Verizon Communications Q3 2022 Earnings Call Transcript

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Provided by Quartr
October 21, 2022

Key Takeaways

  • Strong Q3 performance: Wireless service revenue grew 10% year-over-year, adjusted EPS was $1.32, and adjusted EBITDA rose nearly 3% sequentially, with full-year 2022 guidance reaffirmed.
  • Consumer wireless gains: Postpaid phone gross adds improved to +1.3% year-over-year (from –11% in Q2), driven by the Welcome Plan and Apple One Unlimited debut, with 42% of customers on Premium Unlimited.
  • Broadband momentum: Fixed wireless access net adds reached 342,000 and Fios added 61,000, totaling 377,000 broadband net adds (up over 40% sequentially) and covering 40 million households with 5G FWA.
  • Business and value segment strength: Business postpaid phone net adds hit 197,000, underpinned by large 5G enterprise and public-sector deals, while TracFone integration drove positive prepaid net adds for the first time since Q2 2021.
  • Network build-out and cost savings: C-band coverage surpassed 160 million POPs (on track for 200 million by Q1 2023) and a new company-wide program targets $2–$3 billion in annual savings by 2025, alongside the 16th consecutive dividend increase.
AI Generated. May Contain Errors.
Earnings Conference Call
Verizon Communications Q3 2022
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good morning, and welcome to the Verizon Third Quarter 2022 Earnings Conference Call. At this time, all participants have been placed in a listen only mode and the Today's conference is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to turn the call over to your host, Mr. Brady Connor, Senior Vice President, Investor Relations.

Speaker 1

Thanks, Brad. Good morning, and welcome to our Q3 earnings conference call. This is Brady Connor, and I'm here with our Chairman and Chief Executive Officer, Hans Vestberg and Matt Ellis, our Chief Financial Officer. As a reminder, our earnings release, financial and operating information and the presentation slides are available on our Investor Relations website. A replay and transcript of this call will also be made available on our website.

Speaker 1

Before we get started, I'd like to draw your attention to our Safe Harbor statement on slide 2. Information in this presentation contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties. Discussions of factors that may affect future results is contained in Verizon's filings with the SEC, which are available on our website. This presentation contains certain non GAAP financial measures. Reconciliations of these non GAAP measures to the most directly comparable GAAP measures are included in the financial materials posted on our website.

Speaker 1

Now let's take a look at consolidated earnings for the 3rd quarter. In the 3rd quarter, we reported earnings of $1.17 per share on a GAAP basis. Reported 3rd quarter earnings include a pre tax loss from special items of approximately $881,000,000 This includes a net pre tax charge of approximately $645,000,000 primarily related to a mark to market adjustment for our pension liabilities and the for our pension liabilities and the impacts of amortization of intangible assets related to TracFone and other acquisitions of $236,000,000 Excluding the effects of these special items, adjusted earnings per share the company was $1.32 in the 3rd quarter. With that, I'll now turn the call over to Hans to take us through a recap of the 3rd quarter.

Speaker 2

Thank you, Brady, and good morning, everyone, and thank you for joining us. Last quarter, we told you we would take actions. Today, I'm here to share the results those actions have delivered. We ended the 3rd quarter with wireless service revenue growth up 10% year over year and 2% sequentially. And adjusted EBITDA grew sequentially by almost 3% to $12,200,000,000 We had total phone gross adds of nearly 2,600,000 and about 5% year over year increase.

Speaker 2

This includes an increase in consumer of 1.3%, a significant improvement from minus 11% in the second quarter. These results are early indicators that the actions we're taking across our businesses to build momentum are gaining traction. Of course, we're not done yet. I continue to work with my team to take actions to grow revenue and to take cost out of our business to unlock the full potential of Verizon. I'm glad to see sequential improvements based on our efforts, but there is more to do.

Speaker 2

Based on our momentum and plans, our financial guidance for 2022 remains unchanged. Throughout the call, you'll hear the actions we took and the impact they've had on our business to position Verizon for growth. The Our pricing actions in the Q2 in both our consumer and business groups helped increase our wireless service revenue. The Postpaid phone net adds came in 8,000 for the quarter with a loss from consumer offset by gains in Verizon Business. Matt will share more details with you later in the call.

Speaker 2

Let me turn to some of our group results. In consumer, we have started to gain traction with customers reacting positively to our new offerings and as a result increased store traffic. The Our welcome plan improved customers' pricing perception and contributed to consumer phone gross adds being up year over year. With the launch of the iPhone 14, we delivered the first of its kind Apple One Unlimited Bundle. Verizon customers now have access to Apple's the services all under one subscription.

Speaker 2

Apple remains a unique and trusted partner of Verizon because they recognize our network quality and high value customers. In the value segment, we launched Total by Verizon redefining no contract wireless service, a key step in our continued integration of TracFone. And just this week, we introduced a prepaid wireless home internet service on our Straight Talk brand. We continue to expand our offerings in the value segment and customers are taking notice. This helped us to generate positive prepaid net adds for the quarter, our first positive quarter since Q2 2021.

Speaker 2

For postpaid, we're focused on are retaining high quality consumers in a disciplined and measured approach. As we see areas of opportunity, we will address them in a surgical manner Just like we have done with some of our recent actions, there is more progress to make. Our premium strategy is working. We ended the Q3 with 53% of our customers having a 5 gs phone and 81% of our base is on unlimited plans. With a 42% uptake on Premium Unlimited, there's a great opportunity for step ups.

Speaker 2

And we see that demand with approximately 60% of our new customers choosing Premium Unlimited right from the start. It is clear, we have a high quality customer base, So we will continue to focus on retention and winning these customers. Moving to Verizon Business. We see continued very good momentum in both fixed wireless access and mobility. And I'm encouraged also by the large 5 gs infrastructure deals we made in the quarter.

Speaker 2

These include digital transformation projects with Astellas Pharmaceuticals, Fujifilm and our continued work with the Department of Defense. And the And this is just a start. We recently announced an important agreement with the U. S. Department of State to modernize its location infrastructure across embassies and other locations around the world.

Speaker 2

I'm proud that we're part of choice for these global enterprises and public sector clients. In broadband, our fixed wireless access and fire service continue to see strong demand. Total broadband net debt were 377,000, a sequential growth of over 40%. All of these services are built to deliver on top of our world Plus network. We have a premium network and experience that our customers value and the demands premium pricing.

Speaker 2

Our network is the core of our value proposition. The America relies on us and we deliver. This was evident before, during and in the aftermath of Hurricane Ian. The Our team did what we always do. We ran through the crisis, quickly restoring our network as needed and using our technology solution to protect impacted areas.

Speaker 2

Bottom line, our network infrastructure was resilient and our people delivering in the way that you have come to expect from us. Our mission has always been to build and operate the best most reliable highest performing network. Our use of advanced technologies, our spectrum portfolio and our expansive owned fiber footprint are critical to achieving that goal. Where we deploy our C band, we see direct correlation to customer growth on both mobility and fixed wireless access. We are currently covering over 160,000,000 POPs with C band and on track to deliver EUR 200,000,000 within the Q1 of 2023.

Speaker 2

C band usage is up 170% quarter over quarter and fixed wireless access now covers more than 40,000,000 households. Right now, more than 48% of our sales sites are connected by Verizon's own fiber. We're expecting to be about 50% by year end with the majority of our 5 gs sites already on our own fiber. This not only improves network performance, but also improves our owners' economics. At the same time, we're making efforts to take cost out of our business.

Speaker 2

We're constantly thinking about how we run our enterprise every day to enhance our performance while delivering on our strategy. In this spirit, we have designed a company wide cost savings program that we expect will save between $2,000,000,000 to $3,000,000,000 annually by 2025. The first step in these efforts is the creation of a global service organization under the leadership of Craig Silliman. This is one part of our larger program to leverage cross functional opportunities across the business. Over the past 2 years, under unprecedented circumstances, we have learned a lot about how we deliver our services to customers.

Speaker 2

Verizon Global Services will help unlock significant efficiencies and reduce cost across the business. Keeping in line with our company values and strategy, we continue to practice financial discipline even in a competitive market and delivered solid financial performance quarter over quarter. Verizon is in a strong position, no matter economical environment, with our high quality customer base, diversified go to market options including our value offering. The benefits from strengthening our organization through our cost savings program and the best network that just keeps getting better. I will now hand it over to Matt to go deeper into our results.

Speaker 3

Thank you, Hans, and good morning, everyone. Our results from the 3rd not yet where we would like them to be. But as you heard from Hans, the actions we've taken in the past 2 quarters are gaining traction in the marketplace. As a result, we saw positive developments in store traffic and consumer phone gross adds, further gains in broadband and sequential improvement in our financial results. We anticipate that we'll be able to build on this momentum as we head into the 4th quarter.

Speaker 3

Let's now walk through results from the Q3 beginning with an overview of our postpaid mobility results on Slide 7. Our strategy for mobility growth is to drive revenue growth by attracting and retaining high quality customers and migrating them into premium tiers. Premium penetration in the consumer segment increased to approximately 42% at quarter end, a sequential increase in line with prior quarters, even with the introduction of the welcome plan and the current economic backdrop. As a result of the continued increase in premium plan penetration, combined with the benefit from our admin fee increase and the impact from metered price ups, consumer postpaid ARPA increased 3.8% year over year. Overall, phone gross adds were up approximately 5% year over year, reflecting continued strength in business as well as the improvement in consumer gross adds.

Speaker 3

With the impact of 3Q churn, which increased as expected as a result of our recent pricing actions, the Phonet ads were 8,000 for the quarter. Business delivered 197,000 postpaid Phonet ads in the quarter, the 5th consecutive quarter exceeding 150,000. The results were again balanced across the 3 customer groups with enterprise delivering their best ever phone net ad performance and SMB and public sector both seeing double digit phone gross ad growth. On the consumer side, postpaid phone gross adds were up 1.3% year over year, a notable sequential improvement from an 11% decline in Q2. The launch of the Welcome plan and the Apple One Unlimited plan helped generate more store traffic while providing another avenue to compete outside of promotional spend.

Speaker 3

We have now seen year over year improvement in phone gross ad performance for 4 consecutive months through September and anticipate another low single digit year over year growth performance in the 4th quarter. As expected, the pricing actions we took around administrative fees and metered plans led to an increase in disconnects. With certain price ups being phased in throughout the Q3, we would anticipate some disconnect pressure to carry over into Q4. Taken together, we currently expect the gross ad and disconnect performance to result in positive consumer phone net adds in the 4th quarter. Let's now discuss broadband performance on Slide 8.

Speaker 3

Total broadband net adds were 377,000 in the quarter, reflecting a strong demand for reliable and high value broadband offerings. Fixed wireless access momentum continued throughout the 3rd quarter. We added 342,000 net adds, up from 256,000 in 2Q, reflecting increased demand across business and consumers. More than 75% of our consumer net adds are coming from urban and suburban locations with data usage that continues to mirror our Fios customers. We anticipate further share gains in this space as we continue to expand our household coverage and begin to realize benefits from our offering in the prepaid segment.

Speaker 3

We also added 61,000 Fios Internet net adds during the Q3, reflecting improved gross ad performance from Q2, as well as continued strong retention levels. Our ability to grow Fios in spite of some secular headwinds due to lower move activity shows that the quality, value and reliability that Fios offers continues to resonate strongly with customers. We further expanded our nationwide broadband opportunity by adding more fixed wireless households and businesses covered, as well as growing our files open for sale within our ILEC footprint. Total fixed wireless household coverage surpassed $40,000,000 in the quarter, including over $30,000,000 covered by 5 gs ultra wideband. Fios open for sale is now at $16,900,000 a year to date increase of 410,000 and we remain on track to hit our full year target of 550,000.

Speaker 3

Now let's talk about the value market on Slide 9. Our work to integrate TracFone continues, the highlighted by the launch of our new prepaid brand, Total by Verizon, late in the quarter, as well as the launch of fixed wireless for our prepaid customers earlier this month. Further quarter, we delivered positive prepaid net adds of 39,000, which excludes a base adjustment of 102,000 primarily relating to a competitor's 3 gs network shutdown. We saw significant improvement in Tracfone's performance, the which had a positive net adds for the first time since Q1, 2021. With our current momentum combined with the launch of our new brand and fixed wireless, we're excited about our positioning and ability to further grow in the value market, bringing more connectivity and benefits to customers in this space.

Speaker 3

Now let's move to the consolidated financial results on Slide 10. On a consolidated basis, total revenue was up 4.0% year over year as wireless service revenue growth and higher wireless equipment revenue more than offset wireline declines and the net impact of last year's M and A activity. As a reminder, the Q3 last year only had 2 months the Verizon Media activity before its divestiture. Total wireless service revenue growth was up 10.0% from the prior year, the primarily driven by our ownership of TracFone, continued effectiveness of our premium unlimited strategy and business volumes. The core business is strong as wireless service revenue excluding all TracFone activities grew above 3%.

Speaker 3

Additionally, we saw a benefit from the pricing actions taken earlier in the year, which we previously said would generate roughly $1,000,000,000 across Q3 and Q4. These actions helped to generate a sequential increase of $494,000,000 in wireless service and other revenue and an increase of $345,000,000 of adjusted EBITDA as total adjusted EBITDA came in at $12,200,000,000 for the quarter. We continue to feel the pressures of higher device subsidies and promotional spending despite taking steps throughout Q3 to be disciplined, including the launch of the welcome plan, which comes with our device subsidy. Inflationary pressures remain elevated both from a year over year and sequential point of view, with the increase from Q2 primarily coming from higher electricity rates. Expectations for full year 2022 impacts of inflation remain consistent with comments during our Q2 earnings call.

Speaker 3

To further mitigate inflation impacts, we have started a new cost savings program that we expect will provide a reduction in annual cost of $2,000,000,000 to $3,000,000,000 by 2025. This program will be focused on several areas within the business, including digitalization efforts to enhance the customer experience and streamlining internal operations through automation and process enhancements. While part of this will benefit the bottom line, a portion of these savings will be reinvested into the business to help accelerate opportunities. As Brady noted, adjusted EPS for the Q3 was $1.32 In addition to the impact from EBITDA, this reflects sequential pressures in interest expense due to rate increases and a reduction in other income associated with non cash changes to pension and OPEB. Based on year to date interest rate increases and market expectations for additional Federal Reserve actions this year.

Speaker 3

We now estimate cash interest expense for 2022 to be about $400,000,000 higher than our expectation coming into the year. We anticipate this pressure will continue into next year given the full year impact from interest rate increases, providing an EPS headwind in 2023. Likewise, the impact from non cash pension costs due to higher interest rates and lower return on assets this year is expected to put additional pressure below the line items for 2023. Now let's take a look at our Q3 consumer financial results. Total consumer revenue for the quarter grew 10.8% year over year, driven by wireless service revenue growth of 11.0% as well as higher equipment revenue.

Speaker 3

Wireless service revenue increases were the result of the inclusion of TracFone, core wireless service revenue growth and the impact of the pricing actions. Total Fios revenue was up versus the same period a year ago by 0.3% as growth from our Internet base offset the revenue impact the 9% year over year decline in video subscribers. Fios content costs have also dropped resulting in an improved margin profile that we expect will continue to benefit from further shifts away from video. Consumer EBITDA was $10,600,000,000 up 0.7% compared to the same period last year. The pricing actions as well as the full inclusion of TracFone results more than offset the pressures from higher promotional activity and the impact of inflation.

Speaker 3

Next, let's take a closer look at the business financial results on Slide 12. The business segment's wireless results remained strong in 3Q, though wireline service revenue declines continue due to ongoing secular headwinds. Wireless service revenue growth of 5.7% was up from 3.0% last quarter, the of our pricing actions as well as continued growth in our customer base. Wireline revenue declined by 6.7% versus prior year. Operating trends are consistent with prior quarters.

Speaker 3

Though in Q3, we saw a sequential increase in USF revenue due to higher rates. Business EBITDA was $1,800,000,000 for the quarter, down 6.7% from the prior year. In addition to pressure from wireline, we experienced higher growth related costs as wireless sales volumes were up by 15% from the prior year. Operating activities for the 1st 3 quarters of 2022 totaled $28,200,000,000 compared with $31,200,000,000 in the prior year period as working capital impacts from higher device activations and increased inventory levels continue as we expected. Capital spending for the 1st 3 quarters of the year totaled $15,800,000,000 an increase of $2,000,000,000 compared to last year.

Speaker 3

The C band spending was $4,500,000,000 for the 1st 9 months of the year. The net result of cash flow from operations and capital spending is free cash flow of $12,400,000,000 for the 1st 3 quarters of the year. We exited the quarter with $129,300,000,000 in net unsecured debt, a sequential improvement of $1,300,000,000 resulting in a net unsecured debt to adjusted EBITDA ratio of 2.7 times. As Hans mentioned earlier, our low unsecured bond maturities over the remainder of this year and next and strong operational cash flow generation puts our balance sheet in a strong position. Payment trends remain at or better than pre COVID levels and the quality of our postpaid base has never been better as evidenced by recent asset backed securities prospectus filings.

Speaker 3

As we look at Q3 results, we delivered the sequential revenue and EBITDA growth that we had anticipated from the actions taken in 2Q. Our guidance for 2022 remains unchanged. We are building momentum and remain confident that our strategy will deliver strong cash flow growth into the future. It is this confidence combined with the health of our balance sheet the enabled us to recently increase our dividend for the 16th consecutive year. We recognize the importance of the dividend to our shareholders and we and to continue to put the Board in a position to approve annual increases.

Speaker 3

I will now turn the call back to Hans for concluding comments before we open up to questions. Thank you.

Speaker 2

Thank you, Matt. The actions we have taken are showing progress, but there's more work to be done. Our priorities through the end of the year and into 2023 are straightforward: continue our traction in consumer wireless through the holiday season and into 2023 maintain and grow our momentum in fixed wireless access and business wireless implement the initial framework of our cross functional efficiency program and improve our working capital efficiencies and finally continue our measured and strategic approach to the market with financial discipline and increased momentum for the quarters to come. While there's work to be done, I'm confident that we are well positioned to deliver. So thank you.

Speaker 2

Now we're ready for your questions. Brady, back

Speaker 1

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

Operator

Thank you. We will now begin the question and answer Our first question will come from John Hodulik of UBS. Sir, your line is open.

Speaker 4

Great. Thanks, guys. Two quick ones, if I can. First, I know you guys don't you often hold off on giving guidance till the Q4 call, but Sounds like you got a number of sort of below the line headwinds to growth next year. But what's the prognosis for EBITDA growth in 2023, Given all the moving parts and all the cost savings you have coming through.

Speaker 4

And then secondly on postpaid phone churn, it ticked up and just looking for clarification on Matt's comments that it's they elevated. How do you expect that to progress as we move through 2023? And what do you think is really driving it? It sounds like you obviously you had the price increase, but just fundamentally, Are the prices at Verizon just too high at this point given what we're seeing from a macro environment and given that something approaching network parity that we have in the market Thanks.

Speaker 2

Thank you, John. I can start and Matt will fill in. I mean, when it comes to the quarter and the gross adds and the churn. I think what happened is that we came out from the Q2 where the soft quarter on the consumer side when it comes to gross adds. We added a couple of new products all the way from the VoilaCom plant to the price adjustments.

Speaker 2

And of course, the outcome call we were expecting was that we continue to grow both ARPA, but also our wireless service revenue. And as you heard, we grew the service revenue with and the if we exclude TracFone, but then with TracFone. So that clearly is working for us and we will continue to do that. But we'll do it in certain segments where we see weakness. I mean, we also saw very strong continuation in our premium segments where we continue to have now more than 81% of our consumers on unlimited and 42% on unlimited premium.

Speaker 2

So That area is going well. So we just need to find those areas and we will continue to do that. But I think that we have a very competitive pricing in the market. We add that with values like the one plan with Apple right now, Apple One Unlimited, etcetera, and we have more to come. So the It's for us to grind this to see that we do the right in the segment.

Speaker 2

And of course, we have the largest consumer base in the market. So we just need to see that we're doing this in the right way. And ultimately, our goal is to continue to grow our EBITDA. I mean, you saw this quarter, we grew our EBITDA with almost 3%. And that's what we're doing and we keep our guidance for the full year.

Speaker 2

So we that's our job. And then on top of that, we take out costs. So I think all in all, that's what we're working with constantly here. And it's a big ship we're moving. I think that this quarter, we saw All the actions we took in the Q2 having impact positive impact, that doesn't mean we're done.

Speaker 2

We think we can do more and we have more to do. So That's sort of the summary of where I think we are and how we're executing and we will continue to execute in this quarter and the quarters to come. Yes.

Speaker 3

Thanks Hans. And this is John. So maybe the second part of your question first around churn and is our pricing in the right place. I'd point you to the fact that our gross adds were up almost 5% on a year over year basis in 3Q. So obviously, Our offerings continue to resonate with customers, obviously built on having the best network and consumers continue to see the value of that.

Speaker 3

So continue to believe that the gross ad traffic will be there and we'll get our fair share. On the churn side, Ian, just put it in perspective, the pricing actions we took across both the metered plans and the fees the touch more than 75,000,000 phone customers. And so the uptick in churn that we saw in the quarter was highly expected. We kind of mentioned that 90 days ago as we expected it to happen. But the financial benefits the came through as well, which was exactly as we expected, it was the right approach to take.

Speaker 3

So obviously, the impact of those changes will mitigate as we go forward here and we'll continue to make sure that our churn is where it needs to be to ensure the right results. In terms of the first part of your question, you're right, we'll speak to you more specifically about 2023. On the next call, we're obviously in the middle of our planning cycle right now. But you should certainly expect us to build on the momentum that you saw us deliver in the 3rd quarter. You saw that wireless service revenue up sequentially 2%.

Speaker 3

As Hans mentioned, EBITDA up sequentially about 3%. That gives us a good platform to build on here in 4Q and then as we head into 2023. And then, as you mentioned below the line, There'll be some pressures next year. I'm not going to quantify those now, but as you think about the specifics of those, some of those we've spoken to all of you about before when we came out of the C band auction, we said that we would expect depreciation the increase in capitalized interest to reduce as we deployed C band sites and put them on air and really having kind of significant year over year impacts in 2023 2024. So that's in line with what we've been talking about for a while.

Speaker 3

And then you lay on top of that, obviously interest rates are higher and we'll have a full year impact of that next year. And that impacts both the interest expense line, but also other non cash below the line items around pension and OPEB, where the imputed interest cost will be higher with the higher macro rates and and then also start into the year with lower assets because of the performance this year. So we'll obviously quantify those things. But the As we think about 2023, we had good momentum coming out of 3Q on a sequential basis, look to build on that in 4Q, continue to generate significant amounts of cash flow that puts us in a position to be successful going forward.

Speaker 4

Great. Thanks for all the details guys.

Speaker 1

Yes. Thanks, John. Brad Ray for the next question.

Operator

Thank you. The next question comes from Brett Feldman of Goldman Sachs. Your line is open,

Speaker 5

sir. Yes. Thank you for taking the question. It's about your sort of emerging nationwide broadband strategies. I think you mentioned that you can now offer the fixed wireless product to over 40,000,000 potential customers, I think from your Analyst Day last year, the ultimate target is 64,000,000 with 50 the rest being residential and the rest being business.

Speaker 5

You're also and you made a point about this, you're deploying a lot of fiber primarily to support your mobile network on a national basis. And so the real question is, now that you have seen the fixed wireless product perform and what it does, on the network side of things, how are you thinking about that target of eventually reaching the 64,000,000 homes you think it could potentially be greater. And then yesterday AT and T, talked about evaluating opportunities to do more of a fiber to the home strategy out of region. I imagine leveraging some of the fiber they're deploying in their wireless network. Considering how the expansive your national fiber footprint is becoming.

Speaker 5

Is that something you're evaluating as well? Thank you.

Speaker 2

Thank you, Brett. When it comes to our national Broadband strategy, 1st of all, I think it's working really good for us. You saw in the quarter adding 377,000. The Fios footprint continued to be extremely high quality customers and continued to grow. We will continue to expand that footprint.

Speaker 2

Outside that, we, of course, have a very high focus on fixed wireless access because to speed the market, because the demand in the market right now is high broadband. And of course, we have a very disruptive model where it takes low single digits minutes to actually get broadband at home. It's look at the total different products when it comes to fixed wireless access. So we capture the market as soon as we can right now. You see on the growth rates that is happening, both for consumer as for business.

Speaker 2

But as you rightfully said, we are deploying the network as we speak and we are just into certain markets given on the C band. We will have more and more markets. And as we stated in the remarks, I mean, we are now covering 40,000,000 households traction is really high on fixed wireless access. And of course, there are the competition in these areas are, of course, not equally good customer satisfaction. So no, I think we think we are confident that this is a good strategy for us.

Speaker 2

Then when it comes to our fiber, you're absolutely right. We have done enormous investment in fiber. We want all this economics on our network and we are getting that because where the majority of all the 5 gs sites have our own fiber and we're now passing 50% by year end on all our sites. Some sites will never need fiber. So it's not like 100% is the end goal.

Speaker 2

But in order to have a good experience for our customers, that's what we're doing. Then we want to see opportunities, For the business side to use that fiber footprint outside, I like to see that some customers can get the other or we can substitute third party fiber that we are getting from others. But clearly focus the fact that we have a very strong pipeline of our customers. We have a very strong pipeline of our customers. We We've talked about it for several years.

Speaker 2

We come out with new products that's going to be multi spectrum that's going to handle everything from 4 gs, C band, millimeter the way sort of resilience and the performance and quality on the products is even getting better. So yes, that's where we are. Matt?

Speaker 3

Brett, I'll just add one thing. You mentioned fiber to the home. Of course, our Fios team had another good quarter here, 61,000 Net adds despite a low mover environment. So as Harm said, we're very focused on doing broadband through fixed wireless access, But our Fios business continues to perform very strongly and add customers to that network and We continue to build more open for sale in our Fios footprint. And just as a point to note, 3Q was a milestone for Fios in terms of going over 7,000,000 connections with for that business.

Speaker 3

So It continues to perform very strongly and then we supplement it with fixed wireless access around the rest of the country.

Operator

Great.

Speaker 6

Thank you.

Speaker 4

Yes.

Speaker 1

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

Operator

Thank you. The next question comes from Simon Flannery of Morgan Stanley. Your line is open, sir.

Speaker 7

Great. Thank you. Good Matt, quick one for you. Any changes to the 2023 CapEx guidance you gave out for that significant drop from this year? And then more broadly, Back in March, you talked about a clear path to 4% plus revenue growth in 2024 and beyond.

Speaker 7

Could you maybe update us on how that looks, how the kind of things like mobile edge compute, B2B applications are scaling And what you can do to get there and give us more visibility around

Speaker 2

that? Yes. I can start on the enterprise side with the Mobile Edge Compute, which we And the private 5 gs networks, as I said a couple of times before right now, we had 3 different the sort of use cases on the edge computing, one was private networks, another was public mobile edge compute and the third was the private 5 gs Mobile Edge Compute. We see clearly a very strong demand on the private 5 gs networks, which is the prelude to go into all others And the family is strong, and we talked about a couple of the examples this quarter, which we have gained. And it's a normal typical enterprise of B2B cycle, We'll just start with one proof of concept, then you start deploying it and then you roll it out.

Speaker 2

So that's going to continue to Over the years is, of course, not going to be any significant revenues in the short term. But over time, we're building a totally new opportunity for Sampan and his team to be with customers in larger sort of turnkey projects to the reform and transform their digital asset for enterprises. So we are still really confident this is a good strategy for us. And It's again, we're building on the same network. We're building network once and we have several different use cases where the mobility and now the fixed wireless access both are going in a high speed and now we're adding the Mobile Edge compute that is starting to get off to good starter, especially with private 5 gs networks and then we move into mobile edge compute.

Speaker 2

So that's how I see that market

Speaker 3

continue for us. Yes. Simon, so your first question around CapEx, the Obviously, we'll be more specific on 2023 guidance in January, but nothing has changed around our view of CapEx. So very much in line and that's because of the great work the team has done this year. I mean, we said we'd be at 175,000,000 pop's covered by the end of the year.

Speaker 3

As you heard Hans say earlier, already at more than 160 through 3Q. Not only will we be ahead of the 175, but we'll be at 200 at some point during the Q1. So phenomenal speed that the team has built the network there. That means A significant chunk of the $10,000,000,000 CapEx For C band, we'll have been covered between last year and this year. So it'll just be a small stub piece of that left next year.

Speaker 3

And And then we'll be at those BAU levels that we've spoken to all of you about numerous times. In terms of the longer term revenue growth, I mean, obviously, we'll come back to that, But certainly encouraged by what we saw in the Q3, as I mentioned in my prepared remarks, wireless service revenue growth when you Obviously, the year over year 10% number has the noise in there from closing on the TracFone acquisition November last year. But I mentioned even if you ignore all of the track revenues up more than 3% year over year. So we're building the right momentum there. Obviously we'll have significantly more customers on FWA that we'll be billing next year than we did this year.

Speaker 3

Hans as mentioned the positive momentum around 5 gs private networks and MEC. So we'll get 23 plan locked down here and then we'll be in a position to talk about longer term where we see things as well, but certainly continuing to build on the momentum that we've seen in the last quarter.

Speaker 1

Thanks a lot. Yes. Thanks, Simon. Brad, we're ready for the next question.

Operator

Thank you. The next question comes from Phil Cusick of JPMorgan. Your line is open.

Speaker 8

The consumer despite pushing pretty hard this quarter. What did you see an impact from the introduction unlimited plan and how did that contribute to your gross adds Improvement this quarter. And then second, can you give us any idea of what's going on in business? You're seeing really strong ads, AT and T as well and T Mobile saying the same thing. The Is this second lines being bought by businesses for their employees?

Speaker 8

What type of usage do you see in those lines? Just give us an idea of what's going on in the industry. Thanks very much.

Speaker 2

I can start on the business side. We have seen strong business growth on the wireless side for 5 consecutive quarters. So clearly, what we see is look at both from the government, from large enterprises, small and medium businesses, the rely on high performing networks is extremely important, and that's what we're giving them. And that's why we are growing. I mean, we have had a really good run on it and the team is doing a great job.

Speaker 2

I mean, this quarter was 190 7,000 net full net adds in the business segment. And as Matt said, it's cross over all the 3 segments, the U. S. Government, enterprise and small and medium businesses. So clearly, we have a good transformation there with our customers.

Speaker 2

And of course, adding to that, we have a great sales force out there every day with all these accounts because it's about the network and it's about the go to market and we have the strongest in both. So we feel really good about that. Yes.

Speaker 3

And just building on that maybe a little bit I'm sorry,

Speaker 8

Hans, if I can

Speaker 1

the Go ahead, Phil.

Speaker 8

I just wanted to follow-up on Hans. Like the question was more, what are people using this for, the Right. So industry penetration is very high. Everybody is looking around trying to figure out where we're going. Are these do you think these are second lines being bought for maybe sort of high security measures.

Speaker 8

What's the usage look on the growing lines in business versus maybe the new lines in consumer. We're just trying to get an idea of what's driving the strength. And it's not just you, it's across the board.

Speaker 2

Okay. No, it's the same normal. It's a normal. We see more, of course, as any company will go more mobile. It's not like we're seeing secondary lines or something like that.

Speaker 2

And And remember, we if it's sort of an your T line, etcetera, that's outside this. We're talking about phone net adds here. So this is normal lines that is coming into our customers For normal usage, we haven't seen any difference in that compared to previous quarter. That is something No, it's actually normal lines coming in that customers are transforming more to mobility.

Speaker 3

Yes. And Phil, just maybe building on that a little bit, certainly the continued strong employment position feeds into this. That's Very much supportive. But look, I think the other thing as you think about business to think about is the depth of the relationships we have with business customers over many years from both wireless and legacy wireline relationships and the quality of the network continues to matter to our business customers and our team have been very effective at selling into those customers. But If you ever if the suggestion from anything that you've been hearing is these are secondary lines with low usage on it.

Speaker 3

That couldn't be more further from the truth. These are absolutely primary lines. We see it in the usage. Certainly, as businesses continue, more and more people are mobile, and we see that. But these are absolutely primary use lines and we know that from the usage we see on that.

Speaker 3

In terms of on the consumer side on accounts, certainly that trend is something that continued in the 3Q and but you also saw the positive momentum from a gross adds standpoint and that feeds through into the account trend also moving in a better line than it was. And as we said in the prepared remarks, expect 4Q to have positive phone net adds and that should show in the trend on the account side as well. So, look, overall gross adds are up 5% and they were up on a year over year base in consumers, so there's a lot of good things going on. And then within our base, we just have to keep reminding people of the value. The team is doing an outstanding job there and they've got more to bring to the market here as we go forward.

Speaker 8

Any idea of what the contribution From Welcome Unlimited was not? Thank you.

Speaker 3

Yes, it's Nick. So you've got to think about the contribution from Welcome in 2 ways. 1, obviously, in terms of the number of ads the people signed up for, but more importantly, the number of additional visits to the stores that it Because certainly some people who came in to welcome, but it also gave us the opportunity to talk to more customers coming into the stores about all of our plans. So we have a good number of customers that came in because they've seen the welcome pricing, but then actually purchased the one about mix and match price plans as well. So, we don't really have a specific breakout there for you, but definitely a contributor to the increase store traffic and the increasing gross adds.

Speaker 1

Great. Thank you. Yes. Thanks, Phil. Brad, we're ready for the next question.

Operator

Thank you. The next question comes from David Barden of Bank of America. Your line is open, sir.

Speaker 9

Hey, guys. Thanks so much for taking the questions. I guess 2, if I could. I'd like to ask a corollary To Phil's question there, which is, obviously, we had like negative 11% gross adds last quarter, positive 1% consumer this quarter. Where are those gross adds coming from?

Speaker 9

I think you highlighted that you felt there was a hole in the portfolio with respect to BYOD. That would suggest that the BYOD concentrated players, maybe the cable players are maybe ones that are giving you market share or maybe you've seen something else in the porting ratios that have changed the game. I'd be interested in where you think this SOGA shift is coming from. And then the second the Matt, your exposure on the balance sheet to variable rates, rising rates is not because you have floating rate debt per se, but because you took actions in terms of swaps and hedges to create that variable rate exposure. Theoretically, you could buy your way out of that.

Speaker 9

If you felt that was an economic way to go, arguably you could maybe take those losses through your adjusted EPS and it could affect your earnings per share trajectory. Is there any part of you that thinks that there's an economic opportunity that might present itself to reverse gear in some of that variable rate exposure? Thanks.

Speaker 2

Thank you. A couple of things will grow the gross adds. I mean, first of all, I think, as Matt said, the Wellcome plan the because that was a segment we were softer in the 1st and the second quarter and that's why we addressed it. And that was probably the quickest turnaround we have done ever to bring out the new plan dedicated and nationwide. And that should be a reflection how we plan to work.

Speaker 2

I mean, we will be very agile. We will quickly move into segments where we see softness in our consumer base. And I'm happy with what I've seen so far. But also the marketing work because If you think about the growth we had both in gross adds, but also as Matt said, when it comes to store visits that was up More than double digit in the quarter compared to Q2. So all that together worked and that's what we need to continue to work and see if there are other weaknesses in the the consumer portfolio.

Speaker 2

Remember now, we are going all the way from the premium down to the lowest most cost efficient plans on our prepaid. And the work we're doing, we have integrated that in our consumer group right now. And we'll look into that we're doing the right things for every segment and see that we have the right offerings for our customers. That might be that we're aggressive in certain segments and not in others. And that's sort of where we have come with our sights right now, we can do that.

Speaker 2

And I was Happy with seeing what happened in the Q2 or in the Q3 with some of the action we're taking, but we're not finished We need to do more of this. We need to be more surgical. We need to attack the areas where we see weakness. But that was what was growing the gross adds in the quarter clearly.

Speaker 3

Yes. Hey, on the question around interest rates, so we've absolutely had a the targeted rate of effective variable to fix and that served us very well, continues to serve us very well over the course of the economic cycle and we think that creates value over the course of the cycle for the company and obviously shareholders as well. As you mentioned, Dave, obviously this year has seen significant increase there. And so some of those hedges have Obviously, moved around in value. I couldn't be happier with the work the treasury team has done, not just this year, but over many years now to not just manage the full debt profile, but also the interest rate expense.

Speaker 3

You see that in the income statement over the past few years where even as our debt has gone up to pay for the C band acquisition and so on. Our total interest expense cost has actually remained relatively flat. So we'll continue to manage the balance sheet there. And As you mentioned, if there's opportunities to create incremental value, I think our track record would tell you very strongly that you should expect us to be Doing everything, taking full advantage of those.

Speaker 9

Thanks guys.

Speaker 1

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

Operator

Thank you. The next question comes from Michael Rollins of Citigroup. Your line is open.

Speaker 6

Thanks and good morning. When you look across the strategic products, postpaid phones for consumer and business and Fios broadband, what's the risk that the customers trade down in rate plan tiers if the U. S. Goes into recession. And then pivoting over to the value segment, Has Verizon begun to migrate any prepaid customers to the postpaid base?

Speaker 6

And can you size the future opportunity and timing This possible migration. And then just one more, if I could, on prepaid. Is there an update on the size and timing of savings, especially for roaming when you think about the TracFone integration.

Speaker 2

Okay. Let me start with the first one. As we said earlier, Raman, the Welcom plan worked very well for us. And we didn't see many of our customers trading down. Actually, It was more about softness in the marketplace there and that's where we actually gained success.

Speaker 2

And then but on the other hand, we see so many of our customers coming into the store. And then we after a conversation, of course, we saw them actually doing a step up and then going for another plan. So It actually worked. We didn't see that step down in the market has happened so far where I think we're segmenting it up the values we're having in each and every segment. So but if they would do it over time, given the economic situation, we will be better prepared than anybody else.

Speaker 2

I mean, we are actually addressing all the segments of the market, so we can work with that. When it comes to the prepaid to the postpaid migration, That is, of course, one of the pillars in our strategy to see that our customers and can do that and part of our acquisition strategy to see that we can offer the customers. That will take some IT work. And as we have said before, that will technically meaning that you cannot even more easily work in between prepaid and postpaid. That will take some time before it's finished.

Speaker 2

But already today, of course, we have a collaboration in between our groups as this is sort of under one roof, the whole value and premium segment. So I think that's what we're going to do, but that's, of course, an opportunity for us over time to have more of that. But already right now, we're seeing good sign on our value segment as we start growing in the Q3. And we're just adding new products, including total wireless, which is a higher end of the value market as well as adding now fixed rights access to some of the brands. So there's much more to do.

Speaker 2

And we're encouraged what we have seen so far about the potential and that was the reason we the acquired TracFone because we saw this potential to play in all the consumer segments and adding product in different ways and scaling sort of our platforms. The more we can scale the platforms, the network and the product, the The more efficient we're going to be on the return on capital invested.

Speaker 3

Yes. A couple of follow ups there, Mike. So the risk of trading down, we've obviously seen the number of different economic cycles during the life of the wireless business, and we don't historically see significant amounts of trade down during a macro downturn. So I don't expect anything different again because the value that people place on their connectivity products, whether that's broadband or wireless is higher than ever. So we'll obviously monitor it closely, but history would suggest the risk of that is not that high.

Speaker 3

And then your last question around integration on roaming, we should largely have the roaming integration all of the customers over onto the Verizon network during 2023. We haven't quantified the benefit of that, but obviously it's significant. But that will be that should be in the financials by the end of next year.

Speaker 6

Thanks very much.

Speaker 1

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

Operator

The next question comes from Tim Horan of Oppenheimer. Your line is open, sir.

Speaker 9

Thank you. So C band build outs going faster and it sounds like better than expected. So Matt, can you talk about when you think you'll largely be done with that the spending and maybe just the ultimate thinking on the ultimate of pops covered and capacity that you're adding? Any color there would be great.

Speaker 2

Yes. I can start and Matt will come in there as well. But when it comes to the C band spending, you remember, we said we're going to do an Additional SEK 10,000,000,000 on CapEx. The year has not ended, but you have seen more or less where we're guiding. So it's going to be the portion left for the next year on CapEx, but that's a smaller part.

Speaker 2

And then it's going to be BAU because then we have done all our initial. What is happening after that is, of course, we're getting a much more spectrum to the sites and we get some more markets. But then we're down to BAU as we have always have been building capacity and network on 4 gs, 3 gs. Now we'll do it on 5 gs with the spectrum we have. So feel good about that situation and how we have been doing it.

Speaker 2

And this was part of the strategy we laid out for the network already 2017 in order to draw the benefit of a unified network with a strong sort of edge capability with different type of access technologies. And now, of course, with the C band, we're adding that strength. So we're going to pass the 200,000,000 POPs In the Q1 of 2023 and then we will just continue to deploy as we're getting more spectrum. I mean Still today, we're using mainly 60 megahertz. There are some places where I've started to trial out 100 megahertz.

Speaker 2

But as you know, we have 161 megahertz the nationwide and in some places we have 200 megahertz. So we have so much more spectrum and capacity, but the guys have been building smart. So when the spectrum comes, we turn it up, it's not going out to the site again. So we're ready for that.

Speaker 3

Yes. So Tim, just on the exactly what Hans said on the timing. If you think about it, we're still spending on the LTE network today, and that's obviously 10 plus years from when we launched. So That's because the usage on the network continues to grow. The utility people get from it continues to grow.

Speaker 3

And that's why you see our customer base expanding as a result. But as you think about connecting the dots here, as we said, we'll be close to 200,000,000 where we'll cross 200,000,000 POPs in the Q1 of next year. The $10,000,000,000 will largely be spent. We said there'd be a stub left over to go next year. So that kind of So think about it from the standpoint of $10,000,000,000 took care of covering the first roughly 200,000,000 pops, then the rest of it goes into BAU and you create space in BAU because those 200,000,000 POPs have now got C band coverage.

Speaker 3

We said over half of our base is a 5 gs compatible device in their hands. And so the usage growth In those areas is going on, C band. That means we don't have to continue spending on LTE in those markets. And then combined with other programs that are coming to an end on the peak spend such as 1 fiber intelligent edge network, that's the space for the C band continued build both from a coverage and a capacity standpoint to be in the BAU level spend Just like as we continue to expand the LTE network for many years, it was part of the BAU level spend. So absolutely peak level this year, CapEx comes down next year and then I'd expect even further in 2024 as the $10,000,000,000 is completely gone, as we spoke about earlier this year.

Speaker 3

And that obviously has a positive impact on free cash flow and the decisions we'll be able to have in front of us as a result of that going forward. So could it be happier with the pace at which the team has built it out and spend that money, unbelievable work the team's done there and it puts us in a great place to reduce CapEx going forward.

Speaker 9

So any updates on the ultimate amount of coverage that you'll have or pops covered and rough timing on that?

Speaker 3

I think Kyle has said pretty clearly that you should expect when you get 4 gs today, you should be expecting to get 5 gs in the future as we continue to build out.

Speaker 2

Yes. Our C band spectrum is nationwide, every market, every state. So we are just going to complete that and see that we have a similar as the 4 gs network as Matt says.

Speaker 4

Good.

Speaker 9

Thank you.

Speaker 1

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

Operator

The next question comes from Craig Moffett of MoffettNathanson. Your line is open.

Speaker 4

Hi, thank you. Hans, I wonder if you could talk about convergence a little bit and particularly in the consumer side of your business. There's certainly a broad sense that the industry is moving toward converged offerings of wireless and home Internet. How do you think about that and how do you think about it differently in areas where you have Fios and where you have fixed wireless broadband. Is that in some ways what's driving the fixed wireless broadband Deployment or do you see them as still somewhat 2 separate services that are trying to fill 2 separate needs?

Speaker 2

Hey, Greg. I think that first of all, we have seen some early steps of convergence in a market where the mobility and home is going together. Of course, ultimately, customers will define is that the best model. I think we're in a great For obvious reasons where we deploy our fixed remember, when we deploy our network on the C band, We start in urban and suburban. And that's, of course, also where the fixed wireless access opportunity arises.

Speaker 2

So then the combination of fixed and home and mobile is emerging there. So we're going to play on that. And you have seen we have offerings on that in the market and also working with our Fios footprint equally much. We have the optionality and the customers will decide if that is a good way forward. I think we are in a very strong position.

Speaker 2

We have owners economics on all our home broadband and all our mobility and be able to see that we can follow the market. And it goes back a little bit to what I said before. We need to be agile and be surgically in different segments. If we see that, for example, convergence is happening in certain segments, We quickly come out with offerings and do that. And that's what the team is working with constantly right now.

Speaker 2

And if that is a trend going there and it's just accentuated, We're going to be super well positioned for that. If it's not, we're also super positioned for keeping it separate. We're going to see that the market we're going to drive the market. We think it's a strength for us the We have always economics on both mobility and broadband. So we will drive it where we see a good traction on it.

Speaker 2

And as you have seen already, we have already our offerings out there I will continue to do so.

Speaker 1

Thanks, Craig. Operator, Brad, we have time for one last question.

Operator

Your last question will come from Frank Louthan of Raymond James.

Speaker 9

What are the largest factors impacting your churn and your base right now? And kind of after we get through this bump from the pricing action, the question, what do you need to address to get the churn back down? And how soon can we see

Speaker 4

those tactics begin to work?

Speaker 2

I think when it comes to the consumer churn, As Matt explained, the vast majority in the Q3 was coming from the price adjustments we did, which was a deliberate decision we took in the 2nd quarter. And And it was as expected. That was the larger piece of it in the churn. And as Matt said before, our job right now is to continue to drive this downwards and see that, that is the evaporating out there. We have some leakage into October from it because given how the price adjustments came out in the market.

Speaker 3

Yes, just Frank to build on that a little bit. So absolutely, we expected to see that increase, But it was certainly a good trade for us because it drove the gross add increase that we spoke about earlier. Also drove a 2% sequential increase in service revenue and 3% in EBITDA. So we'll work through the bubble from that as we go forward. But obviously, the actions produce the type of results that we wanted.

Speaker 3

We'll expect to get back to more normal levels going forward. We constantly have to communicate to our base of customers the value of being on the Verizon network. And that's something that we got many years of doing. As we just spoke about a couple of questions ago, the quality of that network with the C band build out is expanding rapidly and we have the opportunity to continue to demonstrate to customers the premium service they get on Verizon. And as we do that, I'm very confident that churn will get back to the levels we'd expected to be and combined with the improved gross ad performance, we'll see that show up in the financials and more importantly in strong cash flow from the business.

Speaker 3

So really happy with the sequential trajectory we have. We need to keep building on that as we go forward here. That's what the team is focused on.

Speaker 9

All right, great. Thank you very much.

Speaker 1

Yes. Thanks, Brad. Brad, that's all the time we have today.

Operator

Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation and for using Verizon Conference Services. You may now disconnect.

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