WEBVTT - Verizon CEO Hans Vestberg Talks Frontier Communications Deal

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Verizon agreeing to buy rival telecom operator Frontier Communications FRO

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<v Speaker 2>about nine point six billion dollars in cash, giving an

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<v Speaker 2>enterprise value of twenty billion dollars. This is the New

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<v Speaker 2>York Phone Johant looks to expand its high speed internet business.

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<v Speaker 2>Let's bring in Verizon CEO hands Verspeg. We welcome you, sir,

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<v Speaker 2>and look, it wasn't long ago that you actually owned

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<v Speaker 2>some of these assets. Why go back into wyline? Why

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<v Speaker 2>are we seeing this convergence again?

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<v Speaker 3>Thank you for having me. First of all, I think

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<v Speaker 3>this is very straight into our core strategy. We are

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<v Speaker 3>sort of in mobility and broadband serve basically all types

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<v Speaker 3>of customers in the market CONSUMERSMBS, large entervice and governments.

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<v Speaker 3>This is just extending the offerings and optionality for the

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<v Speaker 3>customers well have. So this is a really good decision

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<v Speaker 3>by us to do with an economical right. And on

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<v Speaker 3>top of that, as you mentioned, yes we own these

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<v Speaker 3>assets before, but they weren't totally different type of assets.

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<v Speaker 3>There was basically a copper based business. Nowadays Frontier is

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<v Speaker 3>more than fifty percent of the revenue is fiber and

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<v Speaker 3>way more than fifty percent of the DTA is coming

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<v Speaker 3>from fiber, so a large transformation have been done and

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<v Speaker 3>it fits in straight to our strategy.

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<v Speaker 1>Over Isison Hans, good morning. It's ed in San Francisco.

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<v Speaker 1>Frontiers trading at thirty five dollars a sherish below the

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<v Speaker 1>thirty eight dollars fifty cents per share offer. What does

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<v Speaker 1>that tell you about the market's reaction to the offer

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<v Speaker 1>and what you think might happen next.

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<v Speaker 3>I don't tell me so much is so early in

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<v Speaker 3>it's it two hours of trading. I think first of all,

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<v Speaker 3>we feel really good about this deal from also from

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<v Speaker 3>closing it and seeing that this is a possible transaction

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<v Speaker 3>from many angles, because given that we believe it's going

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<v Speaker 3>to take eighteen months and all the regulator bodies, of

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<v Speaker 3>course will be a thorough job. But this is improvements

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<v Speaker 3>for customers. Were going to get more choice, and not

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<v Speaker 3>only that, we can only bring our mobility broadband to

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<v Speaker 3>these customers. At the same time, we also have the

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<v Speaker 3>offerings that we have on our broadband today, which is

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<v Speaker 3>everything from streaming services, other services that we have on insurance, etc.

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<v Speaker 3>So we're going to bring a lot on new opportunities

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<v Speaker 3>for the custom base or frontier. So I'm really positive

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<v Speaker 3>on this acquisition.

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<v Speaker 2>Can you tell us a little bit about the future

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<v Speaker 2>as well. The short term is the convergence trade is

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<v Speaker 2>wireless wireline content, but then there's AI. Then we're talking

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<v Speaker 2>about the Internet of Things as we've been talking about

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<v Speaker 2>for years. Hands where does that come into play.

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<v Speaker 3>It come definitely to play in these assets, and as said,

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<v Speaker 3>we expect this to take in a take eighteen months.

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<v Speaker 3>We're already right now have a sort of AI prepared

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<v Speaker 3>network with a lot of compute and storage at the

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<v Speaker 3>edge of the network. We decided already some six years

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<v Speaker 3>ago to fiber all our transport show. We are really

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<v Speaker 3>prepared of it. The frontier acid is just coming in.

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<v Speaker 3>There's an extension of that and we can meet even

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<v Speaker 3>more customers to have a processing storage at the edge

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<v Speaker 3>of the network with the fiberized transport show. This is

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<v Speaker 3>really also another advantage we're getting with even more assets

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<v Speaker 3>in the ground, and of course serving consumers with home

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<v Speaker 3>broadband together with our mobile and home offering is of

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<v Speaker 3>course a strength in the overall acquisition where we're doing.

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<v Speaker 1>Hans, We have a question from an audience member on

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<v Speaker 1>Bloomberg Technology, who notes the twenty fifteen sale of wireline assets.

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<v Speaker 1>But I think the question that he and many others

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<v Speaker 1>have is what's changed around the economics in this deal.

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<v Speaker 1>You said, the economics work, but give me specifics and

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<v Speaker 1>what's different, particularly for fiber in twenty twenty four.

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<v Speaker 3>So if you look at a deal right now at closing,

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<v Speaker 3>we believe that's going to be a creative of growth,

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<v Speaker 3>revenue growth anibita on day one, so that's really good economics.

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<v Speaker 3>And then it's going to take some twelve months and

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<v Speaker 3>EPs and cash flow will be a creative as well.

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<v Speaker 3>And the reason it takes twelve months is there are

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<v Speaker 3>some integration costs coming up in the beginning. So definitely

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<v Speaker 3>a very economic sound business for us. But I said

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<v Speaker 3>the assets we sold previously was, of course in a

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<v Speaker 3>totally different standard. The Frontier team has put in billions

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<v Speaker 3>and billions of dollars to fiberrize the network to be

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<v Speaker 3>the next generation, and many of the metrics that they have,

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<v Speaker 3>you know, Sharen, penetration, et cetera, are fairly similar to FiOS,

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<v Speaker 3>and FIUs is of course the best fiber network in

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<v Speaker 3>the States. So there's a lot of similarities on that

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<v Speaker 3>and that we can offer to our customers.

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<v Speaker 2>And some anas were a little bit surprised by the

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<v Speaker 2>timing and the fact that you're going all in on

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<v Speaker 2>convergence now a bold step. Some call it because of

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<v Speaker 2>your leverage and your commitment to reducing reducing your debt.

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<v Speaker 2>Why do this now? Are you worried about leverage?

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<v Speaker 1>No?

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<v Speaker 3>I think for we have a very strong balance sheet

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<v Speaker 3>and as we said this morning, at closing, this will

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<v Speaker 3>be maybe zero point two zero point three notch on

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<v Speaker 3>our leverage, which is very very low. We still are

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<v Speaker 3>committed to our capital location. Number one invest in the

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<v Speaker 3>business and that's what we're doing today. Number two committed

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<v Speaker 3>to the dividend, and you might have seen yesterday we

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<v Speaker 3>came out with our dividend which was for the eighteenth

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<v Speaker 3>consecutive year we increased our dividend. And then is to

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<v Speaker 3>pay down our debt. We are have been paying down

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<v Speaker 3>our debts since we bought a C band. We still

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<v Speaker 3>have some eighteen months here that we're going to continue

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<v Speaker 3>to pay down the debt, so we're going to be

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<v Speaker 3>in a really good position balance wise when the deals

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<v Speaker 3>Comeing to fruition.

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<v Speaker 1>Hans, what opportunity is there for you in data center

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<v Speaker 1>interconnects DCI in the context of AI. Look at what

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<v Speaker 1>like Lumen's done with Microsoft, for example.

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<v Speaker 3>I think that the difference here is that we have

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<v Speaker 3>so many assets in the ground when it comes to

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<v Speaker 3>fiber and central office. Many of these central offices of

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<v Speaker 3>course have compute, storage power, et cetera. And many of

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<v Speaker 3>the AI solutions when there is a real product, they

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<v Speaker 3>actually need to be way closer to the users, the corporations,

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<v Speaker 3>et cetera. And that means that because the transport costs

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<v Speaker 3>and many other things, it will be hosted at the

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<v Speaker 3>edge of the network. That's how we build the Verizon

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<v Speaker 3>Intelligence Edge Network in twenty eighteen when we started with

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<v Speaker 3>the Journey, which we now is just adding frontier to it.

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<v Speaker 3>So I see a great opportunity for us on the

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<v Speaker 3>B to B side with this footprint to serve customers

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<v Speaker 3>that want to host AI at close to them, a secure,

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<v Speaker 3>lower transport costs, and et cetera.

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<v Speaker 2>You're just announcing one deal, and you know we always

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<v Speaker 2>love to push forward. Hands are you going to continue

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<v Speaker 2>to be acquisitive when it comes to convergence.

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<v Speaker 3>I think, first of all, we are really happy with

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<v Speaker 3>assets we have and now we're adding Frontier. I don't

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<v Speaker 3>think we need much more. We're going to be the

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<v Speaker 3>biggest and wireless we're going to be clearly the ones

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<v Speaker 3>having the largest broadband offering with fixed fires access and

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<v Speaker 3>fiber in the market, we have the largest distribution and

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<v Speaker 3>the customers, so we're going to be in a really

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<v Speaker 3>good position to see that we execute for our customers

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<v Speaker 3>but also for our shareholders. So I'm really happy with

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<v Speaker 3>assets we're going to have and we have today. When

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<v Speaker 3>it comes to convergence, I think what is important in

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<v Speaker 3>convergence we will have the scale of economy for both.

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<v Speaker 3>We will have the ownerships for the wireless network and

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<v Speaker 3>the fiber networks and fixed fires access. If customers want

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<v Speaker 3>to make the convergence, we will have the economics for

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<v Speaker 3>doing it. I don't believe it's going to be sort

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<v Speaker 3>of you you discount one product for customer taking both.

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<v Speaker 3>That's not really there's two great products. And we all

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<v Speaker 3>know mobility in broadband is a centure for day society.

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<v Speaker 3>I mean everyone needs it. Division corporation, a private person

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<v Speaker 3>or a corporation. You need these services that are even

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<v Speaker 3>more important today than we're five years ago and Veriecon

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<v Speaker 3>is number one and basically every segment of that and

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<v Speaker 3>this is just fortifying it. So, yeah, we're going to

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<v Speaker 3>see convergence, but it's not like we're going to discount products.

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<v Speaker 3>There are great two products that we're going to offer

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<v Speaker 3>our customers if they want to join. We have improvements

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<v Speaker 3>on Scheren of course, if customers both have mobility and

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<v Speaker 3>broadband with us, and so we're going to see how

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<v Speaker 3>that places out in the market, but clearly we're going

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<v Speaker 3>to be the best position in the market when it

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<v Speaker 3>comes to convergence.

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<v Speaker 1>Verizon CEO Hans Vesperg, thank you very much.