Great. Good morning, everybody. I'm Simon Flannery. Welcome to day two of the Barcelona Conference. We appreciate you all getting up early this morning. We particularly welcome Verizon, and welcome Tony Skiadas. Thank you for joining us again.
Thank you, Simon, and great to be here. Before we get started, I need to draw your attention to our safe harbor statement, which can be found along with our SEC filings on our Verizon IR website. And statements we make may have forward-looking in nature, so just want to make sure that's out there. Thank you.
Great. Thanks a lot. And from our perspective, we can find disclosures at www.morganstanley.com/researchdisclosures. So you recently held an analyst event in New York. You also combined it with your Q3 earnings and a broadband update. So if you can just start with the results and the kind of key priorities, and then we'll get into the broadband side of it.
Sure, thanks. So we held an update in late October, both to cover results and our broadband update. Starting with the results, we had a good balance of both customer growth and financial growth. We said we're on track with our financial guidance for the full year. In fact, we said we'd be at or above the midpoint of our guided range for both wireless service revenue and adjusted EBITDA. If we start with the customer growth and the volumes, we saw good momentum and improvements in gross adds and churn in both consumer and business. And that led to 239,000 postpaid phone net adds. And on the broadband side, we continue to have good growth, 389,000 broadband subs. And we got to our FWA target, four to 5 million, 15 months early.
Then shifting to the financials, wireless service revenue continues to be very healthy, up 3.1% on a year-to-date basis. Adjusted EBITDA, we had a new high for us at $12.5 billion. We feel really good about that. That adjusted EBITDA drove $14.5 billion in year-to-date cash flow. That year-to-date cash flow was pretty consistent with the prior year, even after absorbing about $2.5 billion in incremental cash taxes. The cash generation of the business continues to be strong, and we have ample funding and flexibility to execute on our capital allocation priorities.
Great. And just to level set, just remind us of the key financial metrics that you and the management team are compensated on?
Yeah, the team is very focused and aligned on growing wireless service revenue, Adjusted EBITDA, and free cash flow. And we're very focused on that, and really under the framework of mobility, broadband, and private networks. You see the progress we've made on mobility in both consumer and business. Consumer continues to see improvements in both postpaid and prepaid, and business is at a very steady pace of growth. And broadband, we continue to have great progress both on Fios and FWA. And we have over 12 million now broadband subscribers in our base. In private networks, we continue to have early leadership and are seeing good wins.
Great, so that brings us to the next part of the Investor Day. You said, as you said, you hit your FWA target early, you land and expand, and also expanding your Fios. So, for those who weren't at the event or listening to it, just help us summarize the key projections and the key strategy around broadband.
Sure. So we talked about expanding our broadband reach to over 100 million homes over time. That includes both fiber and fixed wireless access. If we unpack that and start with fiber, we talked about increasing our pace on our own organic Fios build, up to 650,000 new open for sale in 2025. Once we get the Frontier deal closed, we said we'd go the build pace would increase to over a million new OFS per year. And we said we'd get to 30 million plus premises passed by 2028, and then 35 to 40 million over time. And then if you think about fixed wireless access, we said we want to build a long-term business, long-term sustainable business with plenty of runway for growth. And we have over 4 million subs in the base now. We gave a new target of doubling the subscriber base by 2028.
We said eight to nine million subscribers by 2028. We also said that our coverage on FWA would go from 60 million homes passed to 90 million by 2028. When you think about both FWA and Fios, two very high-quality broadband products that we're really excited about and have a great future.
Great. And just to tie it all, you had a modest CapEx hike for 2020.
Yes, yes. We gave CapEx guidance of $17.5-$18.5 billion for next year. The increase can really be attributed to three key drivers. If we think about C-band and rolling out C-band, we said this year we'd be at 70% of planned sites by the end of this year. And then we said we would take that to 80%-90% by 2028, by 2025, rather. And then with.
Population.
Of the planned sites.
Of planned sites.
Yeah, 80%-90% of planned sites by 2025. And then with Fios going to 650,000 or up to 650,000 new open for sale. And then also pre-positioning fiber for the future. And then the third aspect is our launch of our broadband MDU solution. And we're very excited about that, using millimeter wave and using existing assets that we have. So that's really the drivers of the increase for next year.
Great. We just unpacked the fiber number a little bit. So 30 million by 2028. Where are you, Verizon standalone today, and then Frontier, and then how much of that is sort of the merger and how much is the growth?
Yeah, if you think about where we are today, we're about 18 today. Frontier said they would be at 10 million by 2026. That's their publicly stated target. If we think about when the deal might close, if we take the 18 months from what we said between now and deal closing, we might be at 27-28 million homes passed at deal closing. And then we said 30 million plus by 2028, and then 35-40 million over time. We didn't put a timeline on it.
Okay. And of the 18 million, how much of your footprint is built out now at that 18 million?
Yeah, so a good portion of it. We really have a nice penetration rate. We have over seven million subs there on Fios, so in 12 million broadband in total.
Great, so there was an election in the U.S.
Yes, there was.
A little while ago. Just help us broadly think about what the various moving parts are for Verizon.
Sure. So we're looking forward to working with the new administration on quite a few policy areas, and maybe a couple that I can point out. On the tax front, obviously, the existing tax structure for business, particularly around bonus depreciation and R&D expensing, continues to unwind. And that's becoming a bigger impact for us from a cash tax perspective. So we're looking forward to working with the new Congress on getting tax reform passed, given that we're investing in broadband infrastructure and in both mobility and broadband. And those investments create jobs. So we look forward to extending those, getting those tax cuts back in play as we go forward. So that's a big piece of it. And then the other areas around spectrum policy. The FCC doesn't have authority to auction spectrum right now.
And we look forward to working with them to advance the spectrum policy and make spectrum available for commercial use down the road. As you know, spectrum is the lifeblood of the wireless industry. So it's extremely important that we make progress there. So those are a couple of the areas. And obviously, there's a lot more as well. But we do look forward to working with the incoming administration.
Great. And we certainly get questions around what it means for the BEAD program. Update us on any thoughts you have there about the program.
Yeah, sure. So with the BEAD program, we continue to participate in the bids that are out there now under the existing ARP program, and we said we would bid mostly in our ILEC territory, where it makes economic sense to do so, and we're winning bids in those markets. The BEAD process has been a little bit slower, but the team is ready to go as the money is allocated to each of the states, and they're ready to go. We're ready to participate as needed, but the BEAD process doesn't really affect how we think about our broadband strategy more longer term.
Okay, so coming back to bonus depreciation, we thought we almost had it extended in the year, but it was not to be. Assuming that I think our tax team is thinking there's a broad tax package in the first half of next year, just help us understand what's been going on with your cash flows and how we think about the impact for 100% expensing going forward.
Yeah, so the cash taxes have been a headwind this year. What we said at earnings was we absorbed about $2.5 billion of increases in cash taxes. It'll probably be closer to $3 once we get to the full $3 billion, once we get to the full year. And as bonus depreciation continues to unwind, we continue to make investments, so the tax deductibility becomes a headwind. We do see that extending into next year under current legislation. We'll come back in January with our thoughts around what that looks like as we give guidance. But we do expect it to be a headwind in 2025 as well until something changes on the legislative front.
I guess you can't really, with the guidance you just got to deal with whatever the legislation is at that point.
Yeah, I mean, we're going to guide under current legislation as we always do, and then if we get some tax relief down the road, obviously, we'll share it with everyone and talk about the impacts as well.
Great. So we talked a lot about convergence here yesterday. And you made a big announcement with the Frontier acquisition. So perhaps for those who aren't as familiar with the Verizon story, just help us with the rationale for doing the Verizon deal and where it stands in terms of approvals and so forth?
Yeah, so Simon, we saw a good opportunity to expand the TAM and broadband. And for the Frontier deal, it was a good build versus buy analysis for us. We could not build 10 million homes in 18 months or two years. And this was a good analysis of buying at very good economics. And we're happy to be on the other side of the shareholder vote. So the team is very much focused now on the regulatory approval process, which we said would take up to 18 months as we're going through it. So we're pleased with the process there. Frontier brings, expect to have about 10 million homes passed by 2026. So they're moving at a good clip. And we know the assets really well. So it fits very nicely with our portfolio.
And it gives us the opportunity to continue to expand broadband with the great offerings we have with both myPlan and myHome and with C-band as well. So we feel really good about the acquisition. And we're looking forward now to completing the transaction.
Great. And you talked about some synergy opportunities, certainly on the cost side, but also the potential to sell more wireless into the Frontier base. So can you just summarize that?
Sure. So what we said on the Frontier deal is that it would be accretive to revenue and EBITDA on day one, and then accretive to cash flow and EPS by year two. And what we said was we'd see at least $500 million of operating expense run rate synergies by year three. And that's mainly a function of three areas. If you think about the network integration, doing the work there and becoming more efficient with the networks. And again, we're very familiar with the Frontier network. And then if you think about access costs and having a bigger footprint, continuing to see efficiencies in access costs. And then the third area is really bringing the Verizon go-to-market sales and distribution and marketing engines to the Frontier assets. And we think there's opportunity there. The expense synergies, there's no revenue synergies included in that number.
And there's no refinancing or any of those other synergies included in that number. So we have the work ahead of us as we get through the regulatory process and then start the integration.
No revenue synergies, but you do see the ability to.
Of course, yeah, we do see the ability with bringing mobility to the Frontier base, and we think we have great options, as I said, with my plan and my home. We give great options for customers, so we certainly see benefits, particularly on the churn side with mobility, as customers have both, the mobility churn is way down, and we do see further penetration as well.
Historically, Verizon, partly for legal reasons, with Vodafone had to have very much a separate wireless and fiber business. But now you're starting to bundle those together, fixed wireless as well. How has your thinking evolved on convergence? And are we going to get to European-style levels of convergence?
Yeah, sure. Yeah, from our perspective, we see convergence as being demand-led. Right now, only about 15% of the mobility base has the converged bundle. So we look to compete on the strength of our offerings. And we think, as I said, we have great offerings with myPlan and myHome. We have a great network. And we have owners' economics, both on the wireless network and on broadband at scale. And then when you add Frontier into the mix, we really feel good about the assets we have. And we'll be well prepared when convergence really happens.
Great. And you mentioned owners' economics. You've shied away from some of the joint venture approaches to broadband. What's the philosophy there?
Yeah, we'd like to have historically control of the networks. Really, if you think about the customer experience and the reliability of the network, having the decision-making in our hands is extremely important. We never say never about looking at other options, but we don't see anything compelling out there right now in terms of joint ventures or anything like that.
Okay, got it. Great. Just a quick macro question. It seems like your churn, as you mentioned, is well controlled. Anything that you're seeing on macro, is it sort of steady as she goes?
Yeah, we see very stable payment trends. The priority for connectivity continues to be very high. So very stable payment trends in both consumer and business. That includes SMB as well. The agings continue to be very healthy. And payment trends are very much back in line with normal historical levels. We have a very high quality, as you know, high-quality customer base. The average FICO score, if you look at our ABS filings, is 724. So our customers are very resilient. And the bad debt that we see trends with the buying growth that we see. So nothing significant there. As we always do, we'll continue to monitor the situation, but a very stable environment right now.
Great. If we drill into mobility a little bit more, we probably had this discussion last year, but where are all these customers coming from? I think we added, between you and the cable guys, over two million postpaid phone again in Q3. I think people had assumed it would slow some. But how sustainable is this? What are you seeing driving that?
Yeah, so we see the market, I would say, is both robust and resilient. We've talked about, and I think you've heard Sampath talk about a market that has eight to 8.5 million, and that's both consumer and business. In terms of where they're coming from, a good proportion coming from prepaid to postpaid migration, some of it coming from immigration as well. And then if you think about businesses, folks carrying two and three devices for security and other reasons, and then younger demographics, so we have great options for customers. My plan and the value proposition we have with C-band and my plan continues to resonate, and then in terms of when it might revert back to normal levels, I think whether that's 6 million-ish or some number around that.
Consumer.
Yeah, and consumer. And the question is when that happens. And that might happen when the pre-to-postpaid migration starts to ease up or abate. And that will happen over time. But the market's been very robust right now.
You mentioned Sampath, and I guess he took over consumer, what, 18 months ago, something like that. We've seen improving gross add trends. But on the net add side, there's still a gap to the other two. You're still losing accounts. So help us understand what are the levers you can still pull to hold your share, take some share in markets where you underindex, et cetera.
Yeah, so a few things there. So first, it started with just operational execution and getting back to a regional structure and being closer to the customer. So Sampath made quite a few changes last year that were important foundational blocks to get the operational execution muscle back. And going to a market structure was the first part of that. Changing the sales compensation was the second facet of that. And launching myPlan was the third facet of that. myPlan gives customers a lot of great options to both pick their network and also pick their perks as well. So it gave a lot of optionality. It gives us optionality as well to evolve the platform and change out perks in and out as well. So it's been great. Those changes are really starting to bear fruit.
And you see the gross adds momentum that we've had the last few quarters. We were up 6% in gross adds in the third quarter, 12% in the second quarter. So we're making good progress. And then with the deployment of C-band, we continue to see good momentum on C-band, whether it's a premium mix. And we see improved premium mix when we have C-band lit up. And we also have better churn and better gross adds as well. And then you'll see us continue to focus on churn as we head into 2025.
On the myPlan, it sounds like perks per customer. There's still some room to ramp that up.
Yeah, absolutely. Sampath talked about on earnings day having about 7 million perks in the portfolio, and he wants to double that next year, and those perks carry good margin, and they're exclusive deals for customers. If you think about Netflix and Max, or if you think about a Disney bundle for $10, you can't get that anywhere else off a rack rate, so we think it's great value for customers, and we see further adoption there, and that'll be a help and a driver as we think about revenue growth next year.
Do you think that's a churn reducer as well?
We think so, yeah. As customers take on more perks, we do see improvements in churn as they continue to evolve with myPlan.
Great. There's been a lot of articles written about an iPhone super cycle. It didn't seem like the industry saw it in Q3. How do you assess the kind of the next phone upgrade cycle? Because the people are holding on to their phones a lot longer.
Yeah, they are. I'm laughing because nothing's changed since we spoke at earnings. Customers by choice are hanging on to the devices a lot longer. It's still been a very muted upgrade cycle. The average upgrade now is over 40 months. And if you think about that, and also customers are on 36-month device payment plans, that's also a driver. And then we're being very disciplined in our base and retention offers. So we continue to be very disciplined in that area. So when you think about that together, not a lot's changed in the environment. We're down roughly 11% year to date on upgrades. We'll have to see where the fourth quarter goes with the holiday season. So obviously, you see different seasonal trends there. But in terms of customer behavior, we don't see a lot of change in those trends right now.
So far in the holiday season, we've got Black Friday coming up. Any change in the competitive environment, promotional activity that you're seeing?
Yeah, we see a pretty stable competitive environment right now. There's no surprises thus far in the holiday season. As you mentioned, we have Black Friday at the end of next week, and we'll see what happens there, but nothing surprising on our front. Our offers continue to resonate in the market, and we feel good about our competitive positioning as well.
Great. I think one of the things that's distinguished the U.S. wireless industry recently has been pricing power and the ability for you and others to finally get some ability to maybe keep up with inflation. But I think for investors, it seems like a lot of one-off moves. There's this move on insurance. There's this move on older plans. How do we get comfortable that this is repeatable? You go back in the day and the cable companies would raise broadband prices every year and TV prices. What's the kind of philosophy going forward?
Yeah, you've heard us talk about having an 80-20, roughly 80-20 mix P&Q and trying to find a better balance of P&Q. And that's what both Sampath and Kyle are very focused on. I can talk about it from our perspective. As you mentioned, we did a number of pricing changes this year that provided good tailwind to service revenue, over $1.5 billion of pricing changes, whether it's legacy mix and match that we did earlier in the year or the handset insurance or removing some of the autopay discount. From a competitive standpoint, I can't talk about what we might do in the future. But as we look at pricing opportunities, we always align the pricing with the value proposition for the customer. And that's how we think about it.
Okay. And I think one of the things that you've said is that the customers seem to accept some of these moves. You've been looking for that churn impact, and it's manageable.
Yeah, the team's done a great job. Obviously, as I mentioned, we've made a number of changes, and we've kept the churn in check. The churn is a little bit higher than we'd like, but that came with the ability to increase our revenue as well, but Sampath and Kyle are both doing a great job in keeping the churn in check.
How are things going on prepaid? There's been a lot of noise around ACP and so forth. But it sounds like underneath it, all things are getting better.
Yes. Sampath and the team, the operational rigor that Sampath put in the postpaid business has now been applied to the prepaid business. And we're starting to see some early returns on that. In the quarter, we saw once again improvements in prepaid. We turned positive on our prepaid brands, about 80,000, excluding the SafeLink brand. So very good momentum there. Straight Talk continues to improve, which is very promising. And then our digital brand, which is Visible, also contributed positive performance. And then Total Wireless, we talked about opening more and more distribution. We have over 1,000 distribution points open now. And that also contributed positive momentum. So when you think about prepaid, it's been a headwind from a revenue standpoint for the last couple of years. So if we continue this momentum, I'm hopeful that we will see improved pace on revenue for next year as well.
Where are you on your ability to harvest prepaid for helping the postpaid growth?
Yeah, we still have work to do there. We're seeing some improvements there. But obviously, that's still an area of opportunity for us at this point.
Great. We've touched on a couple of the elements. But perhaps just frame for us the various puts and takes on wireless service revenue. You talked at the outset that you're coming in with strong performance versus your guidance for this year. You're in that high 2s, 3% level. How do we think about 2025?
Sure. So we've had a lot of good progress this year on service revenue. We're up about 3.1% year to date. So feeling good about the momentum. If we start thinking about next year, while we're not going to guide, I can give you some qualitative aspects. I talked about the pricing moves that we made in 2024. A fair amount of those carry into 2025. So that'll be one aspect. If you think about volumes, we continue to see improvements in volumes and consumer. And the work that Sampath and the team are doing will continue to drive an improved volume profile and consumer. And then on business, we continue to see very steady growth. And that's quarter after quarter from Kyle and the team.
And then, if you think about FWA and the progress we're making on fixed wireless, we said we have about a $2 billion base of business in 2024. We expect that to continue to scale. And we gave new targets on FWA. And then prepaid, as we just talked about, it's been a headwind the last few years. Hopefully, that headwind starts to ease up and turn into a tailwind as the volumes improve and become positive. And then, if you think of promo amortization, promo amortization continues to be a headwind for us. We said for 2024, we'd be at a similar level for 2023. I do expect for 2025 that the promo amortization headwinds will peak. So the increase will be higher in 2025 than the increase in 2024. But when you put it all together, the goal is to continue to grow service revenue at a very healthy clip.
Okay. Great. Just wrapping up on the kind of wireless growth drivers, before we turn to FWA, the broader 5G monetization, mobile edge compute, sounds like you're kind of coming back to that story now. You see.
We are. I mean, obviously, the biggest use case for 5G is fixed wireless access. And you see the progress and the momentum there. And we feel really good about that. And then when you think about private networks, we continue to see a good funnel for private network deals. It starts as a Wi-Fi replacement and then can move into areas like robotics and automation and sensors. And customers that had private networks want more deployments in various sites. So we continue to see good progress on private networks. We've signed some deals recently. You may have heard about the deal we signed with FIFA to be the telecom sponsor for the 2026 World Cup. And also the deal we signed with the MSG family of companies, including Madison Square Garden and the Sphere. So we're really pleased with the momentum in private networks.
We think the revenue will become more meaningful as we head into 2025.
Great. So on fixed wireless, you've already talked about hitting your goals and now doubling those goals again. As CFO, how do you think about this as a product, thinking about return on invested capital and network utilization? There's a lot of your competitors out there who say that it's not going to hunt long term and the capacity congestion is going to catch up with it. But so far, so good?
So far, so good. We said with fixed wireless, we want to build a long-term sustainable business with plenty of runway, and we're doing that. We have over 4 million subscribers in the base right now, over $2 billion in revenue, and this is only in the last couple of years, so we're scaling the business for fixed wireless, and we said by 2028, we will double our subscriber base. So we have good momentum, and in terms of the network capacity, as you can imagine, the network team, when we have the best engineers in the business, they're way out in front of the capacity needs for fixed wireless access. So they're engineering the network well beyond the 8-9 million subscriber target that we gave. Obviously, our internal targets are much higher, and my goal is to beat the target. We beat the first target.
My goal is to beat the second target as well. And from a usage standpoint, we know what the broadband usage looks like. We have 20 years of history with Fios. So we know that the average subscriber usage, if you look at our consumer connections report, the average Fios usage is about 600 gigabits a month. Fixed wireless access is about 525 gigabits per month. You would expect that those usage profiles probably converge as you think about home broadband, whether it's fixed or coming over fixed wireless. So we know what that looks like. We have 20 years of history with that. And the team is way out in front of the capacity needs. So I feel good about it. And I think the results speak for themselves.
We're in Europe now where fixed wireless has much less traction. Perhaps just share with us, why has it done so well? Why are the NPS scores so high? Because it's not a gig service and it's.
Yeah, it's plug and play. So you can power up your whole home. You can stream. Your kids can game. There's a lot of things you can do in the house, similar to what you do today on the fixed broadband connection with very good speeds, good reliability. And with the MDU solution that we're bringing out, we will have speeds up to a gig. So we feel very good. And customers love the product. As you mentioned, we have high NPS scores. And we're taking share from cable. And fixed wireless access is taking more than 100%, a lot more than 100% of the broadband net adds each quarter. And we've seen that consistent for a while now.
So you mentioned a couple of times the MDU solution. Can you just sort of summarize where we are, what to look for here on that?
Sure. So we've been in trials and customer trials with the MDU solution, which is bringing millimeter wave to a multi-dwelling unit.
You basically have an antenna on the roof.
On the roof. Yep, an antenna on the roof. And using the existing infrastructure in the building, we can bring broadband service into the building. And having millimeter wave, obviously, it's like having a big wide highway in terms of bandwidth. So we can bring customers a great experience. And we're seeing good results right now. And we expect to launch it real soon.
Great. So you have a deal with AST SpaceMobile. You also announced an interim deal with Skylo on the whole satellite direct-to-device. So what do you see the role of that? And we do get questions about the potential risk from the likes of Starlink cannibalizing wireless or even fiber. And so what are your thoughts on that?
Yeah, we're happy with the partnership we have with AST. And if you think about the white space on the map and more remote geographies, we think it's really good to keep customers connected in places where we would never build a cell site or never deploy fiber. So we're happy with that partnership. And we think it plays a role there. Beyond that, we'll have to see. But we think right now, for texting and ultimately voice, I think that might be a good solution for customers to keep them connected in those remote areas.
And in terms of, are you seeing any competition from satellite broadband?
Not significantly right now.
Okay. Great. So on the fiber side of things, as you said, you've been at this for 20 years now, including building some of those Frontier plants. Where is the business model on fiber today? You obviously got comfortable with expanding your footprint here. How are you thinking in terms of RPUs and penetration and the opportunity to take share, even in a world where fixed wireless is taking?
What's interesting is Fios is still growing. Other broadband providers are shrinking. Fios is still growing. And we see good returns there. Our penetration rates are well over 40% with Fios. So we think we can bring that execution muscle to the Frontier properties as well as we get that deal closed. And we like the economics on fiber. And then obviously, there's other benefits when you have mobility attached to it as well and converged. We do see churn benefits and things like that. So we're very bullish about the prospects we see.
And what was it that gave you the comfort to go from 4,500 a year to 650? You've been at that lower pace for a while.
Yeah, our cost structure can handle it. The team, as you mentioned, Fios turned 20 years old this year. So the team knows how to deploy fiber. The incremental 200,000 or so can be handled inside of our cost structure. And the team has been very efficient over the years in deploying fiber. And they have a good cadence there. So we're very comfortable with the pace. And then once we close, as we said to people, once we close the Frontier deal and we know where they stand with their build commitments, we'll come back with an update on that as well.
Great. Perhaps we can turn to costs for a minute. We had a lot of discussion yesterday here about leveraging AI for cost efficiency. So could you just give us an overall kind of summary of what the efforts you have underway? You just had a separation. And then where do you see AI helping you?
Sure. So from a cost standpoint, a lot of focus on cost transformation for us. And that's driving the EBIT improvements that you see thus far this year. EBIT is up about $750 million so far this year. If you start unpacking that, if you think about the work that we've done in the consumer business around customer care, a lot of work's been done there, as well as on the business side with managed services. We signed a deal last year with HCL that'll start yielding savings in 2025. And then we still have work to do on our IT stacks. And then we did a voluntary separation program earlier this year. We had about 4,800 people take the voluntary. So that'll yield some savings. And then you mentioned AI. And we see AI from a few different dimensions. One of them is an efficiency, a cost efficiency play.
Quite a few areas where we have AI deployed, whether it's in the network to optimize the network. We're in customer care and putting AI in the hands of our customer care reps and having them be more efficient and effective in serving our customers. We think that's really important as opposed to them going through 80 pages of information to help serve the customer. Those areas are very significant for us in terms of driving cost savings as we think about next year.
Great, and how about AI as a demand driver? We've seen hyperscalers buying more fiber.
Yeah. And we've had some deals with hyperscalers on dark fiber, names you would recognize. And then if you remember at earnings day, Kyle talked about using or reimagining the assets we have. If you think about the central offices that we have in Verizon, they have a lot of power space and cooling. And that power space and cooling can certainly be utilized for applications at the edge of the network and demands on the network. So we think that's an opportunity for us. Obviously, we still have more work to do. But we think that's certainly an opportunity for us as AI evolves.
Great. The CapEx, as you said, I think it goes up 4% or something at the midpoint of the range next year. Are we kind of going to stay in this business-as-usual range? How should we characterize the 2025 spend versus here?
Yeah. The 2025 spend is very much business as usual. We've always been in the $17-$18.5 billion range for many, many years if you go back to pre-COVID and even before C-band. And the CapEx intensity is pretty consistent, actually. If you go back and you look at whether it's 12% or 13%, those numbers are pretty consistent as we go over time. Once we close the Frontier deal, we'll come back with our thoughts around what it looks like beyond 2025. But we didn't want to give any forward guidance until we got a lot more clarity with Frontier.
If you do get bonus depreciation passed, maybe remind us last time. What's your calculus for what you do with the free cash flow?
Yeah. The last time we had the Tax Cuts and Jobs Act passed, it was passed in 2017. Obviously, we have to consider all stakeholders as we think about the proceeds. And we go back through our capital allocation, whether it's investing in the business. We're committed as well to the dividend and delevering. And we always have to consider all stakeholders. And obviously, we have to see what a potential tax package could look like as well and what that means for us. But we would consider all stakeholders as we always do.
Presumably, you can't turn your CapEx engine on the dime.
It does take some time. There's some things we can do quickly, but the team, we need time to order equipment, et cetera. So there's work to do there. But we'll look at it. And obviously, if something gets passed, we'll communicate what we believe the impacts are.
And maybe just one final one, Tony. On the deleveraging, you've made good progress. You took on a lot to do the C-band auction, the spectrum, and CapEx. Now you're coming back down. You recently tweaked your leverage target. So where are we today? And remind us when we can start to think about some buybacks.
Sure. So we have four capital allocation priorities, and they remain unchanged. The first one is to invest in the business. And you see us doing that with C-band and also with our investment in Frontier. Second priority is to continue on the dividend. And you saw we've done 18 consecutive years of dividend increases. So the dividend is extremely important to us. And the third capital allocation priority is to continue to have a strong balance sheet and delever. And our leverage continues to come down. We were 2.5 times unsecured at the end of the third quarter. And my focus right now is to continue to pay down debt between now and the closing of the Frontier deal. And we have a debt tender, $3.5 billion debt tender in market right now. So we're making really good progress on deleveraging the balance sheet.
Then we said once we get to 2.25 times leverage, we will consider buybacks. We're not there yet. And obviously, we have the Frontier deal coming at some point, whether it's the end of next year or the beginning of 2026. We have to consider that as well. But we're going to continue to focus on having a strong balance sheet and delevering. And that's really where the team's at right now.
Great. Tony, thank you so much for joining us today.
Thank you so much, Simon.