VZ
#Thanks, <UNK>.
On the FCC special access, look, the FCC will take action this month sometime on special access rulemaking and its tariff investigation into certain discounts that we and other large legacy providers offer for DS1s and 3s.
We have reached out ---+ we reached a deal with a lot of the CLECs in order to resolve a long-standing and contentious regulatory issue here.
Our top priority, though, is to ensure that our business services are a level playing field with all the other competitors including cable companies.
We intend to work with the industry and the FCC to develop a framework for that that applies to all competitors equally and relies on the sound public policy to determine where and when regulation is appropriate.
So we will wait to see what the FCC does here, <UNK>, and then we will respond accordingly.
On the bond market and the recent press reports coming out of Bloomberg, look, we have been pretty open and public that we have been looking at an alternative financing arrangement for our installment sale receivables.
The public asset-backed market is an alternative that we've explored.
We've had a number of discussions.
We are having discussions continuing with alternative providers and various parties, but at this point in time these are just discussions.
It's something we're looking at.
We're still doing a lot of analysis around it and at this point it's just something that we continue to look at.
Nothing to announce here today that we're going to change anything at this point in time.
Thanks, <UNK>.
On the investment side, look, we've been pretty open that our main priority is to get our debt level back to an A- rated company and we are on track to do that.
Everything we do that continues to be the top priority.
So even with all of the M&A activity you've seen, if you look back, we started this on a post-Vodafone debt of $113 billion.
We've reduced that to $109 billion.
But keep in mind that with a $10.4 billion spectrum purchase during that period of time.
That was with $4 billion of purchase of AOL and some miscellaneous tuck-ins, capital investment, share repurchase, and now we have just sold the Frontier properties that helps bring that debt down even to a lower level.
So we are right on course.
But that is top of mind at everything that we do and will continue to be a commitment that Lowell and I made that is forefront that we will commit to.
On the AOL performance, look, I think ---+ I'm not going to get into a lot of details on AOL, but, look, they've had the best quarter in revenue in the last five years.
If you go back to the fourth quarter, we said they were up $300 million year over year.
Now, of course, that's seasonal, but that shows you though that the investments that we've made in the platforms, a lot of the tuck-in type investments that we made with acquisitions ---+ and these are small acquisitions, but they are real critical.
If you just look at the most recent acquisition we just did with RYOT, this is a real, unique 360-degree video production.
It is for really Huff Post for them to increase their viability on producing videos for news, but again, this goes to our strategy in attacking a certain population that, quite honestly, Verizon is underpenetrated in.
If you look at that acquisition, it directly goes to Gen Z; 73% of their audience is Millennials.
So these are real strategic for us to improve the viability of that platform.
The other thing you are going to see us do this year is around go90.
The go90 product will start to cross all of the AOL platforms this year.
That is going to enhance both the AOL platforms and it's also going to enhance the go90 platform.
Continuing with our strategy we will ---+ as I said before, we will open the box at some point in time to give you more visibility to this.
And I continue to say that that will be midyear to maybe third quarter of this year where we will start to produce some numbers around some of these more specific platforms that we talk about.
Sure.
If you look at each of the rating agencies, each of the rating agencies have a different approach because some of them include the pension plan unfunded liability.
Others include the OPEB unfunded liability.
Others don't include any of that.
Securitizations, some include, some don't.
So each of them is a different metric, but if you look at our overall GAAP ratio, it kind of follows in task with what we would need to be.
And based on the GAAP ratio, you should look at 2.0 to 2.1 type area in order to achieve that A- rating.
Thanks, <UNK>.
Look, I'm not going to speak anything to deal with Yahoo, so let's just talk about what we have on the table today.
Under the sponsor data zero-rating type issue, the net neutrality already advocates some of this.
We have structured our sponsored data program to comply with all the FCC net neutrality rules.
For example, if any party, third-party is interested in that, we will offer that on a nondiscriminatory basis and we've priced it accordingly at a commercially favorable rate that we believe is in direct really compliance with the FCC net neutrality rule.
We think that sponsored data and other freebie data programs are good for the consumer and that regulators will recognize that after concluding their review on our products.
So based on the zero data, we will have to wait and see where they come out on that.
As far as Title II goes, look, we agree with the principles with net neutrality rules.
The thing that we disagreed with and opposed was applying Title II broadband services and particularly wireless broadband.
So we will have to see where this comes out, but reclassing broadband under Title II was not necessary to ensure an open internet.
There's been nothing ever that shows that it has not been an open internet.
This will, obviously, have some negative consequences on innovation as a whole.
But, look, we are a company that has operated under regulation for 100 years and has been very successful, so we will wait and see what the FCC concludes and then we will operate accordingly.
But it's too early to say what exactly is going to happen here.
Look, we at Verizon ---+ privacy and security has always been top of mind.
Normally, we always use an opt-in with our customers or some type of an opt-out feature.
The issue though that we have right now is under the FCC proposed aggressive rules on privacy and data security, that would apply to broadband providers but not companies like Google and Facebook.
So if we're going to have rules, we need to make sure we don't single out certain industries to either benefit or not benefit from those rules.
And that's something that our legal department continues to work with the FCC on, so we will see where this ultimately comes out.
But that's really the crux of the issue for us.
Sure.
Thanks, <UNK>.
On the competitive environment of Verizon, look, coming into 2015 and again in 2016 we said that the top priority would be to maintain the high quality of base.
And you see us doing that.
We now have 48% of our base over on the new pricing and we continue to push for that.
You saw this 7 basis point decrease in churn for the last couple of quarters.
What I would say though is, if you look ahead, last year's second quarter the churn was like at 0.90.
I would not anticipate, nor should you anticipate, that we will achieve that churn rate again because things have kind of flattened out now.
I would look at the first quarter as a guide to where we will be for the rest of the year from a churn perspective.
Part of that is because we are seeing some increased churn on tablets, which we have talked about before, where we gave a free tablet away and we saw that the customer base just didn't see the value of that tablet when it was free.
They signed up for the two-year agreement because they got a tablet for $10 a month, so $240, and they disconnected it at the end of the agreement.
We stopped doing that promotion for that reason, but you see some of these tablets now coming up on the two-year deal.
We anticipate that some of that higher churn in that tablet environment will hit us over the next couple of quarters, so we should be prepared for that.
But as far as the smartphone churn, we are continuing to see improvement in that smartphone churn, which gets us to holding a flat churn rate overall.
So I think that is really what's important to us right now is that smartphone churn rate, which is really where we are dedicating all of our concentration and our promos.
On the prepaid side, absolutely.
Our retail prepaid is above market.
We're really not competitive in that environment for a whole host of reasons and it's because we have to make sure that we don't migrate our high-quality postpaid base over to a prepaid product.
If you look at the competitive nature, they are doing it with sub brands.
They are not really doing it with their brands.
And quite honestly, we use the Tracfone brand as our prepaid product.
Tracfone has been extremely successful for us.
It's not something that we disclose any more on reseller, but it continues to increase on the high-quality base of Tracfone, so that's really where we use and go after the prepaid market.
More to come on this during the year, but currently that's how we operate under the prepaid model.
Thanks, <UNK>.
On the video landscape, look, I think we've set the bar on where we're going on video, both in the home and outside the home.
In the home, we were the first to come out with our custom TV package which rebundled certain content, and it's been very successful.
This quarter, even with the rebundle of custom TV, we had a 38% take rate on that bundle.
What I will tell you is, yes, it does give us some top-line pressure because it's a lower bundle from a revenue perspective, but the content cost is considerably lower.
Therefore, it generates actually more margin for us.
It's the right thing to do.
This is what customers want.
They don't want to pay for 300 channels anymore and only watch 17 on average.
We're trying to give customers what they want and that's a fight obviously with all the content providers, but we are doing it within the legality of our contracts.
Of course, we won't breach any of our contracts, but it's the way that the environment is moving.
So I don't think we're going to change any approach to our in-home delivery.
The other thing is there's confusion out there on the video side, which is everybody wants to talk about taking in-home video to a mobile handset and this is something new.
This has been done for the last two years.
Everybody who has an in-home subscriber, most rights give them the ability to view that content as long as they subscribe and authenticate to that subscription.
They can watch that on their mobile handset.
We are taking really the strategy in a whole different mode.
We're going to a mobile-first strategy outside the home.
It has nothing to do with in-home content.
Now, some of the content you could watch at home could be on this, like sports.
That has been very popular in the go90 environment, but we are looking at a lot of different mobile-first, short clips, news, sports, and if you think about it, original content.
If you look at the strategy that we have taken in the last couple of quarters, we have added a lot of content that has nothing to do with in-home.
If you look at our Hearst joint venture, we now have joined in with them to create two very exclusive channels for us: one is called RatedRed, one is called Seriously.
TV.
And the target population is 12 to 24 years old.
We then ---+ as I said in my preambled remarks, AwesomenessTV we took a 25% ownership stake because what we saw was there was certain original content that we had contracted with them that they deployed in go90 and we saw viewership really jump when those original contents presented themselves.
So this is another one where number one digital brand within the female population of ages 12 to 24; 160 million views, up 53% year over year.
And then finally, if you look at what we just did within the last few days, entering into another joint venture with Hearst and buying Complex, 50% owner.
This is another number one digital brand in the male population of 18 to 24.
Monthly unique viewers of 54 million and over 300 million views per month.
So this is really where we are taking the video product on mobile, which is very different than what everyone else is talking about.
We believe that's where we are going to be a differentiated brand with go90 and AOL and everything else that we are doing around that video platform.
So that's kind of where we're at on that.
On the service revenue stability, look, <UNK>, we've done a lot of modeling.
We consistently say as soon as we get to a more than 50% penetration of that base on what I will call the device installment pricing plans, we start to see service revenue flatten out and we start to see accretion at the back end of 2017.
We have run a number of models and we consistently see that model towards that end.
So that's really where we are at at this point in time.
Tori, we have time for one more question, please.
Thanks, <UNK>.
First, on just the CapEx; look, there's some timing here and the reason that is because, if you look at it, in the fourth quarter of last year we really accelerated our spend really in Wireless to prepare for the Super Bowl.
And that was a whole densification project on the West Coast around San <UNK>cisco and Santa Clara.
So really what you are seeing here is a timing issue.
We are right on track with our plans on densification.
We are still deploying a lot of small cells, so there is nothing that I'm going to say here that should concern you about our plans.
You will see us catch up on that spend in the second and through the third and the fourth quarter, so coming in right on guidance.
Now the only thing I will say here is keep in mind that the first quarter also had $150 million on Frontier that will disappear in the second quarter.
So you could assume that second quarter may be a little lighter than in the past, but again right on track with where we thought we would be.
On the 5G question, look, we are committed to being the first US company to rollout 5G wireless technology.
We are currently what I would call doing sandbox; sandbox as in creating innovation centers.
We are working with the 5G Technology Forum, which includes all the major OEMs and handset OEMs.
We will evolve this 5G ecosystem rapidly, just like we did with LTE, to ensure an aggressive pace of innovation.
Currently, we're testing 5G technologies this year and we aim to have an initial fixed wireless pilot starting in 2017.
I want to reiterate that: this is a fixed wireless, which is really one of the first cases that we see.
It's really not about mobile.
It's really around fixed wireless.
We're helping the industry to adopt the rules on 5G deployment, including the opening of the spectrum bands above the 24 gigahertz.
And we are working with the FCC.
As you know, with XO we have the ability for an option to buy around the 28 gigahertz, which is currently how we're doing our testing right now.
Then keep in mind that 5G is not a replacement technology of 4G, so this is not a capital-intensive overlay to the 4G network.
It really is all about high-speed video delivery over a wireless network in a very, very efficient way.
You should think about 5G, again like we did with LTE, where you see those 4 to 5 incremental cost decreases when delivering that video.
That's similar to what we will see in the 5G environment.
So right now that's where we're at, but we continue to plow forward and we will be ready to go with the 5G technology.
Thank you.
We will now turn the call back to <UNK> for some closing comments.
Thanks, <UNK>.
Look, the first quarter provided strong results to the start of this year.
Again, I want to reiterate: we are very confident in our ability to execute on the fundamentals and grow this business profitably amidst the competitive environment and manage through the transition of our business models.
We are also positioning our business for future profitable growth through cost and capital efficiency initiatives and all the new revenue streams that we always talk about.
We look forward to a positive 2016 with confidence in our ability to execute our strategy, create value for our customers, our employees, and our shareholders.
Thank you again for joining Verizon this morning.
Have a great day.
