Good morning, everyone. I'm Sebastiano Petti, and I cover the telecom cable satellite space for JP Morgan. I wanna welcome Dan Schulman, CEO of Verizon. Dan, thanks for joining us.
Thank you for having me, Sebastiano.
Of course. I think you have a safe harbor to review.
Yeah. I would refer everybody to our safe harbor on our website. I'll be talking about things in the future, and so they're always subject to risk and uncertainty. Thank you.
Great. Now with that out of the way, Dan, you're now seven months into your role as Verizon CEO, and in that time, you've driven some meaningful change across the organization, but perhaps the most notable milestone so far has been returning Verizon to post-paid phone subscriber growth in the first quarter for the first time in 13 years. I guess where are we in the transformation story? What inning are we in? Looking ahead, what are the biggest near-term opportunities and priorities for you and your team?
Well, first of all, thanks for having me. I appreciate it. Thanks everyone for being here. I would say we're a bit further ahead than I expected in our transformation. You know, it's a big company. It normally takes a lot of time to turn things around, but the company's responded quite quickly to the transformation efforts that we've had. I'm pretty pleased with that. I think our turnaround is on track and probably gaining momentum right now. I have four priorities for the year. The first inside the company was a shift to focusing on customers. Everyone talks about being customer-centric, but we were network-centric and engineering-centric inside Verizon. By the way, having the best network, I think is massively important.
I fully intend for us to continue to have the best network in the industry, but it can't be the only thing that you go to market. It needs to be the whole end-to-end customer experience needs to be revised. The best way for everyone here to measure our success on whether we are truly becoming customer-centric is our churn rate. If our churn rate is coming down, we're being successful. If it's not, then we have more work to go and do. Churn is really the one metric that I think unleashes our entire business model. To me, that's probably one of the most important metrics to look at. The second thing that I'm focused on is a shift in our culture.
You know, Verizon has a pride culture, but we are bureaucratic, we are hierarchical, we are process-oriented versus outcomes-oriented. We love to show our work, but you know, results come later, and that's not acceptable for me. We're risk-averse, and we move slowly, and all of those things have to change quite dramatically. What I say inside the company is if we're going to regain our market leadership, we need to play to win. That is not a trade marketing statement. That is something that I have deep conviction around and that is resonating inside the company, and that's why you see things like our net adds improving. You see us being able to execute against our cost initiatives. That is the third priority for me.
Let's make sure we are the most efficient telco in the world. We are taking out $5 billion in OpEx. We are well underway in that. I'd be surprised if we don't come in slightly more than that. We're taking out $4 billion from our capital, from our CapEx, and we are on track on that as well. That is basically a means to an end. You don't cost cut your way to greatness. We are taking out costs to do two things. One, to reinvest back in the customer experience, and we're seeing already improvements as a result of that. The second thing that you do with that is that you go into our fourth initiative, which is return value to shareholders.
My view is previously, most people saw us as kind of a like a substitute for bond yield because we have a great dividend that we've been increased 20 years in a row. My view is we need to have a step function improvement in both our top line and our bottom line performance. We need to show consistency in our revenue growth, continual productivity and efficiency in the middle in our operating expenses, and therefore drive bottom line growth and equity growth for our investors. For the last five years, our free cash flow growth and our adjusted EPS growth rate have been - 1%.
This year, we guided to a free cash flow growth of 7%, at least 7%, and we just raised our adjusted EPS growth to 5%- 6%. I think those are the four priorities that we're gonna pay a lot of attention to, and they'll probably stay with us for the years to come.
A lot of topics we'll circle back on.
Yep.
During the conversation here. One of the things I wanna bring up, and you've been quite vocal about as well, is, you know, your belief in AI. On the call recently, I think you drew a distinction between being an AI-first company and being an AI-native company. I guess, you know, with a preference for the latter, right? What does that actually take to get there? I guess, where would you say Verizon is in that journey today?
Well, we're moving rapidly towards being AI native, which means that AI is gonna redefine every single part of our organization, our organizational structure, our productivity, the way we go to market, the way we defend ourselves from attacks. AI is not a nice to have, it's existential. We are one of the first 40 companies to work with Anthropic with their Mythos model. If you've worked with Mythos, you understand that the only way to defend is to defend through your use of AI models. It is no longer enough to have great humans in the loop, great processes. This is a whole different world, and it needs to evolve rapidly in the next 6- 12 months. You know, 85% of our network issues are autonomously fixed.
That needs to move towards 100%. If there's an element in our network that is not remotely patchable, that needs to come out of our network, and we need to replace it with things that we can automate rapidly and quickly. When I look at, you know, our whole tech stack, you know, we are putting into place a four-level tech stack on AI. The bottom is kind of our intelligence layer. How do we structure and format our data, whether it be structured or unstructured? That's where LLMs and SLMs come.
On top of that is a kind of a development layer where we gin up our models, we gin up our agents, we watch how they run before we release them into the top level of our model, which is our runtime or production level, which is where we put AI into our business functions. We surround all of that with control panels to look at safety guidelines, observability, identity management, so that we have an entire stack. That stack will be mostly done by July and complete by November. That's a very rapid implementation for Verizon. But based on, you know, what I'm seeing in the world right now, that's the pace that we need to go at. It'll have profound implications. It'll have profound implications on our cost structure.
It'll have profound implications on our value proposition, what we can offer, to customers, and hopefully it'll enable us to be the most reliable and safe and secure network, as well.
Great. You touched on churn. You know, one of the key drivers, you know, behind the year-on-year improvement in your net adds in the first quarter was the churn improvement, churn reduction. I think you said on the call that you expected that at least half, if not more, of your 2026 net adds would come from the churn improvements. I guess we touched on a lot of this last night, help us think about what are the, you know, business and process changes you're enabling today. I guess thinking about, I think you've thrown out a target of 5 basis points of churn improvement year-on-year. Is that still maybe the target we should be thinking about for the year?
I think churn is a reflection of how our customers think about us, how well we're doing in satisfying their needs vis-a-vis our competitors. I think churn is one of the most important metrics that we have. You know, our churn has been going up over the last two or three years. It's essential, and it will be a reflection of how successful we are in our value proposition to watch the direction of churn. We have reduced churn in the first quarter by 5 basis points from the first quarter, and I would fully expect us to continue to reduce churn. You know, we are incredibly focused on the drivers of churn.
We have an initiative inside the company which is called Every Customer Has a Name. It means that we treat every customer as an individual. We are massively sophisticated now inside the company in terms of what are the churn drivers and what can we do to satisfy customers and delight them. I think churn is the best way to improve your business model. My anticipation is that at least half of our net add improvement, and, you know, we've just taken up our net add guidance for postpaid, will come from churn improvements, maybe more. We're making very good progress on that. You know, we had 95 basis points of churn in our consumer division in Q4. We had 90 basis points in Q1, and we exited Q1 at an 85 basis point improvement.
We'll see where we come out in Q2, that is a way of measuring whether or not we are satisfying our customers. When you have churn improvement, it means that, you know, your cost per gross add also comes down as well. We have seen, you know, our costs per gross add, our retention costs come down by 35%.
Yep.
since the height of Q4. I would expect that would continue to be something that investors should focus on. We are clearly focused on it inside the company, and we're making good improvements.
I guess one of the things we've discussed as well is given the dramatic improvement on the in the first quarter, you know, call it 340,000 net add improvement in the first quarter on a total phone basis, I guess maybe why you know, given the magnitude of that, why shouldn't investors view, I guess, the revised upper, you know, upper half or upper end of the net add guidance? Why isn't that conservative given the momentum, you know, coming out of the first quarter?
Because everything we talk about should be conservative. I feel if we say something, we have an obligation to meet it. You know, if you look at our adjusted Earnings Per Share, if you look at our free cash flow, you know, we've over the past five years, for both of those metrics, we're - 1%. You know, for this year on free cash flow, we'll be at least 7% up. You know, on our adjusted EPS, we just raised our guidance to 5%-6%. Just took our guidance up for our net adds for postpaid to the upper half of the range.
You know, our revenue growth, and this will be a transitional year for revenue growth, and we should talk about that, will be between 2%- 3% and will accelerate through the year. I feel like that's good conservative guidance. It's a step function improvement from where we've been. I think at the same time, we wanna be as sure as we can be in, you know, uncertain environments. You know, things can change. As sure as we can be that that guidance is guidance that is prudent and is something that investors can count on.
Okay. I think still awaiting perhaps a value prop refresh, you know, central pillar of the strategy is to redesign, have an end-to-end redesign of the customer experience, you know, based around transparency, simplicity, genuine value delivery. I guess the question is, I guess, I mean, can you bring that to life a little bit for us? I mean, what does that actually look like in practice, I guess? How will customers, you know, feel that difference?
Yeah, well, we've been working on our value proposition since weeks before I went into the job. Obviously, the way to measure whether or not we are satisfying customers, is both the net adds that we had, our churn rate, and their customer satisfaction levels. You know, we hit our highest customer satisfaction levels in our history last quarter, for our customer service. You know, our churn is starting to come down, that's because we are doing lots of small things right now. Our models are much more sophisticated. We are looking at hundreds of variables now as opposed to two or three. It's why our cost per acquisition is coming down.
Our cost per retention is coming down because we're much more segmented, much more thoughtful about what do customers need. You know, it used to be we, for every problem you had, we gave you a free phone. That was expensive, and if you were having a problem with connectivity at home, you know, a free phone does not address that at all. A femtocell may address that. A femtocell is 1/3 the cost of a, of a free phone, and it actually addresses your problem as opposed to you have a new phone and you still have bad service at home. You know, we're just gonna be much more sophisticated in the way that we think about this.
I think we can be much more fiscally responsible and much more customer obsessed by thinking about things on a micro-segmentation basis. We will, we will look at revamping our value proposition, but that value proposition is not, it's not, you know, one big thing. It's tons of small things that make a difference. You know, the way to measure us is does our churn rate come down, and do we still continue to add net adds at an accelerating basis going forward?
Talking about going back to the efficiency efforts on the CapEx side as well as on the OpEx side. You've announced a goal to cut $5 billion of OpEx in 2026, maybe some upside there, but you also reduced pro forma CapEx by $4 billion. I guess one of the questions we get is, you know, just how do investors get comfortable that this level of network spend will still allow Verizon to remain competitive?
We're still spending $16 billion, $16.5 billion in CapEx. Frankly, whether we need that amount is somewhat debatable in my mind. We, you know, have done most of our 5G implementation. You know, we probably have 10% more to go. We're constantly fine-tuning our network. The fact of the matter is, we can have what we consider to be the best network and what is measured by external benchmarks. You know, in seven of the eight of them, you know, we lead. I'm going to constantly make sure that we have the best network, that we invest the right way to make sure that that happens. We've done a lot of the investment that we need. We'll constantly build out.
I'm always measuring, and it's a very mathematical equation. You know, how much more capacity do we need? Do we wanna build incremental cell sites? Do we want to get more spectrum into our mix? We have a pretty good view of all of that, I think. I'll never compromise on the quality of our network. I want it to be the best in the industry. I'm quite focused on that. I don't feel network is the only thing that you can differentiate yourself on. I wanna have the best network. You know, when I look at the metrics we do, and I'll continue to invest to make sure $60.5 billion is a lot of money. We've done a lot of our investment.
I actually think we can probably become more efficient from here, not less efficient and maintain our network lead that we have. At the same time, I want to invest in other parts of our business. The whole experience to me is crucial. From the time that you come into one of our stores, that you're online, that you have customer service from us, it all needs to be the best in the industry. So we're investing a lot behind that, and I would never under invest in any part of our business. I'm making sure that everything we do is as efficient as possible.
I guess how does that translate to the spectrum side? Is that an area you believe, you know, not necessarily you're pulling back on, but an area that, you know, you wanna make sure from a spectrum-
Yeah.
perspective, Verizon is well, you know, well capable?
Yeah. I mean, I'm very math-oriented, I look at everything from, kind of what does the investment get us? Do we need more spectrum? Can we add more cell sites and densify? What is the trade-off? What is the timing for that? I mean, I look at all these things as a, as a sophisticated math problem, but I'm not going to lose our best network claims. Where we need to add additional spectrum, we will. I look at everything kind of as a very sophisticated math equation. Where are we? Where do we wanna be competitively? What's the timeframe around that? Because you can either buy spectrum or you can add more densification in your network.
They have different timeframes and different costs associated with them. I'm not gonna lose best network claims for us. That's essential. Best network alone is not enough. There needs to be surround around it. The value proposition needs to be right. Every touch point needs to be superior. We're investing. I mean, we did cut $5 billion of operating expenses, I'm investing a lot back into the business to be sure that we have a superior value proposition, and that our churn rate continues to come down because we have a superior value proposition.
Sticking with spectrum, you recently announced an agreement in principle to form a joint venture with AT&T and T-Mobile aimed at eliminating wireless dead zones. Given that a definitive agreement has yet to be reached, can you walk us through, you know, the strategic rationale? What does this joint venture accomplish that Verizon couldn't achieve on its own? You know, how do you think about maybe the playing field? What does it mean?
Yeah. We, along with AT&T and T-Mobile, will be going into a joint venture to basically eliminate dead zones. Partnering with satellite companies. We think that working together that we can create standards, as opposed to being three set of standards for all the different satellite players to work with us. We'll have a common set of standards. We'll be able to leverage our volumes and create value propositions for consumers, and each of us will create our own unique value proposition. We'll have a common set of standards that we can use across handsets, across the different satellite players.
We're all eager to provide the best communications to our customers, and we felt doing this together was a way that we could accelerate that and also make it simpler and easier for the industry and our customers. We're excited about the JV. We think it will eliminate a lot of dead zones. It'll create a lot of value for both the satellite companies and for the wireless providers together. We're eager to make it happen and I think it's a big step forward for consumers.
Great. Sticking with direct-to-device, how concerned is Verizon about, you know, direct-to-device providers eventually going direct to consumer, whether via terrestrial network, MVNO agreement? I guess I won't ask you the follow-up of what are the pros and cons of an MVNO for Verizon since you've shot that down recently. How are you thinking about that threat?
Look, I think over the foreseeable future, I mean, like call it the next 10 years, that satellite is a complementary service to the carriers. If you think about kind of our capacity in urban and suburban, we're 100 to maybe 1,000 times more efficient than satellite could ever be in those areas. There are probably 5 million homes in the U.S. where satellite can be a more efficient alternative. For us, the physics of satellite versus terrestrial are really kind of night and day difference. For 95%+ of our customers, you know, we see satellite as a complementary service and very hard to compete with terrestrial networks.
Okay. For a couple minutes here, we have remaining, you talked about perhaps maybe upside to the $5 billion cost opportunity. As we think about just Verizon's focus just on efficiencies, as we look out to 2027 or we look out to, you know, down the road here, how meaningful or, you know, should we expect a similar magnitude of cost takeout kinda going forward into 2027? Just maybe what are the efficiency efforts above and beyond, you know, we talked about churn, but at a business level, you know, maybe where do you see the lowest hanging fruit down the road here?
I think, my view of the whole model, in general, is that on revenues, you know, there are five things that are probably gonna happen that will start to accelerate our revenues going forward. You know, first of all, We decided we were not going to take up pricing again. That's going to lap by the third quarter, that starts to be a tailwind for us, as we go into the back half of the year and next year. Also, our amortization, promo amortization, which is almost 190 basis points of headwind against us begins to turn as well. That'll start to turn probably maybe as soon as the third quarter of this year.
We also obviously are now putting on quite a number of net adds. Before we were losing a lot of net adds, you know, now say we're gonna do at the upper half of our postpaid that'll be anywhere from two to three times what we did last year. Also, we have accelerating broadband penetration as well. That will continue to go. We also have talked about, you know, we have $1 billion-$1.5 billion of negative margin programs for us and, you know, we are either going to exit those programs or supplement them in different ways where that drag will not happen. Finally, we have a huge opportunity right now working with AI providers.
There is maybe a once in a lifetime opportunity now as AI continues to move where we can use our infrastructure to support that. We can use our central offices to support that. I see a real significant opportunity for us as we look forward on that. On the cost side, we're just gonna continue to take out costs year after year after year. That's just gonna be a continual effort for us. AI is gonna redefine the way that we go to market, the way we think about our cost structure.
Yeah, we are already seeing where we've started to put AI into place for instance, in our customer service locations where we've had a 1,280% improvement in customer satisfaction rates, and we're just beginning on that. I think whether you look at the top line, the middle of our income statement, and then obviously on our bottom line, I can see room for us to consistently improve year-over-year for the next, you know, several years. We obviously have a dividend that has gone up for 20 straight years. We are now, you know, doing a share buyback. I expect close to $55 billion of return of capital to our shareholders over the next three years.
We feel very comfortable with that entire model.
Well, great. On the AI infrastructure side, I mean, any KPIs or how meaningful could that be from a, from a top-line perspective?
Well, we haven't talked about that specifically, but it's a multi multi-billion dollar opportunity for us, clearly.
Okay.
I mean, possibly more.
Before we conclude here, any final message you'd like to share with the investment community that we haven't maybe perhaps covered yet?
I think, we have what I think is, a conservative plan in place. We know what we need to execute against. I'm really pleased with what the team has done. We have a lot more to do, a lot more to prove, and you can be sure we're very focused on it.
Great. Well, Dan, thanks for joining us today, and thank you, everyone.
Thank you, everyone.