Verizon Communications (VZ) at Citi 2023 Communications Media Entertainment (Transcript)

Verizon Communications Inc. (NYSE:VZ) Citi 2023 Communications, Media & Entertainment Conference Call January 4, 2023 10:00 AM ET

Company Participants

Hans Vestberg – Chairman and CEO

Kyle Malady – President of Global Networks and Technology

Conference Call Participants

Mike Rollins – Citi

Mike Rollins

Well, good morning, and welcome to Citi’s 2023 Communications, Media & Entertainment Conference. For those of you I haven’t met, I’m Mike Rollins, and I cover communication services and infrastructure for Citi.

Since this is our first keynote, let me also take the opportunity to wish you a Happy New Year, and thank you for joining us for our conference today.

Before we get started, I’d like to mention that we do have disclosures available at the registration desk, and at Citi Velocity page from which you’re streaming the audio. We’re also going to work to incorporate your questions into today’s session. If you’re streaming this connection, there should be a question box on the page for you to ask questions. And we do have a microphone, if we have time today, to try to get it around the room.

And finally, continuing on the tradition of using our live surveys, they’re completely anonymous; we’re not tracking responses; we’re just aggregating the results. You can access the live poll and Q&A both with the codes that are up here and there’s placards around. I’d just encourage you to log in now, so you can get ready to respond to some of our — well, I hope there’re going to be some really good survey questions. And it’s also available on the streaming site as well.

So, with that out of the way, I’d like to welcome back Hans Vestberg, Chairman and CEO of Verizon; and Kyle Malady, President of Global Networks and Technology. Hans, Kyle, thank you both for joining today.

Hans Vestberg

Thank you for having us.

Kyle Malady

Thank you.

Question-and-Answer Session

Mike Rollins

Well, so we turned the calendar to the New Year; it only seems like a couple of days ago. So, as you’re now thinking about the year to come, can you just give us a high-level perspective of the strategy, the priorities? And are there any notable changes in your objectives from the past year?

Hans Vestberg

First of all, we need to announce the Safe Harbor statements. Anything that Kyle might say, it might be forward-looking, and rest from me as well, so those of you aren’t aware of that.

If you look into ’23, I think a couple of things we are changing. So, Kyle might talk a little bit about that technology that is actually changing going into ’23 compared to the previous five, six years, so I’ll let him talk about that.

When it comes to the other businesses, I think that, first of all, the mobility, and especially on the consumer side, we have done quite a lot the last two quarters. As many of you know, we are — I was not really happy with our performance at the end of the first quarter, and, of course, then that trickled into the second quarter. We [started] (ph) to take actions in the third quarter being a bit more agile, moving to the softer segments that we had, we continued that work in the fourth quarter. So, you’re going to see us being more agile. You’re going to see us being even more focused in certain segments.

Remember now, we’re all the way from the Lifeline with the TracFone brands, all the way up to the premium brands, we’re actually covering all the consumer segments. Our job is going to be even do smarter, more surgical actions in the different segments to see that we retain our customers, but also acquire the customers that we want to have, ultimately with the goal of cash generation. That’s number one for us. And then, we really think that is super important with wireless revenue growth or wireless service revenue growth and EBITDA expansion or cash flow expansion, that’s really where it boils down. So, you’re going to see us be more on that side.

Then I think a couple of other things that already has started emerging in ’22. I mean, the national broadband, of course, both with Fios and fixed wireless access, is really doing well for us. That’s the strategy we outlined five years ago. It’s starting to bearing fruit right now. In the third quarter, you might remember, we had way over 300,000 new net adds on broadband. We continued with a good journey in the fourth quarter. Of course, I’m going to disclose the numbers when we meet in three weeks from now, but feel really good about that.

And finally, we started getting attraction. We talked about private 5G networks, mobile edge compute, maybe the deals are small, but this year, we’re going to use — get a lot of deals and that’s going to be a great base for our sort of platform for us to grow with enterprise customers over time.

So, I think we have a strategy, but we’re actually tweaking a little bit, being more surgical. I think, as I said, when we kicked off last year, we have all the assets. We have now this — the spectrum, we have the network, we have built the network for five years, we have TracFone, we actually divested Verizon Media groups. So, we’re much cleaner in what we’re doing. And on top of that, you’re going to see us doing more cost efforts this year; we announced it in third quarter. So, yes, it’s a quite a lot of differences we’re doing this year, but the core

strategy is the same, it’s more how we tweak it and go faster in certain areas, and actually change a little bit focus in certain areas.

Maybe you should say something about the technology…

Kyle Malady

Yes. So, consistent with what Hans says here, we’re going to — we’re tweaking our build a little bit. So, for the last bunch of years, we’ve been building a lot of fiber, outside of our footprint, as well as inside of our footprint. We’ve also been really bolstering our core network to handle massive amounts of data in the course. And then, focused a lot on millimeter wave builder. All three of those things are starting to come to the end of the build process, if you will, right?

So, in our One Fiber markets, we are roughly 80% done with our core builds there. So, now it’s just a matter of hooking things up to it. Our millimeter wave, we’re over 40,000 nodes. And now that millimeter wave technology turns into a tool for RF engineers to use in hotspots that they have. And C-band, so we continue to build the C-band out. But the three major programs coming down and C-band still continuing to roll allows us to take CapEx out of our program overall. So, we’re going to be less CapEx-intensive going forward.

Then the other thing that — the tweak — the other major tweak that we’re making, and Hans said, is getting — we’re getting more local. When we were doing all this build, it was — we consolidated a lot of things, so we could bring a lot of scale. Now, it’s really about optimizing. And so, we’re having a — we have a close focus at the local level along with our sales counterparts in the BU to make sure we’re taking care of issues at a local level and servicing the customers in that way.

Hans Vestberg

And you can say also that, on the consumer side, as I’m also running the consumer business, we are doing the same thing. We are in a moment right now when we go more local with our — and executing more locally, both with branding, marketing, but also executing hand-in-hand with our team in technology. So, this is a pivot for the next step for us. It’s been centralized for a while. And now we go local, as the network has come so far with the coverage. We’re now more in revenue optimization, capacity enhancements, and we have built everything, as Kyle said, from the data center to the edge were built now with fiber redundancy, multi-array edge routers, and now at the edge, we can decide what type of business we’re doing with different type of customers.

I think this was a dream that I had when I started at Verizon in 2017. We two drove up this Verizon Intelligent Edge Network, and now we’re there, and that’s why we’re also going to see quite dramatic reduction on CapEx. And it’s not because we’re not doing everything we want to do, it’s just that we have now built this. We still going to have in 2023 a piece left of the $10 billion that we have added when we bought the C-band in CapEx. But ultimately, we’re not coming down to BAU, that is pre-2015, 2014 levels in absolute number, and ’24, we should be done with that, so we only have BAU.

So, clearly, this has been a strategy for a long time. We have the best network. It is just going to get better with the work we’re doing. And later this year, we’re going to get all the spectrum we need; 160 megahertz on C-band, covering the whole nation. And in the first quarter, Kyle has not only promised, he has guaranteed, we’re going to pass 200 million PoPs on the C-band as well. Isn’t that right, Kyle?

Kyle Malady

That’s correct, Hans.

Mike Rollins

And just maybe finishing a topic on the BAU CapEx. So, the goal — remind us, the goal for 2024 BAU CapEx is?

Hans Vestberg

Around $17 billion, somewhere there. That’s where we’re aiming for. It could be $17.5 billion or something. But around that number is BAU that probably is going to be the lowest capital intensity in the industry in the world when it comes to divided by the revenue. And again, we have built a network that is so smart. That was the whole intention from the beginning. That will, of course, unleash capital for us and cash flow. Again remember, what we are measured on ourselves is the service revenue and the cash flow. That’s really — and especially going into this year, it’s going to be even more important for us.

Mike Rollins

And so, maybe just rounding out one more part of the discussion on this, while we’re just talking about CapEx and investment, what are the things that could cause you to want to spend more than BAU CapEx in the future? Is it to go more fixed wireless, bigger, broader? Is it more fiber? Are there things that are on the whiteboard somewhere where, “Okay, here’s BAU, but here are things that we should just be mindful of that you might do in the future?”

Hans Vestberg

It would be something like when we did when we bought the C-band, it has to be something that’s very clear to the market why we’re increasing. I think we have discussed this every time and I will have Kyle helping me out here. But we have talked about the 4 million to 5 million fixed wireless access broadband customers as a goalpost for us. The network will handle. That we build it once, we’ll use it once. There might be many, many years out a conversation when, “Hey, do we split sales, and do unique fixed wireless access solutions?” That’s not in the plans for the next four or five years. But after that, it might be that we come back and say, “Hey, it’s a great opportunity. We split 10 sales here, because we can get more subscribes.” I think that’s going to be a great conversation. And it’s going to be sort of success-based fixed wireless access as we do Fios today.

Kyle Malady

Right, it’d be — I think it’d be opportunistic, right? I mean, like we did last year, remember, we spent some money, and we opened up 30 more markets for C-band to past the 46 that we had. We were able to invest and clear those quickly, so now we have those launched. So, between now and when we get the full cadre of spectrum, if there’s some opportunities like that, that allow us to accelerate and grab revenue quicker, then that’s something that we’d absolutely look at; just like we do with Fios.

Mike Rollins

So, we’ll jump into the consumer business in just a moment. But let’s queue up our first survey question. So, the first live survey question [Multiple Speakers] Yes, you guys are…

Hans Vestberg

We get to vote as well?

Mike Rollins

You get to vote, yes. So, we can get a placard up here. It’s right up here, you can log in. And it should be visible now on our streaming site as well. I already see responses starting to come in. So, the question is, what do you expect for Verizon’s postpaid phone net adds in 2023? And the choices are: less than equal to zero; over zero to 500,000; over 500,000 to 1 million; and over 1 million. So, we’re going to get those responses coming in. We’re going to start talking about consumer. We’ll get back to the results.

So, Hans, you’ve taken over consumer recently. What can investors expect from your leadership of consumer? And what are the changes you trying to solve for? Ultimately, what’s the end goal of these changes?

Hans Vestberg

I think, a couple of things, which we already have seen coming into the market. We will, first of all, from a offering point of view, we will be much more segmented to go for segments that we see that we’re not performing well. And you have seen the Welcome 30, the Welcome 25, coming out with Bring Your Own Device special offering in a segment of the postpaid segments.

The other thing we’re going to see is also harmonization more on the operations between the network and between the consumer business. And you also will see us combining our consumer investment. When I say consumer investment, it is everything from media to above-the-line promotions, below-the-line retention. And we’re going to be much quicker on using that money instead of locking it up for longer times, because the consumer sentiment has changed a little bit. So, it’s going much faster for them to change. We have been a little bit slow in some of those areas. So, now we combine all that money in order to be quicker.

Actually, we saw in the fourth quarter, for example, we use a little bit more to media than we’re actually with the spend, because it was smarter than using in promos. And that is what you’re going to see from us, much more agile decision-making, using the regionalization right now, and being closer to the markets, and having actually decision taken little bit lower down in organization. That’s what you’re going to see from us.

But you can bet that we will be discipline. We’re going to be focused on our cash flow and see that we get the right customers. We’re not going to throw ourselves after the net adds that is not giving us the right quality and the right return on investments. That’s not the main goal here. The main goal is service revenue. ARPA growth is very important for us. You saw in the third quarter how much we grew on that. That’s important to us, and that is creating bottom-line, at the same time taking out costs, so we get leverage on our scale.

And don’t forget when you answer the question, which you’ve already done, our business side is doing pretty well. We have six consecutive quarters or five consecutive quarters over 150,000 subscribers, and they continue well. So, we’re taking there. So, it’s more about where do I take my subscribers? Where are they giving my best return on investment? That’s one process for us. Kyle is working a lot with me right now on the operation with stores and how we plan with incentives. You’d say commissions, but I think it’s the same thing.

Kyle Malady

Right.

Hans Vestberg

Yes. In the stores and how we are tweaking that up, harmonizing it with overall. So, that’s what you’re going to see from me leading the consumer business, together with guys like Kyle and, of course, the existing management team of consumer.

Mike Rollins

And as you look at the fourth quarter promotional environment, can you frame what you saw? Verizon had a goal of getting back to positive in consumer. How do you do? And is there a significant amount of spillover? You raised the whole issue of iPhone inventory. Is there going to be a spillover from 4Q to 1Q?

Hans Vestberg

So, when it comes to the consumer net adds, I was just going to say one thing, we were positive. I’m not going to go into the details, because I have my earnings call, but we were positive in the fourth quarter. As we said, we should be, team did a good work.

When it comes to the promotional environment, it’s always a little bit elevated for the holiday season, so that’s nothing. But it was nothing unusually higher this time. We tried to, as usual, be as disciplined as we grow, then go into certain segments. There were some choppiness in supply from one OEM, which you probably know who it is. But they sorted out. So, there’s basically no spillover right now, at least for us. We had a good supply. We had a good collaboration with OEMs. There were days that were with complicated lead times, but we sorted that out, it was a very short time. So, yes, it was good.

Mike Rollins

Let’s go to the results of the survey. And we’ve gotten some good response rates here. So, I’ll read you the percentages and the answers. And for those online, you could see the graph there. So, 15%, less than or equal to zero. This is for postpaid phone net adds in 2023. 65%, zero to 500,000. 21%, over 500 to 1 million. And zero was over 1 million. So, how do you think about these — the response from our clients?

Hans Vestberg

Yes. I don’t know what should I say, their vote. My focus, again, is going to be generating service revenue growth, that’s going to be the number one. One measurement is, of course, getting new customers, but you can step up, you can do — remember, we have talked about this so many times, our job — when we ended the third quarter, we had 41% of our customers on — in postpaid on unlimited premium. I mean, every step up that we would do every quarter with 2%, that’s far more important from an ROIC point of view, than actually taking a new net adds. Can you just make the calculation? And you do them all the time. You know how much it costs the new net adds with promos and compared to do a step-up.

So, again, you need to be smart in a market where it’s a subscription-based model, that’s what we have in front of us. It’s one of the best subscription models in the world. You need to be smart how you spend your money. Are you putting it on promos to get net adds? Are you doing for retention? Or are you doing it for step-ups? All the time, be more surgical. It’s a financial game here. I know that some are very focused on the net adds, as the main driver, it’s not the main driver, necessarily. It’s one driver. So, I think that’s going to — you’re going to see from us. So, I think the response are great guys. We’re going to see where we end up.

Kyle, do you have any comment on it?

Kyle Malady

Not on that. That’s — I am not gambling on that one.

Mike Rollins

Let’s go to our second survey, and then we’re going to come back and talk about the network while we get the responses. So, second question, we’re going to ask our audience. Does Verizon need to reduce wireless postpaid service pricing at the risk of ARPU to improve volume growths? And your choices are: no; yes; and maybe, but tearing and upselling can offset the base pricing changes. So, we’re going to — let our audience respond to that.

Kyle, coming back to you for a moment. In terms of network performance, can you talk about what you’re seeing with the use of mid-band 5G? And is there a clear difference in usage and customer growth in the markets that have the C-band versus the markets that don’t have the C-band?

Kyle Malady

We’re getting great feedback on the performance of our C-band. I mean, for me, being in the industry for such a long-time and just having the ability the Board given us the wherewithal to obtain the spectrum that we actually call, as generational spectrum, and we’ve never been able to put this amount of spectrum in play for our customers, and the uptake has been great. Our usage growth in the markets that we have C-band is up quite a lot. And to the point now where C-band usage overall is 15% to 20% of our overall usage, and we only have it going in 46% of our markets. So, we see average users using it more when they have Ultra Wideband, and we’re getting great feedback on it.

So, the other thing that’s really unique about it, is really the C-band that we’re putting in play now as opposed to LTE and low-band spectrum, which is just for mobility, this spectrum swath is really mixed use, right? So, we’re doing both home and mobility in it, as well as millimeter wave, we’re treating it the same way. So, all of our Ultra Wideband spectrum is being used for both. We’re seeing just what we expected, frankly, in terms of fixed wireless access usage and have it — it is more than the traditional mobile customer. But also, the time of day when people use it the most is offset.

So, we feel from an engineering perspective, we’re doing a good job fully utilizing the asset. And I’m just frankly — I’m really excited that also the Board gave us the wherewithal to get the new 30 markets up and running quicker. We’re going to be really aggressive this year, bringing more and more online, and then I just can’t wait till we can turn the switch on, I guess, would be January 1st next year, when we can bring the full complement of the C-band to bear. But, right now, we couldn’t be any happier with how this is going.

Hans Vestberg

And just adding to that from a consumer point of view, we see a great pickup on step-ups and things like that in a market where we have the C-band deployed. And remember, we only have 30 plus 42, 72 markets I think, that has the C-band today, of course, are populated because they’re going to pass 200 million. But there’s 402 markets where we have the spectrum. So, there is plenty of markets left to be done, and that’s also when you see our — SKU on our fixed wireless access is much more on urban and sub-urban, because that’s where we deploy C-band right now. But, of course over time, and not too far away, we’re going to have also C-band in some places more than 200 megahertz. And so — and we see actually the correlation there. So — and then finally, I think, everything that Kyle has built right now, we are prepared just to hang the radios, meaning, we don’t need to go out there again adding 40 more megahertz or 60 megahertz, we have prepared them in places, even prepared for 200 megahertz where we need 200 megahertz.

Mike Rollins

And we’ll come back to the step-up point in a moment on the ARPU side. But let’s get to the survey results and share what we saw from our audience perspective on, does Verizon need to reduce wireless postpaid service pricing at the risk of ARPU to improve volume growth? 28% said no; 41%, yes; and 31% maybe, but up-tiering and upselling can offset pricing changes.

So, Hans, you mentioned earlier the importance of wireless service revenue growth. Can you talk about how Verizon is charting the path forward with the volume, with the ARPU up-tiering that you’re doing? And how price comes into play in terms of the competitive landscape?

Hans Vestberg

I think that my answer would be, no. But when we go into segment, in certain areas, we might be a little bit softer and we need to have more competitive offerings, and we’re going to have it. But we still going to preserve our premium and we want to preserve the growth of our service revenue. So — and remember, sometimes we talk only about consumer, but we have over 45% market share on the business-to-business and wireless as well. So, we work the whole system constantly to have the right pricing.

But very clearly, we’re going to continue to see that we have premium brands. And remember we have different type of churns in different segments of the market, where we don’t need to do much, others we need to do much. Usually, we have high churn in the higher segments. In the lower postpaid, we’re being a little bit softer, that’s where we need to do plans like we did right now with the Welcome 25, for example, which is Bring Your Own Device, see that you get away from the promotions. So, again, think about the consumer investments again. You take money from the promo and you can actually do it on something else and the return on investment is better, and the lifetime cycle of the customers is even better. And then, the churn is improving as well.

So, you just need be surgical. But saying that we’re going to do price reduction across the border, I mean, that I think is just irresponsible and not really thinking about business you’re running. And we don’t need to do it, but there are areas we need to be better for sure. And we will be aggressive in those. We kind come in in a market and go out in a market in certain places, we’re going to continue with doing that as well. So, I think that’s going to be our strategy and that you’re going to see us be more agile and more sort of surgical in that.

Mike Rollins

And in terms of the step-up opportunity and ARPU, can you frame where the base is today on the premium plans? And what you’re seeing in terms of the mix — in terms of where that destination of mix of up-tier maybe?

Hans Vestberg

Yes. So, we are, as I said, on Unlimited Premium, 41% during the third quarter. In average, we have been adding 1 percentage points to 2 percentage points every quarter of more customers on that one. So, still a big portion of our overall consumer base is there. On the unlimited, of course, that is now getting up to high 80%-s — or high 70%-s, 80%-s. But we still have more to be there — going there from the metered plans, and customer usually love to go from metered to unlimited. So, there’s both those steps. And all steps for every percentage we move is creating service revenue growth. That’s how it works.

So, that’s what we will work with, but we’re going to need to have compelling offerings in some of the high premium plans like the Unlimited Premium. We include Disney Plus and things like that, because customers really like it. And we have owners’ economics of that, because, ultimately, we give the distribution channel to Disney. Oh my god, the guy is a [nightmare] (ph). We’re using our distribution channel as a scale and then we can also make money on that one. So that hangs together for us. We will continue with that. There are certain segments, I don’t care for an inclusion, and we shouldn’t give them that.

And our next step is, of course, Plus Play, where we can have a much broader base, not doing inclusion, but the customer can use it. So that’s the next step we’ll have of it. So, I think we have a lot in the toolbox to really work with decent segments.

Mike Rollins

And Verizon touches so many aspects of the economy, the consumer side, the business side. Are you seeing any changes in behavior in terms of spending patterns, payment patterns, or even up-tiering where you’re seeing any signs of change in the economic climate?

Hans Vestberg

Yes, we cover a big portion of the consumer market. I cannot speak for my competition, so I speak for about myself right now. We have seen increased store traffic from the second quarter to third quarter, third quarter to fourth quarter. It might have been that we had some challenge to ourselves in the second quarter, so that was more ourself creating less store traffic, but we clearly have seen that.

The other thing we have seen is, during the holiday season, and I was out speaking about Black Friday, et cetera, the intentional customers are higher. When they come into the store, they know what they want. So, the conversion rate is higher when people come into the store. And if that’s — because they are doing more digital browsing before, so they know what they need to have might be one, but it can also be that they think about the budget a little bit more, so that when they come in, “No, this is what I want.” So, the intention is higher. You’ll see less of the browsing. So that’s a little bit of what we see.

When it comes to payments, we have the best highest-quality consumer base in the industry. There is no debate about that. So far, we haven’t seen any impact of late payments or anything like that. We are, of course, monitoring it, being close to it. Every day looking if there’s something changed, but as I’m sitting here today, that’s what I know today that we are aware. But we have a great — so, I can’t speak for the rest of the consumer world, I can only speak for Verizon and you know we have plenty of consumers in our base. So that’s what we see so far.

Mike Rollins

So, we’ll get to our third question, and then — this is going to take us into the fixed wireless realm. But before we officially enter the topic, we’ll come back to prepaid, so just to give our audience a little preview of what’s happening. So, on the fixed wireless side, a question for the audience is, do you believe 5G fixed wireless will evolve into an effective competitor to fixed broadband services over the longer-term? And our choices are: yes; yes, but only for value in entry-level services; and no.

So, while you’re submitting your responses, just a question on prepaid. Hans, where are we on the TracFone integration, the synergy opportunity? And is Verizon in 2023 going to start tapping into that base in migrating prepaid to postpaid?

Hans Vestberg

Yes. You have seen us start doing things. And, of course, a lot of work is ongoing with the integration of TracFone and the TracFone brands. It’s not only one brand, its several brands. So that is ongoing. And, of course, we’re expecting synergies coming more this year when we move some of the customer that is off-grid to on-grid to our own network, which is of course, ono of the synergies, but it’s also back offices and things like that. That we’re also going to work with the different brands, how we’re going to put them in the market, because there are a plenty of them. We have already, as you have seen, launched Total Wireless by Verizon as a new, if you say, high-end prepaid, competing there, because we didn’t have anything there. Much of our prepaid was the TracFone brands going through the Walmart. So, now, we have also a higher-end prepaid. So that is going on well.

When it comes to the post to prepaid migration, which actually is probably fairly big portion of what’s happening in a market. Today, we have no technical support for that, because there’s been different companies. Well, we’re going to have that all the time, so we can actually refer in between. Of course, with total wireless is much easier, but on the some of the other brands, it’s going to be taking some time, and we work with that IT evolution. The good thing right now is, as we segment these up, we basically meet all the consumer segments of the United States. And regardless of economical environment, we can play with anyone and meet the needs of any consumer in a market.

So, really good. We have that inside the consumer business. We we’re taking the right decisions, seeing that we’re moving the money at the right time. So, feel really good about that.

Mike Rollins

Great. Let’s go to our results and get into fixed wireless a little bit more. So, is 5G fixed wireless going to be an effective competitor to fixed broadband over the long term? Kyle, your vote?

Kyle Malady

Yes, absolutely. It already is.

Hans Vestberg

Yes.

Mike Rollins

So, 26% of the audience agree, that is yes; 66% of the audience said, yes, but only for value and entry-level services; and 8% said no. So, Kyle…

Hans Vestberg

Do you remember when you asked this question five years ago, you had a question, will millimeter wave work? 80% in audience said no. So, things are changing here.

Kyle Malady

That’s going. I like — this is a good way to do it. I mean, I’d be interested to see, dig down a little bit deeper on why people don’t think it’s going to fly over the long period of time. And my assumption is it probably speeds. Because the way you framed that question was really about entry-level, right. Now, I understand a bundle and linear TV being added to it, but going forward, that kind of — that model is broken and changing big time. I think what’s going to be incumbent upon us to make that true is take that 60% of people and convince them that having a 2-gig service to your home is really, it doesn’t matter, right?

Now listen, we do the same thing. I have — in Fios this year — last year, we launched our multi-gig product for consumer on Fios. But there’s very few people in our base that use full 2-gigabit of max capacity at any given time. As a matter of fact, the average user uses far, far, far less than that. It’s turned into really a marketing game, frankly; on what is an attribute that we can use to market. So, I think it’s going to be incumbent upon us to show people the value and the ease-of-use of a fixed wireless access offering and the benefits that can bring above just pure speed, right? So…

Hans Vestberg

Yes. And the trends we see in the market is, of course, that linear TV is going down and I don’t think that if you asked this question, I think that the 100% is going to — yes, it will continue down. They’re going to be people who linear, but it’s going down. The second is, of course, also that the convenience of the product on fixed wireless access, I mean, if you install the LTE or the C-band fixed wireless access, we’re probably down to minutes or five minutes to install; it’s self-install. Imagine that difference from another type of offering where you need to wait for a truck roll coming to your home, they need to dig in near your garden, they might show up two weeks later, it’s very different experience. And of course, ultimately, consumers and businesses buy experiences. Experience is how the experiences service, and as long as that is working great for them, they’re going to stay with it.

And I think if you see in the last couple of quarters in the market, what is taking all the broadband subscribers, the satisfaction is very high on the products. So, we are pleased with it. We’re going to continue to pump it, and we’re going to get that demand that is out in the market on broadband, way before anybody can build something, because I usually say that it took us 22 years to pass 17 million households with fiber. 22 years, that’s how hard it is. We basically have 30 million households covered with fixed wireless access in one — less than one year.

Mike Rollins

And you mentioned earlier the 2025 goal. I think it was a 4 million to 5 million fixed wireless access. So, you’re still pacing towards that?

Hans Vestberg

Yes. I haven’t changed my — I haven’t said anything different. So, I guess, it sticks.

Mike Rollins

So, financially…

Hans Vestberg

Always higher ambitions internally.

Mike Rollins

And financially, maybe taking a step-back to Verizon overall, can you share just some of the puts and takes that investors should be thinking about in terms of how inflation is playing into the cost structure? How promotions stepping that up is playing into the cost structure relative to what you’ve been able to do with pricing and cost cutting?

Hans Vestberg

Yes. So, the inflation we’ve talked about in the June timeframe, our CFO Matt Ellis talked about it, roughly $0.5 billion impacted this — last year of inflation, much driven by the energy cost and third-party costs and things like that, that came up. We have seen some good movements on energy prices come down a little bit, at least fuel has come down. So, there is something, but still elevated. So that will continue for us. At the same time, the promotional cost has gone up, and many of you know how that works. You basically depreciate that over three years. So, you’re going to have that in your base of the service revenue. And that has gone up over the years. Even though we try to keep it down, it does come up. So that — but from a cash flow point of view, you have already cashed it out. But from an accounting point of view, you distribute it over three years.

So that’s going to weigh on us a little bit of sure — of course. Then, on same time, we did the price increase that roughly gave us $1 billion bottom-line in last year. And that is, of course, we also — we made the calculation. We lost a couple of hundred thousand customers, consumers, and that was a clear calculation. Again, coming back to what are you measuring, service revenue and cash flow expansion. So, those are the things. We’re going to continue to work on that to see if — pricing, we going to see if there’s something to be done, but I think it will not be as large as we have done before, because it was a large one we did in May last year, and we also had the churn then clinging off in October and then we had a good churn going in the rest of the quarter, so — as we said as well.

So, I think that’s all sort of the boxes we have to move. And then on top of that, we launched a new cost program. We always take out billions of dollars in the company, because you need to do that in order just to stay competitive. But now we have added the program with a new structure that we launched, actually, the 1st of January. We announced it publicly, but it started 1st of January. This year, it probably going to be more of sort of investments to do the cost efficiencies, because it’s a lot about onshoring, offshoring, outsourcing, insourcing. So, it might be that we need to take some costs for that this year, and then get it into the base ’24, ’25. But we are in a long game to see that we have economics of scale in the whole business and being able to continuously take down cost, not doing the shortcuts. We’re a long-term telecom company, we’re going to continue to be that.

Mike Rollins

So, if we have a microphone, we might have time for questions from our audience. So, we can get a microphone roaming. Just raise your hand and we’ll try to get to you. It’s little crisp out here.

Hans Vestberg

I understand why did you put us. We’re the first slot on this conference.

Mike Rollins

So, if we take all of — all this discussion together and just financially, Verizon previously had out there, I believe and correct me if I’m wrong, a goal to generate 3% plus service revenue growth and EBITDA growth in 2023. How are you feeling about that? And are there any other puts and takes that investors should be mindful of?

Hans Vestberg

It’s a little bit early to guide for ’23. We will come back to that. But ultimately, our long-term goal is always expansion on cash flow and service revenue. Then, of course, there are different years, different things are happening. But we will come back to the guidance when we meet in a couple of weeks from now. We need to see how the year comes out and all of that. So, we have a little bit of work still to be done, but our long-term goals are clear. We want to continue to do that expansion. And you know the guide that we did for 2022 landed us between $47.5 billion to $48 billion in EBITDA or something like that. That’s a healthy EBITDA. We want to continue, and it’s far more than double than some of our competitors in the market for us. That’s important to continue to nurture, because ultimately, we want to invest in the network because a customer really care about it.

We want to continue with our dividend. We are, I think, the only telecom company in the world that has kept or increased the dividend for 16 consecutive years. And we think that’s what Matt and I want to continue to do. We want to give our Board an opportunity to continue to do that. That’s important. That’s why the $47 billion or $48 billion EBITDA is important to us.

And finally, we’re going to pay down debt, coming down to the levels that we talked about. Pre-C-band — it was before pre-Vodafone. Now it’s pre-C-band, and then after that, we’re going to see what we’re going to do. I mean, then we have the opportunity for buybacks or whatever is needed. But capital allocation is clear. It goes from the goals that I have on service revenue growth and then on expansion on cash flow, and that goes through how we want to capital allocate. And then we take action on that every day in order to do the right for the company and for our shareholders.

Mike Rollins

And we got some questions from our online audience around the CapEx figure. So, to clarify, the $17 billion BAU CapEx is as of what timeframe?

Hans Vestberg

’24. So, ’23, we still have money left from the C-band. Remember, we took $10 billion extra for the C-band deployment over a three year and the last year is next year. And some of you have been following, so you know more or less how much can be left here. I want the books to be closed, and then I will come back and say, how much will fall into ’23 on that BAU. And that we will talk about when we meet later on this month.

Mike Rollins

And theoretically, should lower CapEx translate to better free cash flow for Verizon?

Hans Vestberg

Yes. Yes, that’s a pretty clear conclusion.

Mike Rollins

And on the subject of MEC, you mentioned earlier the opportunity to get more private 5G deals with customers. Is Verizon still on track for a goal of $2 billion of MEC in B2B wireless service revenue by 2025 from the 5G initiatives?

Hans Vestberg

I think we have seen a little bit slower pickup in the beginning, and partly our fault or industry fault because the ecosystem wasn’t there. Kyle worked with ecosystem every day. We need certain radio-based stations for private networks, different price ranges. We need modems for certain things, et cetera. So, you need more than the handset and the macro side. That is now in there. So, we would now have offerings for cheaper private 5G network with certain suppliers and more high level, high quality. We didn’t have this optionality. And that’s why we now started seeing that we’re actually meeting the customer demands of building private 5G network. You start with usually one use case. If that’s visualization or AI or something like that with cloud, and then they find others. So, for us, this year, in ’23, is more about taking those deals. Taking many of those deals and have them as a platform and then start building on them, learning from them. And no one else in the industry is even close to what we’re doing. We are very early out building with some of the large hyperscalers solutions, and now we also have the ecosystem for radio. So, we are fully committed. We strongly believe in private 5G networks. And that’s a revenue seem we don’t have today, because we’re not into WiFi networks and optimization of a manufacturing site. We’re not into that today.

Mike Rollins

Well, I want to thank you for joining us and kicking off our conference today. So, thank you very much.

Kyle Malady

Thank you.

Hans Vestberg

Thank you.