not that for us and are actually hemorrhaging margins for us. We'll spend more time on that in January and lay that out for you in more detail. You can probably imagine what we're thinking about and talking about on that. I'll be more specific about that and Tony and I will both be more specific about that as we get into early next year.

Speaker 6

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

Speaker 4

The next question comes from Sebastiano Petty of JPMorgan. Please go ahead.

Hi, thanks for taking the question. Dan, congratulations on the role. Look forward to working together. Just maybe following up on the 2026 free cash flow. I mean I understand the cost efforts will help. Basically helped fund a lot of the growth initiatives that you're discussing here today and the pivot and your vision for the company. Relatedly, basically to Mike's question, it's about the longer term fiber footprint. How do we square 2026 free cash flow growth? It sounds like CapEx is coming down this year. The implication would be free cash flow probably trends towards the higher end of the range. Frontier is burning $1 billion of cash today. Just trying to help understand that, that's a question we've been getting incoming from investors this morning.

Secondarily, I guess just maybe thinking about the accounts growth and the accounts decline in the quarter on the consumer as well as on the total wireless segment. Anything to help square there. It was the highest losses we've seen since the first quarter of 2020, rather the pandemic quarter. Just helping us understand the trajectory there and how we should be thinking about that trend over time as you kind of focus in on convergence. Thank you.

Speaker 6

Hey Sebastiano, just on your question on free cash flow, in the prepared remarks we said we expect free cash flow growth in 2026 year over year. That's all in including Frontier. Some points on that give us confidence in that statement. First, we have a very good starting point. The cash flow generation of the business continues to be very strong, and we have the strongest free cash flow in the industry. We start there, and then in terms of actions, I think Dan covered this multiple times, you should expect to see significant cost transformation. Dan talked about running leaner. Those plans are already underway in terms of the portfolio. We're looking at everything, and everything is on the table for us. It also entails being very efficient with our capital spend.

What we said in the prepared remarks is that we expect 2025 to get all our initiatives completed and will be likely at the lower end of the range or better. That's the goal. As we look ahead, we said prioritizing investments focused on both mobility and broadband and being very efficient with our capital spend. We know how to do this. That includes maintaining network excellence and also making sure we deliver on the promise for customers. As Dan said, areas not aligned to growth will be de-emphasized. Those actions are underway, and we're acting with a sense of urgency. We'll be back in January with a full view of that.

Speaker 1

Yeah, look, on account growth, I mean, it just plays basically into what I was talking about before. The status quo doesn't work for us. We're going to be much more aggressive in delighting customers and that has to happen. Look, it's a competitive industry and all attractive and great industries are competitive. That's why people come into them because they're super important industries and most industries follow the rule of three. Wireless is no different in that. I think about competition a little bit like how I think about gravity. When I get out of bed in the morning, I don't think, oh my gosh, gravity is pulling me down. If it wasn't around, I could jump 20 ft high in the air. I feel the same way about competition. If it wasn't around, I'd have 100% share.

Both AT&T and T-Mobile are excellent companies with strong leaders in John and Srini. I have a ton of respect for both of them and their companies, but I feel like there's still plenty of room for growth in this industry. It depends on how you count it. Somewhere between 5 and 8 million new postpaid subs enter into the industry every year. There are obviously switcher pools that are available, there are new and growing services, whether that be convergence or AI-powered infrastructure that can come in. There's a lot of opportunity in the industry. The key here for us is to win smart and responsibly, focus on what our customers want, not on our competitors. I feel like we can win this fight the right way. We earn it every single day. There's no need to ratchet up high promotional spend.

We want to be competitive, obviously we want to be consistent, but there's no reason for us to be irrationally aggressive to win our fair share out there. We'll focus heavily and you'll see that on creating the best value propositions. They'll be very different than what you see today. Make sure that we have the very best customer experience and we are going to do everything in our power to make sure we delight customers and again, be thoughtful around all elements of the marketing mix. We want to be so good that prospects want to come to Verizon and our Verizon customers never want to leave us. A lot of work to do underway with that. We feel good that we got a head start on that and we know what we want to go do. Thanks, Dan.

Speaker 6

Yeah, thanks, Sebastiano. Brad, we're ready for the next question.

Speaker 4

The next question comes from Michael Funk of Bank of America. Please go ahead, sir.

Speaker 6

Yeah, great. Thank you all. Dan, welcome back and congratulations to you. Dan, I heard you loud and clear on growing through retention. Curious to hear from you. What strategies or tools do you think best for reducing churn?

Speaker 1

How we should think about.

Speaker 6

These as being proactive versus reactive when you think a subscriber might be on the verge of churning. A couple more if I could.

Speaker 1

Curious to hear how you think.

Speaker 6

About utilizing AI to address the efficiency efforts that you laid out for us in retention as well.

Speaker 1

You threw in your comments.

Speaker 6

AI infrastructure is booming, and love to know what that means for Verizon and opportunity.

Speaker 1

Bunch of good questions on that. As I mentioned, we have a pretty good idea of what's driving churn, and we have a pretty good idea on how to address all of those. In many ways this is a multi-part complicated business, and in other ways it's pretty straightforward, honestly. We just need to hit these things one by one to reduce churn, continue to grow by retention. Also, we'll have the right offers in the marketplace, we'll be competitive. I think you start to see evidence of that even beginning this quarter. As I mentioned, this will take some time as well when you want to turn around your entire offer into the marketplace.

When you want to redefine the culture and financial profile of a large company like Verizon, we need to do it in a very thoughtful, prudent manner, but with a nod to urgency and moving as fast as we can. We're going to be a much scrappier company than we've been before. We have a lot to do and we're going to go out and do that. On AI, I've spent a lot of time before I got here within the AI community, helped advise some of the CEOs in the AI community. I have a really keen understanding of where it's going. I think AI is the only technology I've seen in my lifetime where it does a step function improvement every two to three months. The models that we have today are by far and away the worst models we're ever going to have.

You can see anywhere between 300% and 600% improvement in those models over the next year. Obviously, they are becoming more and more powerful and they are able to do more and more things. The other thing that AI is doing is it is clearly shifting the way the Internet operates on its head. The Internet is much more of a widecast broadcasting and AI is much more narrowcast, much more individualized to you. I think that as I mentioned, we are just scratching the surface of how we use AI inside Verizon. AI can obviously be used to be more efficient, to do things and satisfy customers in ways that we can't do today and do so at a much lower cost. That goes for across multiple functions inside any organization, including Verizon.

Really importantly, AI can be used to dramatically improve the value proposition that we put in front of customers. To your point, we can anticipate when customers want to upgrade, when they have an issue, what that might be, proactively address it before it happens, tailor and customize offers at micro segment levels. That can radically change kind of where Verizon is today and frankly where our industry is as well. I think that AI is today a very large opportunity and as the years go on will be an increasingly large opportunity for not just Verizon, but American industry. Great.

Speaker 6

Thanks, Mike. Hey, Brad, we have time for one more question.

Speaker 4

Your last question will come from Peter Supino of Wolfe Research. Sir, your line is open.

Good morning.

Speaker 1

Thank you.

Dan, nice to meet you in this way. I wanted to ask you two questions, one about costs and the other about fiber. On costs, I wonder if you could discuss the nature of the cost opportunities. You see if there are some costs, common threads or themes through them, Verizon looks productive on a headline sort of benchmark to peers level. On fiber, Verizon is on course this year to pass about 650,000 homes incrementally with fiber organically and at the same time is laying out $10 billion to buy Frontier. The two seem somewhat inconsistent in the sense that it's a rather slow organic fiber expansion and a rather aggressive external fiber expansion. I wonder if you could reconcile those and let us know what you think an ideal organic expansion rate for Verizon's ILEC footprint for the organic fiber expansion might be over time. Thank you.

Speaker 6

Yeah. Peter, on fiber, I'll start there and I'll hand it to Dan on the cost. On a few things here. Number one, fiber is not new for us. We've been at it for 20 years and there's plenty of room out there in our combined, you know, outside of the fiber footprint that we have today and with Frontier to be first on fiber. As you saw recently, we signed a deal with Tillman to further expand our broadband build and maybe just some aspects of that deal. It's a capital light partnership and it gives us the opportunity to go outside, outside of the pro forma footprint that we have and Frontier has and to increase the convergence opportunity. In this case the fiber is going to be built to our standards, leveraging the Verizon brand and bringing FiOS to more and more locations.

It's a long term deal and it gives us a lot of optionality in the footprint to go, you know, in the future and really to go outside the footprint with good economics. We did not have that ability before. To your point, we're on track with our 650 in terms of prems passed and Frontier, as you saw their results last night, are also pacing to their fiber build. We're not stopping. I think you see that in the results in the quarter and where we're heading and with the deal with Tillman, we have a lot of runway ahead with fiber. I'll hand it to Dan on the call.

Speaker 1

Yeah, thanks for the question. First of all, our goal is to reclaim our market leadership. It's as simple as that. We need to invest to be the best in the marketplace. That's going to take significant investment to go and do that. We're fully committed to that. We're fully committed to covering all of those investments through cost reductions and redeployment of those cost reductions into our value proposition. Cost reductions will be a way of life for us here. Honestly, I'm not that interested in comparing our productivity ratios to others. I'm looking at how productive can we be as a company. What is the right place for us to invest? Where are the right places for us to be leaner than we have? How do we use technology to do so? This is all about satisfying our customers.

There is tremendous opportunity for us to be a more nimble and agile organization. I think everybody inside the company knows that we need to invest in our value proposition, that we need to be customer champions and that there's a lot of area for us to find efficiencies. We'll talk more details about that as we're working through our plans. We see plenty of opportunity to be the most efficient company in the industry. We're looking at every element of our OpEx and our CapEx spend to make sure that we invest wisely, that we capture the growth areas in front of us and that we drive bottom line performance for our shareholders.

Thank you, Dan.

Thanks, Tony.

You bet.

Speaker 6

Yeah. Great. Thanks, Peter. Brady, that's all the time we have today.

Speaker 4

This concludes the conference call for today. Thank you for your participation and for using Verizon Conference Services. You may now disconnect.