In its heyday, the AT&T Bell System ran ads with the tagline: “The System is the solution!” During his company’s 2Q22 earnings call on Friday, Verizon (NYSE: VZ) Chairman and CEO Hans Vestberg echoed similar sentiments. Vestburg reiterated several times his confidence that Verizon’s current and planned wireless and broadband networks will deliver long term growth and profitability. This confidence seemed at odds, however, with the company’s 2Q22 results that showed weak gains in consumer postpaid net adds and significant losses in prepaid net adds, resulting in flat to down quarter-to-quarter wireless service revenues.
Verizon certainly is feeling the effects of weak consumer demand due to inflation and competition. The company’s consolidated service revenues were $27.1 billion for the quarter, flat sequentially with 1Q22 and down 4 percent year-over-year from $28.2 billion in 2Q21. Similarly, consolidated Adjusted EBITDA for 2Q22 was $11.9 billion, down over one percent QtQ and down nearly 3 percent YoY from $12.2 billion.
Wireless service revenues for the quarter were $18.4 billion, essentially flat QtQ but up 9 percent from $16.9 billion in 2Q21. The company had 514,000 retail postpaid net additions but lost 229,000 retail prepaid net additions. At the end of 2Q22, Verizon held a league-leading total of 142.8 million retail connections, down slightly from 143.0 million connections in 1Q22 due to the prepaid connection losses.
Verizon closed the Tracfone acquisition in November 2021, adding 20 million prepaid customers to its rolls. Churn in the consumer segment reflects customer sensitivity to inflation and recent increases in wireless service charges. Through the Tracfone integration, some prepaid customers are opting to upgrade to postpaid accounts or leaving Verizon altogether for other MNOs offering attractive deals.
As a countermeasure, Verizon last week introduced its Welcome Unlimited plan that includes unlimited talk, text, and data for $30 per line per month for four lines, with auto pay. This “value” offer is intended to retain existing postpaid and prepaid customers and to attract new subscribers from competitors. Verizon expects its premium accounts will stay with higher priced plans.
Taking stock of its performance to date, the company revised its financial guidance for the second half of 2022. Compared to full-year 2021, top line service and other revenues growth is now expected to be down 1 percent to flat. Total wireless service revenues are projected to grow in the 8.5-9.5 percent range, down from previous guidance of 9-10 percent. Adjusted EBITDA is expected in the range of -1.5 percent to flat from the previous guidance of 2-3 percent. Adjusted earnings per share drops to $5.10-5.25 from earlier expectations of $5.40-5.55.
The one key metric that Verizon has not revised is capital expenditures. The company maintained its full-year 2022 capex guidance of $16.5-17.5 billion for its business as usual (BAU) capex in its wireline and wireless networks, and an incremental $5-6 billion for C-band deployments. Through the first six months, Verizon spent nearly $7.7 billion or 45 percent of the BAU budget on several key initiatives: FiOS fiber-to-the home build out targeting 550,000 homes-passed by year-end, fixed wireless access that added 256,000 broadband connections in 2Q, up from 194,000 added in 1Q, and continued coverage and capacity expansion of 5G Nationwide and 5G Ultra Wideband. The company sees significant opportunities in Private 5G and mobile edge computing applications. Expect an uptick in BAU capex through the remainder of the year.
Verizon is in the midst of its C-band deployment. Through 1H22, the company spent an incremental $2.8 billion, roughly half of the budget, on C-band deployments that now reach 130 million people going to 175 million people by year-end. This coverage is mainly 3.7 GHz A-block licenses in the top 46 markets which the satellite operators vacated by December 5, 2021. They will vacate the rest of the band covering all 406 PEAs by December 5, 2023. Verizon says that it reached agreements with satellite operators to relocate ahead of schedule so it can accelerate C-band deployments across the country. Once the spectrum is available, the company plans to offer at least 100 MHz bandwidth capacity for high-speed mobile connections in each market.
By John Celentano, Inside Towers Business Editor
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