Verizon Communications : Goldman Sachs 30th Annual Communacopia Conference Webcast transcript

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VZ.N - Verizon Communications Inc. at Goldman Sachs Communacopia Conference (Virtual)

EVENT DATE/TIME: SEPTEMBER 21, 2021 / 12:00PM GMT

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SEPTEMBER 21, 2021 / 12:00PM, VZ.N - Verizon Communications Inc. at Goldman Sachs Communacopia Conference (Virtual)

C O R P O R A T E P A R T I C I P A N T S

Brady Connor Verizon Communications Inc. - SVP of IR

Hans Vestberg Verizon Communications Inc. - Chairman & CEO

C O N F E R E N C E C A L L P A R T I C I P A N T S

Brett Feldman Goldman Sachs Group, Inc., Research Division - Equity Analyst

P R E S E N T A T I O N

Brett Feldman - Goldman Sachs Group, Inc., Research Division - Equity Analyst

Good morning, and welcome to the 30th Annual Communacopia Conference. I'm Brett Feldman, Goldman's U.S. telecom, cable and media analyst. We are thrilled to, once again, kick off this year's conference with Hans Vestberg, the CEO of Verizon. Hans, welcome back to Communacopia.

Hans Vestberg - Verizon Communications Inc. - Chairman & CEO

Thank you very much. Great to be here.

Q U E S T I O N S A N D A N S W E R S

Brett Feldman - Goldman Sachs Group, Inc., Research Division - Equity Analyst

All right. Let's jump right into it. So you have frequently cited 5 vectors of growth for Verizon. And really, ultimately, these represent new opportunities to drive revenue for the company over the long term. What are the key competitive advantages that Verizon has at the onset of the 5G era that you believe positions you to win across a much larger addressable market?

Hans Vestberg - Verizon Communications Inc. - Chairman & CEO

Brett, I think that our conversation around the 5 vectors of growth is, of course, a couple of vectors that we're developing and a couple vector that is in play already in a big time. And I just want to go to -- go into them a little bit quickly, so we get the grasp. First of all is the 5G adoption, which is everything from the mobility case, consumers and business and then fixed wireless access on 5G. Then of course, the network monetization we're doing where we actually have other brands using the network in order to have the best return on investment, which, for example, some cable operator. And then the third one is the 5G mobile edge compute, where I would say we're basically alone still. We have been developing that for the last 2 years and have a head-start over anybody else.

And then we have our unique model with our mix and match, and how we deal with partners, things like Disney+, discovery+, Apple Music, et cetera. And then we have our new segments that we're addressing, which we have created, Visible, et cetera, but, of course, waiting for the final approval for the TracFone. So we're going to be the #1 in the value segment as well. So it's several areas that we have grown very different from any other of our competitors where we meet them in some of them. We have created that based on our network and service.

And of course, in the foundation of that is the best network that we have been carrying in this market for as many years as I can remember to have the best network. And then we carry that on with this type of service on top of it. So that's why our positioning is so great, and this is where we actually landed when we decided our strategy in 2018, which we call Verizon 2.0, which is an internal name. But for us, it was a next step of taking this leadership that was created during the last 15 years. So take the next step to the leadership for the next 15 years in this market for consumers and for businesses.

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SEPTEMBER 21, 2021 / 12:00PM, VZ.N - Verizon Communications Inc. at Goldman Sachs Communacopia Conference (Virtual)

And in that, as you all know, we have taken very big strategic decisions, everything from the acquisition of TracFone that we're in process with, divesting Verizon Media Group by acquiring C-Band, changing the structure of the company, all in all to sit there now in an extremely good position to continue to lead this market in the last 15 years. And as many of you have seen the last couple of quarters, we have actually performed fantastically when it comes to our financials, at the same time as we're doing this big transformation and addressing totally new areas and executing on some areas that we have developed during the last couple of years. So that is the uniqueness with us, how we have built the network, how we're addressing the market different from the others.

Brett Feldman - Goldman Sachs Group, Inc., Research Division - Equity Analyst

Let's spend a little bit of time digging into a couple of those areas. I'd like to start with your consumer wireless business where you are #1, by almost any metric, subscribers, service revenue, margins, churn, you name it. But your competitors have taken significant steps to boost their scale, either through M&A or perhaps through additional acquisitions of spectrum. Why do you believe that your consumer business can continue to be a leader in what appears to be an increasingly competitive market?

Hans Vestberg - Verizon Communications Inc. - Chairman & CEO

If you look at how we have performed the last couple of quarters here, we are very pleased with our consumer wireless business. Team is doing a great job. Since the sort of inception of the unlimited that was started in 2017, we have constantly had a lead in new offerings and innovation in the market. And just to put it on the record, if you look at the scorecard of the second quarter for consumer wireless, we continue to take the #1 share of industry service revenue, and we take the #1 share of postpaid phone ARPU growth. That means that whatever new subscribers we're getting, together with our metrics of moving our customers from metered plan to unlimited plan to unlimited premium plan, is paying off. And that's why we also increased our service revenue guidance for year-end.

So all in all, we think we have found a model and the team with Ronan, and they are addressing the full consumer market. And that's why we also see the Fios business doing great now. I mean we have had 3 quarters up to the second quarter, which has probably been the 3 best quarter we ever had on Fios, and that momentum continues into -- to this quarter as well. So we are very excited over the full view we have on consumer, and that has given us all this possibility to create new values for our customer and, in the bottom, the best network. That's what we are aspiring for, and our customer likes it, and we feel that we have a really good position. That competition is getting better. That means that we just need to be even better to continue to be the #1 that we've been for so long. That means that we come to work every day to show that we can create more value for our customers and for our shareholders in a consumer business that nobody else can do.

Brett Feldman - Goldman Sachs Group, Inc., Research Division - Equity Analyst

I'm glad you mentioned the improved outlook. So you had initially targeted that your wireless service revenue would grow greater than 3%. I think you've improved that to a range of 3.5% to 4%. And so we get a couple of questions about that. One is just relative to your own plan, where do you think you're outperforming? And then the next question, and I know you've gotten this question a lot, which is we have an industry that is experiencing record levels of subscriber growth this year. As you look at the backdrop, what insights have you been able to gain about where that additional growth is coming from? And what gives you confidence that as we inevitably kind of go back to a normalized run rate, you're going to continue to hang in there and not necessarily see it then?

Hans Vestberg - Verizon Communications Inc. - Chairman & CEO

So when it comes to where we are creating our strength in our service growth, I think it's a combination of getting our customers to join sort of the unlimited, the unlimited premium. And remember, we talked about that at Investor Day. We have a long journey still to move many of our customers to -- from metered plan to unlimited and unlimited premium. So we have, on our own base, enormous, great opportunity to continue to have value creation. Secondly, the market, of course, have a switcher pool. Remember also, the switcher pool is a little bit smaller nowadays,

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SEPTEMBER 21, 2021 / 12:00PM, VZ.N - Verizon Communications Inc. at Goldman Sachs Communacopia Conference (Virtual)

maybe 5%. But still as the pandemic is sort of a little bit less impacting trading, et cetera, that has come back, and we take our fair share there as well. That is what is creating it. But remember, we have a really good base that we can work on.

For us, what has been important -- and I think I've said it so many times. It's the revenue growth we are looking for. I mean, of course, we always try to get new customers and we take our fair share. We had a great quarter when it comes to net adds in the second quarter. But ultimately, I want to be measured. And Ronan and the team want to measure how much we are creating ARPA growth for our customers and service growth. That's sort of what is ultimately is going to create more bottom line for us. And as I said, when we look at the scorecard of the second quarter, which we always report first, we cannot do that until it's over. We clearly took the most revenue in the market in services, wireless, and we took the most ARPA growth in the market when it comes to our share.

So that's what we are focused on. And that's why you talk about net adds, when that's going to go. We see ourselves being able to grow with or without any major net adds market or switcher pool. That's why we have the 5 vectors of growth, which is different from the others. Of course, mobility is one of them. But remember, we have the nationwide broadband rolling out. We have enterprise services. We have the monetization of the network. We have new segments. And as well, we have our unique model with our mix and match and our service offerings, which are all exclusive to us. All that is creating a confidence of our guidance that we did in our Investor Day, where we basically said, yes, the service growth is going to be 2%. Then we go to 3%. Then over time, it should be 4%. That's the confidence we have as having so many vectors of growth, and that's how we are pushing the company and executing.

Brett Feldman - Goldman Sachs Group, Inc., Research Division - Equity Analyst

Can you give us an update on the third quarter? Have you seen the momentum continue to improve?

Hans Vestberg - Verizon Communications Inc. - Chairman & CEO

What I can say that as we came out from the second quarter, I talked about the wireless business having a good momentum. That has continued in the third quarter. As well as I talked about our broadband, our Fios, which has been fantastic until the second quarter. That momentum continues as well. So that's where we are, and we are days away from closing the quarter. So we'll probably come back. And of course, we added right now the iconic launch here last week, which also is going to be interesting to see. But what we see so far, we like our offerings. We like the network, and we see -- we like the way our customers are thinking about our offerings right now. So all in all, exciting next couple of months here for us and good momentum.

Brett Feldman - Goldman Sachs Group, Inc., Research Division - Equity Analyst

You made that point about leading service revenue growth, and you get far more service revenue growth, particularly in your consumer business right now, from growing your ARPA than you do for necessarily growing your customer base. ARPA grows for 2 reasons. You're either moving people into higher ARPU plans, which you've been doing as you've been migrating customers into unlimited and then in the higher tiers. And then, of course, if you're adding new devices into your existing plans, that boosts this as well. When you talk to Ronan about his strategy for boosting ARPA, how much visibility does he have in terms of the longevity of that opportunity? Or how long you can keep driving service revenue growth through ARPA growth?

Hans Vestberg - Verizon Communications Inc. - Chairman & CEO

He has a long view on that one. And clearly, we see a long, long journey that -- where we can continue to migrate our customers, both from metered plan to unlimited and unlimited premium. And then adding value there with partners like Disney+, discovery+, Apple Music, which all of them are exclusive to our wireless offering. And we have more of that. So he has a long vision and a plan of how to continue that journey, create more value, but also continue to have the best network in the bottom.

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SEPTEMBER 21, 2021 / 12:00PM, VZ.N - Verizon Communications Inc. at Goldman Sachs Communacopia Conference (Virtual)

And -- so we see a long, long, long journey that we can continue that growth. And that's why we're confident when we talked about what we can

• what we want to achieve in our guide -- when we guided the long-term growth of the company. So clearly, we see a continuation here and we see the differentiation. And of course, we're excited also that sooner or later, more sooner than later, we will have our C-Band as well coming up. And then that will add new opportunities. And as we said at the Investor Day, that will accelerate and amplify everything we're doing because we can amplify our TAMs and we can accelerate our plans and making them earlier.

Brett Feldman - Goldman Sachs Group, Inc., Research Division - Equity Analyst

Great. Well, we're going to come back and talk about the C-Band and your network strategy in just a few moments. But before we do, in order for consumers to enjoy the benefits of your 5G network and your deep portfolio of mid- and high-band spectrum, you need to get them into 5G devices. They need to upgrade. And you have increasingly been emphasizing handset promotions in your go-to-market. I mean if we just look at what you rolled out with the iPhone 13, a new customer could theoretically get up to $1,300 in value, an existing customer might be positioned to get up to $800 in value. Broadly speaking, what is your strategy for getting your customers to move into 5G devices? And are you going to have to remain more promotional for longer in order to accomplish those goals?

Hans Vestberg - Verizon Communications Inc. - Chairman & CEO

So first of all, we are in a moment in the industry which is very exciting, which means that, first of all, 5G handsets is now coming out, full-fledged. Our network is ready for it as well as we are in a moment where the pandemic is not over, just to be clear on that. But from a consumer point of view, we have seen it almost back to normal. So that combination of sort of the phase in 5G right now means that there is a little bit more aggressiveness in the market. That's very similar to what we saw in 4G as well. You have an initial phase when you build a network. You talk a lot about 4G or 5G. And then you see the adoption coming in where, of course, there is a lot of -- it's a possibility to gain share. And then we are topping that with we're coming out from the pandemic.

So that are the things around us. But in general, we would not do aggressive promotion if we didn't see it financially making sense over time. Ronan and the team on the consumer side are very, very financially prudent when they think about being aggressive. And we talked about that as well. We will be aggressive where we see long-term value creation for our customers and for our shareholders, that we can have ARPA growth or service revenue growth over time. That's when we do it. We're not looking into anything else if we see that. And that's why we came in this summer with a couple of offerings. We're a little bit calmer. And now when we see the iPhone 13 coming out, we're a little bit more aggressive. All in all, it's part of the strategy that we have, which is actually working well for us when you see our service revenue growth on the wireless side.

Brett Feldman - Goldman Sachs Group, Inc., Research Division - Equity Analyst

Okay. You say that it's worth the investment in the handset, and you can get a return on it. As investors, what do we look at? What operating metrics are going to cause us to have confidence that as you run those promotions and you drive customers into 5G devices that over time it is giving you the return you would hope for?

Hans Vestberg - Verizon Communications Inc. - Chairman & CEO

No. I think what you should look for is the industry service revenue growth and seeing that we're taking more than our fair share, which we have done so far. I think that's -- and that you see us growing the ARPA or ARPU over time. That's really the metrics that you look for. Then there are leading indicators there, which you can look at. But ultimately, we are here to generate more revenue and healthy revenue. That's going to lead to bottom line as well. That's how we have been working in previous management, way before me, and we continue to work when it comes to the discipline and the financial discipline of the company. And you mentioned it yourself, any metrics we would lead when it comes to performance, financially, et cetera. And we are totally committed to continue that work. So that's what you should look for. There are leading indicators as net adds and so on, but ultimately, it should be bottom line and top line growth in absolute numbers and in percentage. That's that we're focusing on.

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