Verizon CEO: Consumers are ‘moving as normal’ amid mixed markets

Verizon Wireless CEO Hans Vestberg joins Yahoo Finance Live to discuss third-quarter earnings, cash generation, the uncertain macroeconomic environment, and guidance for the rest of the year.

Video transcript

- Verizon closing the books on its third quarter. It reported results before the bell, and its stock currently moving lower by about 5.6% as investors mold the report and weigh the impact of inflation on the wireless provider's consumer business. I spoke to Verizon CEO Hans Vestberg earlier about the quarter. Take a listen.

HANS VESTBERG: I think we came out from the second quarter. We had some softness in our consumer business, especially on the wireless. So we took a lot of actions in the second quarter, especially around new plans, new products, but also, did some price adjustments. And coming into the third quarter, now reporting that, we can see some of that is really getting good effect.

I mean, we're growing 10%, wireless revenue. Our EBITDA grew 3%, almost 3% to $12.2 billion. So definitely, the programs we put in place was actually working, but it's a lot more to do. We're a large company, and we need to continue the hard work we're doing right now to continue to do the great cash generation we're doing. So that was the highlight of the quarter.

So we saw, also, the prepaid market. We acquired track phone last year, which added a really good asset when it comes to being in the value segment. We added new products in there, a new product called Total Wireless by Verizon.

We also added home broadband to the prepaid market, and overall, our broadband had a really good quarter, 377,000 new broadband customers in the quarter across business and consumer. So that fixed wireless access basis we're doing is really working, so a lot of things was working for us. We still are working on the consumer segment to be even stronger, and we're going to take more actions. It's a very agile market when it comes to consumer segment at the moment.

- I want to talk a little bit more about that consumer segment, as well, Hans. And from your perspective, when you think about what you had said at the end of the second quarter in midsummer, second half challenges, you were kind of looking out into the future and saying that second half challenges, you see them as short term. Is that still the case, or do you believe that there's some facets of the softness in the consumer, especially as they're paying more for necessities right now and the macroeconomic climate that you believe might protrude into 2023, or even beyond?

HANS VESTBERG: It's a little bit mixed feelings actually. I mean, we have the highest quality customer base and the largest consumer base in the country. We see really good payment from our customers, consumers, where we are actually better than pre-COVID, so we don't see anything there.

We actually see the roaming. When people are traveling abroad, that movement are equally big or higher than pre-COVID, so a lot of things are moving as normal. And our store traffic between Q2 to Q3, that increased with double digits. So people are actually doing movement, and, of course, we all read what's happening in the macro economy with higher inflation and the interest rates coming up.

So it's a little bit mixed, but clearly, we are in the fundamental product. Everybody needs mobility. Everybody needs to be connected. That's so important for us, and even more important these days. So clearly, there are mixed feelings.

We think we have a great product. We have a great network, and we are spanning all the consumer segment, and then not forget our business side that has a really good quarter with both growth, almost 6% in our wireless business in the business group, but not only that, added 200,000 new, almost 200,000 new phone net ads in the business segment. So it's a little bit mixed, what you read in the market and what we're seeing in our customer base.

- Certainly. I want to talk a little bit more about those network investments in a moment, but before that, we know that you're one of the largest partners with Apple in terms of the iPhone, the latest addition of this consumer device and the smartphone that comes out year after year. And within that, there's even been some of the reports around where the demand might be pulling back. Are you seeing that show up in your business at all right now?

HANS VESTBERG: No, when it comes to the iPhone 14 launch, we have seen very normal volumes. But moreover, we actually made an exclusive deal with Apple, which we have done over a long time, where Apple One for unlimited is a new offering, where you have all the Apple services, Apple Plus, the gaming, et cetera, in one package together with our unlimited. Very good for us together with Apple, so now, we're very normal. It's a little bit the mix, of course, which type of products, our customers are taking, but in general, very normal levels of a launch of an iPhone.

- If you were coming back to the network infrastructure, investments that you're making, as well, if we were to see any kind of recessionary concerns really permeate over into the next year, what would that mean in terms of the moderation of the level of network investments that you might be making, and perhaps, on the other end, where you're full steam ahead?

HANS VESTBERG: I think that the last six, seven years, wherever the plan, exactly how we're going to invest in the network, this is our peak year. We're going to do somewhere between around $22 billion in CapEx. That's our guidance, and that's one portion is our business as usual. And then the other is that the new spectrum we bought last year is actually coming to execution right now, and we're doing that as fast as we can.

And next year, that will calm down, but we have invested in fiber. We're investing in the c-band, the spectrum we bought, where we're going to pass 200 million pops in the first quarter on our c-band, and the important with the c-band, that's a 5G spectrum that we're using. We see good growth on that. So when we launch a market with the c-band, we see mobility, business growing.

We see fixed wireless access growing, and for the viewers, we bought that spectrum. But we get it over time as the satellite companies are releasing it, and the last piece of that spectrum, we will get at the end of 2023. But basically, it's nationwide, 160 megahertz, which is a lot of spectrum, and we're only deploying pieces of it right now. But by year end, 2023, we'll have all.

So we have a clear process of how we implement and execute in our network, and that's our number one capital priority as well. So we will do what is needed for our network. We already have the best network, and it's just getting better.

- So just lastly, while we have here, I've got to hustle to my finish here, but I'm taking a look at the stock price. Investors clearly reaction to this morning's earnings report, and perhaps, they may be paying attention to some of the churn in end users or subscribers. But they also may be paying close attention to the margins as related to some of the Capex that's going to be set forth and continues to be earmarked to the tune of $22 billion that you just mentioned. When do you believe either some of the churn will start to alleviate, and then, on the other side, when you can start to adequately wind down, perhaps, some of the spending, so that the margins aren't as compressed?

HANS VESTBERG: So when it comes to our showing in the third quarter, that was expected. We took a deliberate decision in the second quarter to do price adjustment in certain consumer segments, and we knew that we would have a showing barbell. So that was sort of an expected and very deliberate decision we took, and it was important for us to also do that. Because our industry has no down price adjustments on wireless ever, so this was the time to do it.

We did it for certain segments, so that will ease over all the time. So I think that's a very important message, and when it comes to the CapEx, we have a clear plan. We will come back, of course, with exact guidance for '23, but we have a very clear plan how we are on the peak level of spending right now, and that it will come down as we are spending as fast as we can and deploying the c-band spectrum that we bought a year ago.