Great. Good morning, everybody. Welcome to the Verizon Fireside Chat at the Goldman Sachs Communacopia + Technology Conference. My name is Mike Ng. I cover telecom here at the firm, and it's my absolute privilege to introduce Dan Schulman, who's the CEO of Verizon. Thank you so much for being here, Dan. It's an absolute pleasure.
Thank you, Mike.
Dan, I was hoping we could just start out with a big picture strategy question. It's been just under a year since you became CEO, and you've led an incredible operational and financial turnaround of the business. Could you talk a little bit about what surprised you the most and how that's shaped how you think about the company's longer-term strategy?
Yeah, sure. First of all, it's great to see you, and thanks for having me, and thanks, everyone, for being here. I'd also reference the safe harbor that was up there, that I'll be at least talking about the future a little bit, and that always involves risks and uncertainties. I just wanted to point that out. It has been a year. Time flies when you're having a good time. I would say, in general, I'm pretty pleased with the progress that we've made. It's a big company. Those often take time to turn around. There were four things that I really wanted to emphasize when I came in. The first is I wanted the company to stop being overly engineering-focused and really be obsessed with our customer.
I told them I would measure our success on that on two things, was churn going down, because for the last three years, churn has been going up and I wanted to see churn come down. I also wanted to see our net adds, especially on the postpaid phone side, go up. If that happened, I figured we are starting to make progress being customer-obsessed. The second thing is I really felt like the culture at Verizon needed shaking up. We really needed to start to play to win. I am a pretty intense guy. I am very impatient. Verizon is a big company. It is bureaucratic. It is hierarchical. It is process-oriented as opposed to results-oriented. It is very risk-averse, and we were moving very slowly. I was tired of the company being more prey than predator in the market.
I basically have a mantra there that every single day matters.
We have almost 100,000 people in the company. We should be doing amazing things every single day, and that intensity, I am beginning to see that in every meeting that I go to. The third thing was I really wanted to redefine our business model. I wanted to become the most efficient telco in the world. In month two, we cut almost 13,000 people. I set what people thought were ambitious OpEx and CapEx targets. They are really not that ambitious, but $5 billion in OpEx savings, $4 billion in CapEx savings, and we will exit the year with over $5 billion in OpEx savings on a run- rate basis. I see plenty of opportunity in 2027 and 2028 to continue that. I also felt like we really needed to break through a traditional business model. The business model of most of the carriers, including Verizon, it is very subsidy-focused.
That is how you win customers, that is how you retain customers, by giving away handsets. I felt that really did not need to be the case, that we needed to redefine the rules of competition, and that we could win in the market but be very fiscally responsible. I think you are beginning to see that happen. Finally, the fourth thing is we need to have real serious returns to our investors. For the past five years before I became CEO, our stock was down something like 30%-35%. We had gone from first in market cap to last in market cap. Our forward PE was one of the lowest, if not the lowest, in the industry. If you looked at our adjusted EPS free cash flow over the last five years, it compounded at - 1%.
This year we have guided now to 6%-7% for adjusted EPS, 9%-10% on free cash flow. Our revenues will go from 1.6% in Q1 to we think they will be 4% on mobile and broadband in Q4. We are likely to do three times the amount of postpaid phone net adds that we did a year ago. I would say, in general, I am pleased with the direction of travel. There is a hell of a lot more that we need to do to reach my expectations, but we are on the right track right now.
Great. That's a fantastic overview. You talked a little bit about the subsidies. I was wondering if you could talk about Verizon's consumer go-to-market strategy. The company has undergone a reboot with simpler plans, Verizon Simplicity , Verizon One, and new loyalty plans. Could you talk a little bit about some of the things that Verizon has done to improve customer centricity and how that has actually translated into improving operational KPIs?
Yeah. I think we're still relatively at the beginning of our journey of being customer obsessed. I've thrown billions of dollars back into our end-to-end customer experience. Last quarter, we hit an all-time high for customer satisfaction in our consumer division. Everything from the time you walk into a store, from the time you get your first bill, when you call customer service, everything, I want everything to be, I know it can't be this, but I want everything to approach perfection. That's hundreds of things we need to do. That's why you can create real competitive differentiation. We have an initiative inside the company, we call it Every Customer Has a Name, and it basically means we treat you with respect. We treat you like you're a family member, like you're a friend, and that matters to people.
I'm beginning to see churn have been going up for three years in a row, now churn is coming down year-over-year. I expect that to continue. Our Simplicity Plans that we put out there, our new value proposition, we spent six months in deep customer research before we put those out into the market. I wanted to look at three things. I wanted to look at what were customers telling us they wanted in the market? What might competitive response look like? What might our financials look like? What I told the team is, when we put something in the market, I don't expect to see our financials dip, and then we tell everybody, don't worry, in a year from now, they're going to go. I want to see continued improvement in all of our metrics.
We spent a ton of time talking to customers, doing deep financial modeling around it. What we saw when we launched is maybe the best launch of a new value proposition that I've been a part of. We put in the market, immediately we saw our net adds go up. We're off to a good, strong start through the quarter right now on our net adds, a lot of it due to our new value proposition. ARPA for those new adds is accretive and going up. The interesting thing about Simplicity is there is no subsidy on that. We are winning in the market and not having to give away free phones to go and do that. That's a big deal when that happens. It's a fundamental change in our business model.
Our cost of acquisition is at three-year lows right now, and that's been going up year-over-year-over-year, and we're now seeing that go down consistently, as well as our cost of retention as well.
Great. Just on postpaid account net additions. The company has guidance for postpaid phone account net additions of 750,000 to 1 million. Sorry, I think those are phones. It's phones, not accounts. Excuse me.
I'll keep you honest.
Thank you, Dan. In the second quarter, you had the best quarter for consumer postpaid phone nets, so the company's making great progress. Could you talk a little bit about the full-year target and the expectations for the rest of the year?
Clearly, we will be at the top- end of our guidance for that. The quarter is off to a good, strong start. Well, not really off to, it is ending on a good, strong start. I think the things to point out on the postpaid phone net add side, number one is obviously we are doing well in driving net adds. But this quarter, for the first time in at least three years, will be positive phone net accounts, which is a really important element. It will be the first time in a long time that we have had good phone net adds, but good phone net accounts as well. The way that we are competing now is fundamentally different than a year ago. Every single net add coming in right now has revenue associated with it.
I do not really understand this counting a net add as a free line.
I know a lot of people do it, but from my perspective, bringing in a free line does not really count as a net add, in my view. It does not add to revenue growth. It is churn waiting to happen. From my perspective, if we are going to win a customer, it has got to be real. It has got to be because of our value proposition. There needs to be revenue associated with that line or that account coming in. So our basis of competition is different. Every account coming in on Simplicity, which is the majority of our net adds, there is no subsidy associated with it. I am feeling pretty good about the way that we are competing. If we competed the same way we competed last year, like our net add, we would blow through it, but a lot of them would be free lines.
That is not what we are going to do. We are going to bring in quantity and quality at the same time, and at a low COA, cost of acquisition.
Great. At the beginning of the discussion, you talked about the focus on getting churn down, and 2026 has always been described as a more churn reduction-led subscriber growth year. Could you talk a little bit about what is driving the churn outlook in a little bit more detail?
Yeah. Well, I think churn is one of the most important metrics in our business model. I think of our business model, and I say this all the time inside the company, it's a multivariable equation. You can't be successful on one thing and think that you're doing well. It's easy to drive net adds if your cost per acquisition goes way up. Give away free phones. You can drive a lot of net adds, but that doesn't work for me. You can take churn down if you take your cost of retention way up. I want to see our churn come down and our cost of retention come down, and you're seeing that. Cost of retention's coming down double digits. Churn, I think, was down 5 points year-over-year in the quarter.
I expect to see our churn continue to have year-over-year improvement as we go through the rest of the year. Basically, churn for us was a lot of self-inflicted wounds. We had been raising prices for the past three years before I came in without added value. I'm not against price increases. I think price is a very important component of value, but you have to add real value if you increase prices. The first thing I told the team, and they wanted to do another price increase as soon as I came in, is I said, No, stop that. Because it's a short-term win. Your revenues go up in the short- term, and it looks like you're winning, but you're not because your churn continues to go up. It's a short-term win and a medium- to long-term disaster when you go and do that.
We stopped raising prices. Immediately, customers noticed that. We invested a lot into the end-to-end customer experience. Because customers fire companies all the time when they have a terrible experience. You may not know about it, but all of a sudden, there's a disconnect because they didn't understand the promotion, and it was too complicated. They heard one thing in a store, saw another thing on their bill, heard another thing when they called into customer service. My view on that is let's fix our end-to-end process, and then let's put out a really good value proposition in the market, track new segments, make sure it's fair and honest. Now what we're beginning to see is very sophisticated modeling going on, very sophisticated segmentation, really listening to what a customer needs, satisfying it the right way.
Hopefully you'll continue to see churn improvements and, at the same time, see our cost of retention go down.
Great. It's a great segue to talk a little bit more about the Verizon Simplicity Plan. Very competitive price for the one- to two-line value segment. Maybe talk a little bit about what areas of the value segment that you think Verizon has the biggest opportunity and why. Where do the market share gains in the value segment actually come from? Is it prepaid? Is it somewhere else? I would love your thoughts on that.
Well, we're very focused on segmentation right now. As you know, I'm a very big believer in the power of what AI can do inside our company, not just in terms of productivity improvements or increases in customer satisfaction, but radical changes in our value proposition that we can put in front of consumers and small businesses, and eventually get to segments of one. We have over 300 data points of information on every single individual customer. Before the advent of AI, it was impossible to correlate all those things, but now we can start to put together very sophisticated value propositions for ever smaller segmentation. Simplicity really was aimed to go after more of the one- to two- lines, where we had been losing the youth market, in which we were disproportionately low in share.
Verizon One was all about convergence, and going after actually the more high-value customer base. I'm really pleased with what I'm seeing on Simplicity. It started off strong, and it's continued strong. Our port ratios have improved dramatically from where they were. I think we're taking share in that youth market now. As I mentioned, ARPA is strong. Base migration is well under what we modeled. I think there's an upside as a result of that. It has radically redefined our business model in terms of how we compete in the market. We've separated out mobile pricing from device.
We give customers optionality on what they want to go do, but they have a simple, fair, honest mobile price, and then they can figure out how they want to either bring their own device or have different financing options for a new device if they want to go that way. In general, I'm pretty pleased with the segmented approach that we have, and certainly the metrics are well exceeding what we initially forecasted.
Great. On that device piece, we are very close to the announcement of the new iPhone. You spoke a lot about device subsidies. Is Verizon getting away from device subsidies completely? Are they being more selective? Maybe just talk a little bit about how device subsidies and financing fit into the new value prop.
Yeah. I think for too long, Verizon and actually the mobile industry had a belief system that the only way you could attract customers or retain customers were by giving away free phones. That kind of became dogma, and probably everybody in this room just accepted that that was the way that it was going to be. That is just not true. We are proving that right now. You can separate out mobile from device. I do not think there needs to be the transfer of value from the MNO industry to the OEM industry the way that it was. I think we are going to work very closely with all of the OEMs. I think there are ways we are growing again. I think there are ways that we can grow our volumes, and we are pretty much the number one customer of any OEM.
I think we can grow our volumes together, but in a fundamentally different business model approach. You are not going to see phones on us, even with new launches. That is just not going to happen, because it does not need to happen. Customers are keeping their devices longer. New devices are coming out. We will be competitive in that. Fourth quarter is always a little bit more of a promotional period, but I do not think we need to be anywhere in terms of what we used to be. I am a very competitive guy. We have metrics out there. We have committed to them. We will meet those metrics. But the basis of competition, not just at Verizon, but I think inside the industry, is shifting and will continue.
Great. Last earnings call, Verizon mentioned that Simplicity is ARPA accretive, which is a little bit counterintuitive, but I think it is because Simplicity is subsidy-free, so there is no promotional amort impact. Could you talk a little bit about ARPA? What is Verizon's outlook for ARPA growth? Will it grow in 2027?
I always like to think before I answer your questions. To the first thing you said, yes, I believe ARPA will grow in 2027 year-over-year. It could grow as soon as fourth quarter. That's a possibility in terms of year-over-year ARPA growth. It's been growing sequentially this whole year. We said that our wireless service revenue will be flat this year, which by math means that it will be up, and it will be up year-over-year from everything I can see in the fourth quarter as well. In general, our mobile and broadband service revenue has gone up every single quarter. As I mentioned, it started at 1.6% in Q1. I think we'll exit around 4% in Q4. ARPA, whether you look at Simplicity being ARPA accretive, you look at Verizon One, which is a great converged offer.
The interesting thing on Verizon One is that over half of our customers are upgrading to a gig or more speed, so that's driving ARPA up as well. I think there's a really good engine evolving inside the company right now. You've got net adds growing. You've got net accounts growing. You've got record low COR and COA happening. You'll start to see ARPA growing. That is sort of the magic formula when you can put all that together along with good unit economics cost controls around that, and that's clearly the direction and momentum that we're on.
Great. I'd like to shift to a discussion around broadband. The market has obviously been very dynamic over the last several years. Could you just talk a little bit about the competitive state of the market, how you think Verizon is positioned to sustain subscriber growth across both FWA and fiber?
Yeah. I think we did something like around 350,000 broadband net adds last quarter. We're clearly taking share. We're having a good quarter around broadband as well. I think we'll continue to go do that. We have a really good value prop out in the market around both broadband and convergence. In my own mind, Mike, I think of broadband as broadband. Customers don't really go, oh, I'm doing FWA. They have no idea what FWA is, or fiber. A little bit more on fiber, they have an idea of that. But it's basically what's your download speed and what's your upload. Increasingly, uplink and upload will be more and more important in the AI age. I think whether it be FWA, which by the way, we have more open for sale than we've ever had.
We're also doing some really interesting experimentation around our spectrum holdings, everything from low band up to millimeter wave, which I think has the potential to unleash a lot more capacity for us. It's early days. I'm not going to talk a lot about that right now, but I think we'll have a ton of room and capacity on FWA. On fiber, we'll do at least 32 million homes passed this year on fiber, well on our way to our 40 million to 50 million homes over the medium- term. So broadband's a real important element of our connectivity, seems to be doing quite well for us right now and should be a growth driver going forward.
Great. I know that Starlink has been on a lot of investors' minds. Maybe a two-part question. Number one, could you talk about Starlink satellite's impact on fiber and FWA, the broadband business? Then I'm just wondering if you could share your views around the potential threat of a Starlink mobile direct-to-consumer service. How viable do you think that is? How is Verizon planning to respond, if at all? Yeah.
Well, we've seen no, zero discernible impact on our broadband growth from any LEO, low Earth orbit satellite provider, including Starlink. The more I dive into the physics of satellite, and I'm deep into the physics of satellite because I want to understand it inside and out, the more convinced I am, whether it be broadband to the home or direct- to- device, that satellite is a complementary service and even over the medium- to long- term, not a direct competitor. They just can't compete without a terrestrial network. In urban and suburban, where call it 95% to 98% of our revenues are, we're 100 times, in some cases 1,000 times more efficient than they are. There is a place for satellite, and it is in the very rural. It's a market, it's a distinct market.
But it will never pencil out for us to build a network out there, and it's very complementary to what we do. Today, Starlink offers 400 megs to a home for broadband for $130. Just to give you an example, we offer 500 meg, where you get both broadband at 500 meg and mobile for $70. So we are a better service at half the price, and that's just because we just have so much more efficiency in urban and suburban. I do think satellite will be a very valuable partner with us, and we are clearly looking forward to working with all of them and providing enhanced value propositions.
It's going to be complementary. Even though you didn't ask the question, we see absolutely no advantage in extending an MVNO to any LEO provider, nor are there any backdoors whatsoever to any of our existing MVNO relationships. We see satellite as a partner, and I do not see it as a viable competitor in the medium- and even longer- term.
Great. In the last five minutes, I wanted to squeeze in two more questions. One, very exciting new business with the hyperscale fiber deals that you guys have been doing. There's a $1 billion+ deal with Google to provide dark fiber connectivity linking data centers. Could you just size the broader opportunity within data center interconnections? What is Verizon's key competitive advantage in this business?
Yeah. I have to say, I'm actually really excited about the AI infrastructure opportunity for us. Look, we're just kind of fortunate on this. We are in the right place at the right time to be a part of one of the greatest CapEx things around AI infrastructure that we've ever seen in our generation. It opens up a quite large TAM addressable market for us that's growing quite rapidly, and we have the right assets in place and experience to take advantage of it. Compute, the demand for compute, heard that from Sarah yesterday. It's insatiable, and at first it was how do you optimize racks inside a data center, and then how do you interconnect racks inside a data center? Now it's basically how do you connect data centers together to provide ever greater compute?
For there is absolutely the need for dark fiber connectivity. We've been the leaders in both metro and long haul fiber build. We have a lot of dark fiber capability. We just did a big deal, we announced it yesterday with Corning. Fiber is in short supply as well, and we have now got a full supply of that. I'm really happy about that deal. It's a good one for both our companies. It enables us to do all the build that we need to without being supply-constrained, because the demand for that interconnectivity is quite large, and we'll continue to build on that drumbeat of announcements that we had. There's also a big demand for inference computing. So that's basically computing at the edge for low latency applications, robotics, gaming, autonomous driving, remote surgery.
As we decommission our central offices, take copper out of them, which by the way, is a great cost savings for us and a real opportunity. They are power ready, already permitted, and we have thousands of them to be able to deploy. We are already signing up deals where people are coming in. We will talk about some of those at our next earnings call. That ability to take advantage of what were decommissioned central offices and now can be inference edge computing, is tremendous as well. It just opens up a brand new vector of growth for us on top of a growing connectivity business, so we will be more and more specific about that. You will start to see revenues, and noticeable revenues beginning next year on that.
Great. As we wrap up the session, I was just wondering if you could tie it all together for us, and talk a little bit about key focus areas as Verizon transitions from the turnaround to playing more offense as we wrap up 2026 and head into next year.
I think it is a new Verizon right now, clearly. We are playing to win in the market, and I think our results are beginning to demonstrate that. I clearly feel like this new business model, this new financial model is clearly taking hold right now. We have a ton of cost opportunities still to be more efficient. As I always say inside the company, no company cost cut its way to greatness. Those cost cuts are just about being more efficient, enabling us to invest back in our business and return value to shareholders. I see a lot of continued opportunity for that as we go into 2027 and 2028. We have increasing momentum every quarter right now. So you are beginning to see that. The difference between our financials a year ago and our financials this year are night and day difference.
I am pushing the team very hard. I am far, far from being complacent about where we are right now. In fact, I am probably more intense than I have ever been on it. It is because I see the opportunity in front of us, and I want to grab it. So we have good momentum, but a lot of work to do, a lot of progress to still make, but we have very high aspirations, and I want to aim for those.
Great. Well, Dan, thank you for participating in our conference. It has been a privilege to have you on stage here.
Thank you so much, Mike, and thanks everybody.