Verizon Still Calculating Cost of Lead-Cable Remediation, Extent of Problem

Verizon added 384,000 fixed wireless access customers in Q2, with 8,000 net postpaid phone adds, as the carrier Tuesday became the first of the big three wireless providers to report. Despite questions about legacy lead-sheathed telecom cables used by Verizon (see 2307210004), the company maintained its full-year earnings and revenue guidance. Officials said it's too early to estimate the cost of lead remediation. AT&T reports Wednesday.

“We take these matters seriously, and to be very clear, lead infrastructure makes up a small percentage of our copper network, and we began phasing away from installing new lead cable by the 1950s,” CEO Hans Vestberg told analysts.

It’s “far too soon” to make any projections on what the potential financial impact might be, said Chief Financial Officer Tony Skiadas. He said some records are incomplete, and the 540,000-mile copper network, about half of which is aerial, doesn’t include the network elements previously owned by MCI and XO. The carrier is reviewing historical records and working with a third-party expert to do testing at sites that were identified as being a potential problem, he said. Test results won’t be available for several weeks, he said.

“When not disturbed, the likelihood of exposure to lead from lead-sheathed cables is low,” Skiadas said. Because this cable “was used as a feeder and distribution cable and does not run into individual homes or apartments, it is generally in locations that minimize the potential for public contact,” he said. But there are unknowns, including the level of risk by undisturbed cable, “and if there is a risk, how that risk should be addressed,” he said.

In one change of note, Verizon recently raised the cost of its fixed wireless service by $10/month. Analysts agreed that change should improve average revenue per user and other metrics. “We have a premium product,” Vestberg said: “We have different type of optionalities for our customers.”

New, simplified price plans introduced by Verizon in May (see 2305160056) are paying off, Vestberg said. Verizon myPlan “has already helped our Verizon Consumer Group deliver notable operational improvements by encouraging customers to take on premium plans,” he said. “We'll also continue to invest in prepaid to improve performance, and expect sequential improvements in the second half of the year,” he said: Customer payments “remain healthy, which shows both the financial strength of our customer base and the high value they place on our services.”

Vestberg said Verizon is ahead of schedule on C-band deployments.

Verizon reported total operating revenue of $32.6 billion in Q2, down 3.5% from the year-earlier quarter, and net income of $4.8 billion, a 10% decrease. It projected capital spending of $18.25-$19.25 billion for the year. Retail postpaid churn was 1.07%, retail postpaid phone churn 0.83%. Verizon had 251,000 consumer fixed wireless adds, and 133,000 business adds, compared with net adds of 256,000 a year earlier. The carrier now has 2.3 million fixed-wireless subscribers. The 54,000 Fios net adds were up from 36,000 a year earlier.

MoffettNathanson’s Craig Moffett noted Verizon’s stock price was under pressure before news broke on its lead-cable issues, first reported by The Wall Street Journal. “Verizon’s high prices-for-best network positioning is looking increasingly unsustainable,” Moffett told investors: “Their marketing message has become muddled. Their network advantage has been tarnished, if not lost. Their promotional approach has swung from disciplined to profligate and back again more times than we can count. Their senior leadership team has turned over… and over, and over.”

The increase in fixed wireless rates “will boost” earnings and free cash flow, said New Street’s Jonathan Chaplin: “It will allow T-Mobile to take share faster or to increase price too. It is good for cable and fiber because it should slow [fixed wireless] subscriber growth, helping fixed broadband growth; it should help pricing and; it supports our thesis that [fixed wireless] is capacity limited.”

“Service revenue was roughly in line but postpaid phone net adds and margins were a bit better,” said analysts at Barclays: “Consumer postpaid net adds, while still weak in the absolute vs history, and sequential seasonal improvement remains weaker than pre-Covid trends, was better vs last year.”