Chief Financial Officer at Verizon Communications
Thank you, Hans. And good morning everyone. At our Investor Day last month, we talked about 2022 as a critical year for scaling the business and making investments in a position for Verizon for the long term. And this quarter, we made progress along that path. At that event, we said we expect to generate an incremental $14 billion of service and other revenues from the business by 2025, and then we expect to get there through leveraging our unique collection of assets against our five growth vectors. We expect over 75% of our growth over the next four years will come from 5G mobility and nationwide broadband and our performance in the first quarter gives us confidence in our growth prospects.
Our consumer and business units will measure success and mobility by how we perform in the areas of ARPA, premium unlimited penetration, and subscribers and accounts. We've talked about our plans for increasing the value of our existing base of wireless customers through step-ups to higher-value data plans. The first quarter saw us achieve an increase in Consumer postpaid ARPA of 2.6% year-over-year, positioning us for high-quality revenue and earnings growth going forward. 64% of new accounts selected premium unlimited and together with continued step-up momentum, drove our premium penetration up to 36%.
With respect to subscribers and new accounts, for the first quarter, we reported postpaid phone net losses of 36,000, which represents an improvement of 142,000 or 80% from a year ago and our best first-quarter performance since 2018. The performance is driven by our business team which contributed a record 256,000 phone-ins adds [Phonetic], the highest from the units since Verizon 2.0 or reporting began. These results were driven by strength in the three wireless customer groups, as SMB, enterprise, and public sector each delivered double-digit phone gross at growth and extended the momentum built in the second half of last year. We expect this strong performance to continue as we approach something closer to a pre-pandemic environment.
On the consumer side, phone net losses were 292,000 in the quarter. While churn [Phonetic] was steady, we saw a decline in phone gross adds of 2% from the prior year. This gross add trend was more pronounced in March and is continuing into April. We will continue to take appropriate measures to be competitive in the market. We are pleased with the quality of the business that we are writing and are confident in the value of the postpaid phone gross adds we are attracting. Our retail postpaid accounts at the end of Q1 across consumer and business are up 40,000 from last year. Consumer and business segment performance in the nationwide broadband factor was strong and demonstrates the opportunity to scale this business. We measure our success against this vector by households and businesses covered by broadband and the total subscribers on our networks.
As Hans mentioned the early clearance spectrum announcement is a major milestone for Verizon. Our network team is now able to deploy the spectrum, a full year sooner than expected unlocking another 40 million of the addressable population. We feel confident that our C-band net will cover at least 175 million POPs by the end of this year and we'll cover 50 million households and 14 million businesses with fixed wireless access by the end of 2025. The addressable opportunity expansion continues in Fios [Phonetic] as well. With 115,000 incremental open for sale in the quarter, we are seeing strong uptake in our broadband offers and we expect increasing momentum as more and more people get access to our 5G Ultra-Wideband and Fios service throughout the year.
We had 194,000 fixed wireless access net adds across the portfolio, which is 2.5 times our 4Q '21 performance. Consumers continue to see the benefit of the speed, reliability, and simplicity of installation of the FWA product, and businesses continue to recognize the FWA can be a primary broadband access solution for all of their needs. For total broadband, we registered 229,000 net adds, representing our highest net adds in over a decade. Fios Internet contributed 60,000 net adds, within the quarter, driven by record low levels of churn.
Now let's move on to the mac [Phonetic] and B2B Solutions vector. Tami and the team continue to make great progress in this space. Within IoT, the team delivered another strong quarter of connection growth. We're seeing success across our verticals, working with our customers to deliver the solutions that they need, as we mentioned during our Investor Day, we anticipate that connections will continue to grow at a double-digit pace. With our investments in key partnerships, we continue to expand the ecosystem for mac [Phonetic] as well as advance our deployments in private wireless and private mac [Phonetic]. Our market differentiation is unmatched in terms of scale and capabilities and we are well-positioned to accelerate our long-term revenue growth within this space.
Now let's talk about the value market. Q1 marks the first full quarter of TracFone included in our consumer results. Our integration of TracFone is going as planned and we are pleased with the progress we are making. We measure our success in the value market based on prepaid ARPU, prepaid subscribers, and prepaid revenue. Prepaid ARPU in the quarter was $30.89 across all of our prepaid brands. This declined in part because TracFone ARPU is lower than our legacy Verizon prepaid ARPU. Additionally, we saw quarter over quarter pressure, specifically in the TracFone brands in part due to the transition from the emergency broadband benefit program to the affordable connectivity program, which negatively impacted ARPU as benefits dropped from $50 to $30. Going forward, we expect prepaid ARPU to stabilize and subsequently grow as we execute in our strategy to bring additional value to this space. While we experienced certain device inventory pressure throughout the quarter, especially in January, the team finished strong and delivered first-quarter volumes from TracFone that compare favorably to prior years excluding 2021 activity, which benefited from stimulus programs. Our TracFone brands had net prepaid losses of 77,000 while total Verizon prepaid net losses in the quarter were 80,000.
Next, let's move to the consolidated financial results on Slide 14. On a consolidated basis, Verizon delivered strong wireless service revenue growth in a highly competitive environment in the first quarter, total wireless service revenue growth was 9.5% reflecting the first full quarter of TracFone ownership as well as continued execution of our network-as-a-service strategy and contributions from our five vectors of growth. Service and other revenue was down 2.5% in the quarter as the revenues loss from Verizon Media more than offset net incremental revenue from TracFone. Excluding the impact of the sale of Verizon Media, service and other revenue was up percent from the prior year. Adjusted EBITDA was $12 billion for the quarter, down year-over-year by 1.1% due in part to elevated marketing expenses.
We introduced our 5G Ultra campaign at the beginning of the year to support our C-band launch and FWA expansion. Combined with lower spending on the first quarter of 2021 driven by COVID-related impacts on our operations, marketing expenses represented a year-over-year drag on first-quarter EBITDA growth. Other items impacting Q1 EBITDA included the disposition of Verizon Media, which had EBITDA levels above those of TracFone added in the quarter, especially considering the investment was starting to put into the TracFone brands. We expect marketing expenses to return to more normal levels in Q2 and we will begin to lap the prior-year ramp up in tower expenses which also represented a year-over-year pressure in Q1. As Brady and Hans highlighted, adjusted EPS for the first quarter was $1.35, relatively in line with prior year. The bottom line performance shows the strength of our core business to deliver profitability even in a period of significant investment as well as other headwinds. Now let's take a look at our Consumer financial results in Q1.
Total consumer revenue for the quarter grew 10% year-over-year, driven by the first full quarter of TracFone inclusion, higher equipment revenue, and strong core wireless service revenue growth. Wireless service revenue was up 11% year-over-year. These results were driven by the inclusion of TracFone as well as our increase in postpaid ARPA which was driven by the strong step-up momentum I discussed earlier and growth within our non-connectivity products and services.
Moving to Fios services, we continue to see volume and rate gains with broadband offsetting pressures from video and voice as total Fios revenue grew 1.8%. Consumer EBITDA was $10.5 billion up year-over-year by 1.0%. This growth is a result of the inclusion of TracFone as well as ARPA and customer volume gains, partially offset by the items mentioned earlier, such as higher marketing expenses, investments in TracFone, and higher bad debt, driven mainly by higher sales volumes in the quarter. Similarly, the higher sales activity resulted in elevated equipment revenue pressuring EBITDA margins, which were 41% in the quarter. Margins were additionally pressured by the inclusion of the results of TracFone, which is a business that has historically operated with margins below the legacy consumer business.
Now let's take a closer look at the business, and financial results on Slide 16. The Verizon Business Group continues to see strong wireless sales and service momentum within the business space alongside the ongoing wireline service declines. Wireless service revenue growth of 2.1% was led by momentum in our SMB Group, which continues to see strong post-pandemic recovery. The rate of growth is an improvement from last quarter is 1.5% and with 1Q last year, representing the peak for distance learning devices. We expect business wireless service revenue growth to expand over the rest of 2022. Business EBITDA was $1.7 billion for the quarter, down 9.3% from the prior year. The decline in EBITDA was driven in part by the ongoing reduction in high-margin wireline revenue. Additionally, we experienced elevated levels of subsidy related to the strong wireless Q1 sales volume, which were up 20% year-over-year. EBITDA margin was 22.5%, similarly impacted by wireline service trends and wireless sales volumes.
Let's move to Slide 17, the cash flow summary. Cash flow from operating activities for the quarter totaled $6.8 billion compared with $9.7 billion from the prior year. The reduction was primarily due to working capital impacts as the increase in activation volumes to more normal levels impacted receivables and inventory increase as part of our supply chain management in the current environment. Capital spending for the first quarter totaled $5.8 billion, an increase of $1.3 billion compared to last year, driven by C-band spending of $1.5 billion.
The continued build-out of One Fiber and our investment to support the growth of traffic on our 4G LTE network while expanding the reach and capacity of our 5G Ultra-Wideband network greatly extends our opportunity to effectively compete in all of our businesses. The net result of cash flow from operations and capital spending is free cash flow for the quarter of $1 billion. We exited the quarter with $135.6 billion, of net unsecured debt, an increase of $1.9 billion sequentially as we issued our fourth green bond with the net proceeds expected to be allocated to renewable energy.
In addition, we completed a number of other transactions during the quarter. The proceeds of which we used as consideration in an over $5 billion tender offer to retire some higher-cost long-term debt. We ended the quarter with a net unsecured debt to adjusted EBITDA ratio of approximately 2.8 times, flat on a sequential basis as expected. Lastly, let's move to guidance for the remainder of the year.
I want to provide some additional detail around our view of the macro-environment in which we operate and give context around our guidance for 2022. We saw inflationary pressures building towards the end of the first quarter and expect those to continue given the current environment. The major areas of exposure for us are energy-related costs for our network operations and transportation, as well as labor-related costs, including both our direct workforce and third parties. While these items have not had a significant impact on our overall results to date, they represent a meaningful portion of our direct cost structure and have the potential to drive additional expense pressures throughout the rest of the year. We also believe that the inflation, we have seen throughout the economy may also both [Phonetic] the consumer and business landscape in which we compete. It is too early to predict how this changed landscape may impact our near-term results or how long it will last. But we are confident that the strategy we have put in place will allow us to achieve our long-term growth plans.
There has also been a significant increase in treasury yields recently but as a reminder, the vast majority of our debt approximately 75% to 80% is fixed rate. The team has kept near-term maturities in the next 12 to 24 months at manageable levels which also helps minimize near-term interest rate exposure. If the present forecast of Fed rate hikes are accurate, we anticipate an incremental cash interest impact for the year above our earlier expectations of $150 to $200 million. Based on our current expectations, we are updating our guidance for the year. On the revenue side, we now anticipate service and other revenue to be approximately flat to 2021. Significant items affecting our service and other revenue include USF rate reductions, which are pressuring year-over-year revenue by several hundred million dollars and softness in wireline sales.
We are keeping the guidance ranges of wireless service revenue, adjusted EBITDA, and adjusted EPS. Based upon our expectations around service and other revenue as well as the macroeconomic pressures, we now expect to come in towards the lower end of our prior guidance ranges for these items. For capex, we are reiterating prior guidance of $16.5 to $17.5 billion for business as usual capital and $5 to $6 billion to C-band-related spending. We will continue to invest in the business and remain confident in the long-term growth opportunities discussed during our Investor Day. With that, I'll turn it over to Hans to close out our 2022 priorities.
Thank you, Matt. Our priority in 2022 is to continue to execute on our network as a service strategy and to drive growth across all our five vectors. This is a critical year for scaling on our strategic investment as we work to capture all of the promise that 5G offers. Both from a customer experience perspective and for our future revenue growth. We made good progress in this quarter and continue to execute on our long-term plans. Our core business and our strategy showed strength and we have a solid momentum going into the second quarter, all built on strong confidence in our strategy. Now we are ready to take your questions. Back to you Brady.