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C-Band Success

Verizon CEO: Don't Judge Us by Unsatisfactory Q2 Results

Verizon took a hit on Wall Street Friday, much as AT&T did the previous day (see 2207210059), after Verizon trimmed its financial forecast for the year and reported lower than expected phone adds. Verizon shares were down 6.74%, to close at $44.45 Friday.

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Verizon reported postpaid phone net additions of just 12,000 , with 215,000 net losses on the consumer side, balanced by 227,000 net adds among business customers. Verizon projected wireless revenue will increase 8.5%-9.5% for the year, compared with earlier projections of 9%-10%. It projected adjusted EBITDA growth of -1.5% to flat, vs. earlier guidance of 2%-3%. Earnings per share are likely to be $5.10-$5.25, compared with prior guidance of $5.40-$5.55. EBITDA was $11.9 billion in the quarter, down 2.6% year over year, Verizon said. Revenue was flat at $33.8 billion.

Our second quarter was not a good barometer for where Verizon has been or where it’s going,” CEO Hans Vestberg said on an earnings call Friday: “While we are not satisfied with our performance, we know what the issues are. And we are already executing to reaccelerate in the second half of the year.”

Vestberg blamed weaker wireless consumer volume. “The inflationary environment is clearly impacting consumer behavior” and “we also saw intensified competition for consumer attention" he said. "The result was a significant impact on our gross adds.”

Chief Financial Officer Matt Ellis also warned of continuing wireless competition. “This was a challenging quarter and our results did not meet the expectations we have set for ourselves,” he said.

One bright spot was 5G deployment using C-band spectrum. Vestberg said the carrier ended the quarter with 135 million POPs covered and remains on track to reach at least 175 million POPs by the end of the year. “We are seeing the phenomenal performance we expected. Network usage is growing quickly, with C-band use up 233% since the end of the first quarter and millimeter-wave traffic up 49% year-to-date,” Vestberg said: “Where C band is deployed, it accounts for more than a third of our wireless traffic on average.”

Vestberg said 47% of Verizon’s consumer base now has a 5G phone, expected to grow to nearly 60% by year-end. Verizon has managed around any supply chain problems, as evidenced by the C-band millimeter-wave deployments, he said.

JPMorgan analyst Phil Cusick noted Verizon is both raising prices and “bringing in lower-priced discounted offers,” during the Q&A period on the call. “It seems like you’re out of the market,” he said: “Do you think that your network is going to return to its dominance, and you can sort of get through this period? Or do you think you need to really readdress your competitive position in order to maintain share?”

We feel really good about our network and the quality of the network,” Vestberg responded. “It’s actually better than ever” with the C-band deployment, he said.

Management had warned that the consumer business is facing headwinds with both subscriber trends and costs, and expectations were low as a result,” New Street’s Jonathan Chaplin told investors: “Subscriber trends and EBITDA were much worse than feared. The competitive environment will only get more difficult over the course of the next few quarters as Sprint churn goes away, T-Mobile’s discount becomes more salient to households, and Cable continues to lean into its wireless offers.”

MoffettNathanson’s Craig Moffett predicted Verizon will have a tough time keeping its current subscriber base. “In the wake of AT&T’s strong-subscribers-and-poor-free-cashflow report yesterday, it is clear that Verizon’s invitation to the rest of the industry to join them on the high road is falling on deaf ears,” he said: “T-Mobile is still going for subscriber growth. Cable is too. AT&T isn’t changing its strategy either.”