Verizon Communications Earnings Call Nuggets: Wireless Margins and EPS Growth
Jason Armstrong – Goldman Sachs: Fran, maybe quick question on Wireless margins and maybe just a clarification on your outlook comments. I think you said you can get back to margins that we saw in the second and third quarter of this year, which was in the 49% to 50% range. Was that a full year comment or was that a 2Q and 3Q of ’13 comment. And if it’s full year, that’s 200 to 300 basis points of margin expansion in Wireless. Just helps us think through the drivers of that? And then second on capital spending, we’ve heard three of the industry peers in Wireless talk about an upwards bias to CapEx as we head into 2013. At the same time you’re winding down the initial LTE build and talking about declining capital intensity. Just help us think through maybe your confidence in the ability to sustain network leadership position in Wireless given that?
Francis J. Shammo – EVP and CFO: So, on the Verizon Wireless margins, that was a view of a full year range, and I think that if you look at just the fundamentals of the business, I would say that our fundamentals are more sound than they were a year ago. If you look at this business, it grew EBITDA $3.2 billion or 12%, and that was with a historical growth rate in the fourth quarter of this year. We gained significant market share that will carry us into next year with 5 million net adds. If you look at our ARPA growth, our ARPA growth was over $9 from a year ago and that’s on a base of 35 million accounts. So, the fundamentals of this business are extremely strong and I have no doubt that we will return to a margin progression of where we left the second and third quarter. On the CapEx side of the house, the guidance I would give for ’13 is no different than what I have said before, which is, we will be flat. That is in addition with all of the 4G LTE continued build-out that we have. I would tell you that we ended this year slightly higher than we probably had expected in midyear, but there were two factors for that. Number one, Hurricane Sandy or Superstorm Sandy created us to incur $135 million of additional Wireline capital. But in addition, we also proactively spent another $300 million on the Wireless side to preposition our AWS spectrum that we originally planned for 2013, and we advanced that into 2012, and that was because we were coming off such a strong third quarter and we knew that by investing in the growth for the fourth quarter that we were going to need to preposition this. So, in essence, we’ve actually forward advance some ’13 capital. So, I’m very confident that we will not end up where some others will be and that our CapEx will be flat for ’13.
Phil Cusick – JPMorgan: First to follow-up a little bit on Jason on the Wireless side. Can you help us sort of break into that 49% to 50%? Last year you talked about sort of $2 billion cost-cutting effort; can you help us quantify that? And then second, as that leads into earnings per share growth, can you help us with a range of what EPS growth should be this year? Seems like a real acceleration is possible.
Francis J. Shammo – EVP and CFO: So, first on the 49% to 50%, as you know, over the last three years we’ve taken $5 billion worth of cost structure out of Wireless. We have another $2 billion of target for this year and we already have all of those initiatives established for the $2 billion. Now, that will happen over the course of the year. So we will continue on that. In addition, we’ve also launched a Verizon Lean Six Sigma, which will also contribute to the reduction of the cost structure within Wireless, but also I would extend that as we consolidate, and I’ll use finance as an example, as we consolidate the finance organization to the middle, we will actually take cost structure out of Wireless, but we will also implement Verizon Lean Six Sigma around the entire organization and reduce the full cost to finance across the Board. So again, some of the corporate Verizon Lean Six Sigma will also help reduce the cost structures of the individual units including Wireless and Wireline. As far as EPS guidance, I’m not going to give specific guidance today, but what I would tell you is that if you look at the first three quarters of 2012, our approximate (growth) was 15% year-over-year. And as I said, I’m more confident in the fundamentals of this business today than I actually was a year ago, so that should give you some sense of my confidence for 2013.
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