Verizon Communications Inc. (NYSE:VZ) NSR & BCG Innovation Conference: 5G and Beyond. Cloud. Convergence 2022 November 14, 2022 10:30 AM ET
Company Participants
Sowmyanarayan Sampath – CEO, Verizon Business.
Conference Call Participants
Unidentified Analyst
Good morning, all and thanks for joining us. My next speaker has transcended the realm of two names. He goes by single name Sampath like Madonna or Prince. Santa became CEO of Verizon Business this past July. Before that, he was responsible for two of the most important strategic initiatives at Verizon of the last decade really. One fiber, which you all know about and the network transformation.
He’s at the center of many of the big themes that we’re focused on today, including the opportunity in enterprise mobility, the migration of networks to the cloud, the convergence of fixed and mobile, and the integration of space-based networks into terrestrial networks. Sampath also happens to be a BCG alumnus.
Sampath, thank you very much for joining us today. We really appreciate it.
Sowmyanarayan Sampath
Jonathan, so good to be here. Before we get started, I’d just like to draw your attention to the Safe Harbor, which can be found in the Investor Relations portion of our website. Our comments today may include forward-looking statements, which are subject to risks. Actual results may differ materially and details can be found in our SEC filings.
Jonathan, I’m ready for you now.
Question-and-Answer Session
Q – Unidentified Analyst
Great. Thanks for covering off the legalities. So, as I mentioned, your — one of your earlier big focuses was the One Fiber initiative. You’ve now deployed your own fiber to more than 50% of your mobile cell sites. The benefits of that are obvious. The idea behind One Fiber was to leverage that fiber to sort of enterprise wholesale and consumers as well. How large is the enterprise opportunity that you unlocked with the One Fiber initiative?
Sowmyanarayan Sampath
Yes. When we started this One Fiber, there were three big elements of this. The first was just taking out cost, third-party carriers that we were using to connect our cell sites as well as our enterprise customers is primarily our cell sites. And as you said, 50% of all our sites today are self-provisioned by Verizon, which is just an incredible number because we can then scale up as we get to mobility and fixed wireless access, we can scale up that piece really quickly because we have owner’s economics on the fiber, and we can scale up and down that easily. The number we’ve been public about is $1 billion of cost savings by 2025. That’s the headline number we have just on the cost-savings portion of One Fiber.
The second piece is around new sources of revenue. Within that, there are two big opportunities that I’m going to focus on. The first is providing wholesale, what I call sell by the wholesale channel to other carriers and maybe some large enterprises as well. So, these are dark fiber services. And we do a fair amount of that today already in footprint and now with One Fiber, we’ve just been able to expand that pie to go after that account.
The second is enterprise services. These tend to be large bandwidth circuits, wave circuits, point-to-point circuits, that we can now do it. Look, we are deployed in 60 markets and this gives us the scale to do that.
So, on the cost side, it’s $1 billion on revenue. It’s wholesale as well as going after enterprise accounts is what we are focused on in One Fiber. And what we’re finding is we’re quite happy with both the elements of that. The cost piece definitely because we’ve actually provisioned the circuit.
On the enterprise as well, the uptick has been good. We’ve been able to bid on some very large enterprise bids. We wouldn’t have been able to do so because we never had owner’s economics in many of those places.
Unidentified Analyst
Got it. And you’re in 60 markets with this fiber now, you sort of mentioned the two focus areas for driving incremental revenues. Why isn’t consumer on the list? Why isn’t there an opportunity to leverage the fiber that you’re putting into these 60 markets to expand the reach of Fios?
Sowmyanarayan Sampath
Primarily because, look, we made a very large substantial investment in C-band. And we strongly believe that C-band with our very deep millimeter wave footprint as well as spectrum holdings we have, we are able to get close to 1 gig speed in many of our homes as we do that.
So, we do think C-band fixed wireless access and millimeter wave, what we call ultra-wideband is the right way to go for consumer broadband outside our footprint. In footprint, we offer multiple opportunities. We were the — the real go fiber-to-the-home with our Fios footprint, dating back 2004.
So, we continue deploying that, getting deeper with that every year. We continue to add more homes. But out of footprint, C-band and millimeter wave just gives us such an incredible tool to scale out consumer broadband.
Unidentified Analyst
Got it. And presumably, the one — the sort of One Fiber network transformation underpins your ability to use millimeter wave and C-band in more and more markets. As I think about millimeter wave as being the band that you really can deliver a 1 gig service to the consumers and small businesses. I think you sort of last disclosed at 2 million homes or 2 million locations. How big could that ultimately be in these 60 markets?
Sowmyanarayan Sampath
Right now, we’ve combined our C-band and our millimeter wave deployments, as we call — we call it ultra-wideband, which gives us basically the power to do both. Our plan is to get to 50 million homes very soon. I think we’ll be sign north of that number given the pace at which we’re actually rolling out and the homes we are coming. And look, 50 million is almost half the country will have access to an ultra-wideband fixed wireless access, which is just an incredible option for consumers who’ve not had choice for many years.
Unidentified Analyst
Right. Give us some context for what 52,000 route miles means? How deep into these 60 markets, does that take you — and are these 60 markets, the ones where this kind of fiber deployment makes sense or could it expand?
Sowmyanarayan Sampath
First, let me talk about the 60 and then I’ll talk about what’s going outside the 60 markets. The way we do the 60 market is our first anchor tenant is ourselves. We are the first anchor tenant, which is we go and what we call the initial rings that we build tend to be all around our cell sites. And it’s not just the macro, it’s the small cells or the micro cells and some of the in-building networks that we have. So, that’s a pretty dense network that we build out in these areas.
I mean there are some towns like Chicago and the others where we have nearly Chicago, San Francisco, Phoenix, where we have a pearly dense network, and we have our own fiber doing that. Then we have something called the ring A, which is just the ring on top of that. And then we have ring B that goes on to that.
So, when you take ring A, ring B plus the core that we build out, it’s a pretty deep network. It’s got a lot of capillaries. And the core of it is serve the mobility business, but how do you start pulling in more enterprise and data centers within a stone’s throw reach.
So, these are dense network in these markets. 5,000 miles is a lot in just 60 markets, and we like the nature. Now, what is also interesting is if we get an opportunity right off the edge, what we call Neonet, it’s very quick for us to go and build out that last mile. It’s 300 feet, 800 feet, 1,000 feet. We can do that in 30, 60 days and get the customer connected.
So the TAM is pretty big for us, just the way we’ve built out our network in these 60 markets. Now let me jump to the second question, outside 60. We like the 60, these are the big NFL cities plus our Tier 1 markets. Anything outside that is just on a ROIC basis. Does the math make sense? Right now, we feel comfortable with where we are in the 60%.
But as we’ve kind of finished building out this, are there other opportunities where the ROIC makes sense. We don’t have religion around this. It’s purely a ROIC calculation. And look, we think as our fixed wireless access and our mobility business grows, we’re going to need more fiber, and we like to self-provision a lot of power on fiber.
Unidentified Analyst
Got it. Sampath, you bought a pretty profound change to each of the organizations that you’ve been involved with at Verizon over the course of the last eight years. I assume you’re not taking this role to manage what’s been put in place already. How does the strategy at Verizon business need to evolve from here?
Sowmyanarayan Sampath
Yes, I was very lucky. I worked for Tami Erwin, who had my role for many years before. So, I stepped into a really big shoes. But I’ve had the chance to work with her over the last couple of years to frame the strategy. So, good news is I’m not coming clean into this. I’ve been able to frame the strategy and kind of put things in place. Our strategy going forward, Jonathan, is quite straightforward. And I love straightforward strategy just being a student of strategy in my whole life. The first is mobility. As we finish rolling out C-band, I mean imagine by early, early next year, we’ll have 200 million people POPS-covered by C-band, ultra-wideband, which is just an incredible number for us to double down on to do that.
So, continuing to take share in mobility. We have close to between 44% and 45% share. There are some segments, especially in the public sector, where we have north of 60%, 70% share. We think there’s opportunity for us to grow into that. I know we’ll come back into that, I suspect. But that’s our first strategy, it’s a combination of strong distribution, strong network and just phenomenal account services to do that.
The second big growth opportunity for us is fixed wireless access. That’s a virgin market for us. Outside the Northeast, in Fios, where we actually have 50% share where we have fiber, we never had a nationwide broadband play. It is one of the fastest-growing products I have ever seen in my lifetime, fixed wireless access.
We put 107,000 net adds last quarter. We’re having a good quarter again this as well. So continuing to build out that and as C-band gets rolled out, that number will continue to grow. So that’s a new market, new TAM, new margin pool for us.
The third big piece for us is B2B solutions and mobile edge compute. And their private networks, we’re making very good traction. Mobile edge compute, look, it’s early in the innings there. So I think we are waiting to see IoT is a huge market where we continue to take share, especially in the auto space.
And then last is on the wireline side. For there, it’s these large network as-a-service deals that’s able to bring all our assets to bear. And we’re still one of the few global carriers left. We operate services in 120 countries and some large multinationals like that.
So, four really strong platforms for growth of us, mobility, fixed wireless access, B2B solutions, that includes MEC and IoT and then our wireline business. So those are four big vectors. And look, we are doubling down on them, and we feel we have the right assets. Now it’s just execution for us the next couple of years.
Unidentified Analyst
Sort of zeroing on the first of those big vectors, Sampath, the enterprise mobile market is sort of the — what I think of as the traditional enterprise mobile market, excluding private networks, you phased out as a $30 billion market. And as you said, you’ve got 44% market share. Is that level of market share sustainable in what is today a three-carrier market with sort of T-Mobile as a challenger, really gaining momentum, the cable industry starting to move into the enterprise market and ultimately, the potential for DISH to arrive as a competitor at some point in the future as well?
Sowmyanarayan Sampath
Definitely. I think 45% is sustainable. I want to grow on that piece. Look, historically, last — the arguments you have made today are not dissimilar from the arguments that we made two, three, four, five, even 10 years ago in different context. And since then, we’ve seen our market share actually grow substantially, I think 45% is a good number. I want to grow off that number.
Now, what gives me confidence that we’ll grow out that number? I think three things. The first is our network. I know there’s a fair amount of noise in the business. We think our network is the best. But more importantly, our customers feel our networks the best. And in small businesses and large enterprise and public sector, network makes a difference. We cover more square miles than pretty much anyone else. And every call drop is either one trouble ticket gone or one call center call lost or a business lead loss. So, network continues to be our platform for differentiation.
The second is distribution. We have probably one of the largest B2B distributions in the country today. And so you pick any [Indiscernible] ID number. Every time someone opens a new business, we have an account rep assigned to that immediately. That’s how surgical we are in terms of our own distribution, distribution by our stores, distribution via our third parties, our channel, our partners, that’s a very difficult asset to rebuild. I mean it’s taken us 20 years to get to here. And third is account services. Some of the automation and tools we have for account servicing, especially in the large space and public sector are probably the best in the industry.
So, when you have those three things, which is network, distribution, and quality account services, it’s very difficult to beat that. So, we feel 45% is the right number for us, and we want to grow off that piece.
Now, on the cable operator side, look, we do have — we do get wholesale revenue, so it’s accretive to us in some extent as well. But look, retail wise, we think 45% is a good number, and we want to grow from it.
Unidentified Analyst
So, Sampath as a lifelong student of strategy and game theory, how do you think about the risk to the pricing environment in a market with three, four players where you’ve got 45% and want to sort of extend your lead from 45%?
Sowmyanarayan Sampath
I think the core of this Jonathan comes down to differentiation. If we have an undifferentiated product, almost everything we bought studied in school will come to play. Every single thing, it’s an undifferentiated product. We strongly believe that Verizon business has a differentiated product today. And every day, when we come into work, it’s — we got to keep increasing that differentiation.
Look, it’s going to get narrower. People are going to come, they’re going to come into our board, they’re going to come and play more aggressively in our space, but every day network, and it’s the consumer and businesses have different perception on network because where they use the network is different, how they use the network is different. So, we’ve got a network that’s really well set up for business. We want to go and continue taking share in that piece.
Secondly, as I said, distribution, it took us 20 years to get here. It’s going to take others a very long time to get here. And every day, we don’t stay still. We add more partners, we add more sellers, we add more channel, we add more digital to do that piece.
And third is account services. So, with those three things, if you can have a differentiated product, we feel very good about our prospects on taking this 45% and growing that.
Now, as a student of corporate strategy, if those differentiators fail, don’t work for us, then what you’re saying will play out well. But sitting where I am right now, we are working hard to ensure that those are sustainable differentiators for us.
Unidentified Analyst
Got it. So the third category that you mentioned is the third vector for growth that you mentioned was mobile edge compute, private networks, enterprise services. I think you guys have sized that market as $30 billion by 2025. How big is that market today?
Sowmyanarayan Sampath
Yes, we’ve provided that number earlier in the Investor Day, like any large market projection, it’s directionally correct and precisely wrong as we’ve done this before. Look, we still think it’s a very big market for us. And I’ll break that up into two couple of pieces. There’s the private network piece. And Jonathan, what we are finding is private network is in production for us right now. We have tens of — large number of tens of accounts who already have private network deals with us, where we either deploy licensed spectrum or unlicensed spectrum. We don’t care. We think license is better, but we’ll do what the customer wants.
And private network for us has two purposes; A, it becomes the gateway to the mobile edge compute because once you take a facility and put a private network on it, the next logical step is, okay, let’s put a mobile edge compute there linked to any of the three cloud providers to do that. So, that business is going really well.
I talk a lot about the associated British ports, but I won’t pick on them. We’ve got Virginia International Terminal, we’ve got MasterCard, we’ve got BlackRock. We’ve got some incredible names who’ve deployed our private networks into that.
On the MEC, what we are finding is demand is taking a little longer to go. And part of that is we’re having to work back and integrate deeper into their operating system. So, it’s going to be much secure when it does happen. So it’s going to take a little longer. So, we’ve got a lot of proof of concepts, some early commercial deployments, but we shouldn’t see revenue until the back half of next year and into 2024. But on the private networks, we are very bullish on that opportunity. And I think things have gotten a little faster in the last 90 days than they’ve gotten in the last year or so.
Unidentified Analyst
And if you look at both the private network opportunity and the MEC opportunity, is — what enterprises are spending with you on those or what they will spend on you with you on those coming out of the sort of the traditional wireline enterprise services that you’ve provided historically? Or is it incremental?
Sowmyanarayan Sampath
It’s — the relationship is incremental. So, for example, if we are providing wireline network services, I’ll call it more broadly network services, 10,000 stores in a realtor. If they want 100 sites or 200 sites of private network, they’re going to come to us because we are already integrated into their service stack, we integrated into the day 2 operating model. We are integrated into their operating system. So when a ticket happens, they know what to do and vice versa. So, it’s a very logical extension to our business. when you’re managing large portions of the infrastructure to manage their private network piece to it. So, I think that’s one.
Second is also it’s important for private networks for our enterprise mobility business as well because you want to give users the opportunity to fade in and out of networks. So, they’re in a private network when they are in their facility, but when the car or the truck or even the employee leaves the facility to immediately switch on to our macro network and then manage through that.
And we can do that through authentication on what we call user A, user B, user C to authenticate through that piece. So this incumbent position both on the enterprise mobility piece and on our wireline services where we do these large outsourcing deals is exactly what we need to get in. It’s very difficult for someone new to come and cracking because of the legacy as well as just the deep integration we have.
Unidentified Analyst
Sampath, what I’m trying to understand is if you’ve got a global enterprise that’s spending $100 million with you today, is there budget going up in order to enable MEC and private network opportunities? Or is the budget staying at $100 million and its sort of redistributed from legacy services towards new services?
Sowmyanarayan Sampath
Look, it has to go up, and we are seeing that. But I’ll break that into a little bit. On the wireline side of the business, we are seeing some secular declines in the business. As customers migrate away from private IP to SD-WAN, the TAM is lower than what it was in a private IP network.
So, you do get some — a customer gets some savings in air codes through that tech transformation that they want to redeploy with us in new services. So, the overall spend does go up a little bit, but there’s some reallocation between the wireless and wireline piece.
Unidentified Analyst
Got it. And what is victory — how do you define victory for this opportunity? Is it 40% market share or sort of $12 billion in revenues at some point based on–
Sowmyanarayan Sampath
Yes, look, it’s quite — it’s early in the movie. It’s quite early in the movie to say what treat. What we do want to know is we want to be the largest in the country in that space. We want to be the number one. Similar to our mobility business. Even in wireline large network deals, we do very well with the government and otherwise, we want to be number one in this space.
I think now a lot of the work is how does the strategy and some of the technical work translates into commercial deployment. And as I said, private networks, we’re doing really well. It’s hot and heavy and moving fast. MEC is going to be a 23% back end of 2023, early 2024 opportunity for us. But our goal is to be the number one in the space similar to the other segments we operate in.
Unidentified Analyst
Got it. And you mentioned a minute ago the secular pressures on the traditional wireline network services business. Do those pressures go away at some point and allow the growth you’re seeing in these new areas to sort of pull the whole segment back into meaningful growth?
Sowmyanarayan Sampath
There will continue to be some pressure as the migration from private IP goes to SD-WAN. I think for us, it’s two things: A, are we taking enough share? Because in private IP, we had just a very large share position in the market globally as well as in the US. We want a similar share position in SD-WAN services to do that. So, are we set up to do that?
But I think the second piece is, can as that revenue declines, can we take out enough cost in our business to get back to an even margin profile in that space. And that’s where we’ve got a lot of work and one fiber initiative we spoke about health because able to put circuits on net.
The fixed wireless access has been a killer app for us because large deployments where we had to buy or the customer had to go and get cable broadband for 3,000 or 4,000 stores, don’t go there anymore. They come to us and say, look, get fixed wireless set up and move. So that’s another huge cost opportunity.
And third is our business transformation program. It’s a classic process reengineering, automation type work, we do that. So that transition is happening. We want to take a share of the revenue that comes out of it but also do our cost structure so that margin-wise, we are whole as well.
Unidentified Analyst
Got it. And if we’re just focusing on the topline for a second, Sampath, when do you see the topline transitioning back to growth? How far out is that?
Sowmyanarayan Sampath
Yes. Look, last quarter, we put — I think we have one up 9% growth on topline as we work through it. So, I think we are starting to see that piece. Our topline growth, it’s a two — it’s like any scissors curve in strategy. I think we got to take the wireless piece move it faster, to get more than 45% share and bring some of our private network services.
And then on the wireline, it’s how do you just manage for margin. And I think that’s how we’re going to work ourselves through. But last quarter, I was very happy with the results that we had as the scissors work their way through it.
Unidentified Analyst
Got it. And then you’ve announced a partnership with AWS on the mobile edge compute arena. What made AWS, the right partner for you? And as you go after this opportunity, how do you sort of — what do they bring? What do you bring and how do you divide the value between you?
Sowmyanarayan Sampath
So, Jonathan, I’ll say, we have relations — very similar relationships with Microsoft and Google as well, where we’ve essentially pre-integrated our 5G network with their private 5G, a private cloud stack. So essentially, in a single control plane, you can control policy between the network, security and cloud in one place. And with that, you get some really low latency. So it’s — the value prop is pretty strong in doing that.
We want to have more on-ramps onto our 5G business. So that’s one of the reasons why we’ve tied up with all three. And two, we’ve also tied up with many system integrators because you may want to on-ramp a different way to get into Verizon 5G services, which is a very different way of doing business than we did five years ago, which is using third parties to on-ramp into our piece.
Now, specifically with AWS, we are a large customer of this. They are a large customer of ours. So we’ve known each other. We have similar operating principles, putting customer at the first as we do that.
On the public MEC, which is where they host their things in our network sites, we have a revenue share arrangement with them. The go-to-market primarily sits with AWS. In fact, you can go this afternoon or tomorrow morning, go drop down, put Verizon Edge 16 or at 17 and get connected to a mobile edge compute with a credit card and you can go. We get a revenue share back.
On the private MEC, we work together on a case-to-case basis. Typically, what we do is we bring the 5G network the day two services of that, a platform, what we call Vezza, which exposes our 5G capabilities, and they bring the edge compute and some of their 5G developer ecosystem onto it. We end up having to go together on almost all our large accounts to do that.
So look, it’s a very good relationship. It’s one we think is very symbiotic. We both have a lot to bring to the table. And look, we are making a market from 0 here. So there’s something fun and magical that I personally enjoy a lot more.
Unidentified Analyst
Right. So, they’re also competing against you in the enterprise private network space, providing services directly to enterprises. What prevents this from becoming the Molotov ribbon [Indiscernible]?
Sowmyanarayan Sampath
Yes, that takes me back 1939 history if my memory serves me right. Yes, I won’t dwell on what happened in 1939. But we think Spectrum is our killer advantage here. Look, there will always be people who will want to trial things on private network on unlicensed spectrum. It works. It works well. We do it ourselves. We play with a lot of customers. We have deployed in many customers ourselves. But when you want large-scale deployments, you want to come to a carrier who’s done it their whole life.
So, I think they’re going after the slightly lower end of the market. We want to go at the lower end and the higher end of the market, which is why we have three partners. We work with Ericsson on the really high end of the market. We work with Nokia on the mid-end of the market. And we have Celona which is almost like a Wi-Fi replacement, if you will, for the low end of the market that uses unlicensed spectrum. So, with those three options, we can hit any price point, any size, any deployment and basically make most ROI calculations work. They don’t have all those three tools at their disposal. They have a pretty small subset. So, I think they’re playing in different markets, but I think the pie is big enough for all of us right now.
Unidentified Analyst
Got it. And the spectrum that you’re — sort of is at the core of what you can do, what they can’t do is — do you think of it as your entire portfolio of spectrum? Or is it more specifically CBRS? Is most of the private network stuff happening in CBRS?
Sowmyanarayan Sampath
Look, we’ll open up a millimeter wave and C-band as well, and we do that for some of our accounts. Because look, also what people want to do is private networks are pretty early in the game. So, they want to go — they want to get started with 10 radios, 12 radios, use CBRS to get started. But if you are deploying it in a large airport and a large warehouse, a 2 million square feet warehouse, you want license spectrum, if robotics is working off it, if AGV vehicles is moving off it, you want licensed spectrum that you can control as we do that. So, C-band millimeter wave, definitely, we support CBRS as well quite aggressively, actually.
Unidentified Analyst
And when it comes to bringing together different bands of spectrum that behave in completely different ways like millimeter wave, CBRS, C-band, all into one unified experience. That’s something that the cloud platform providers really, really can’t do it. That’s very difficult. I get it.
So, as you’re working with all of the different platforms, it seems like guys like AWS are also working with multiple carriers. So, if I think of the announcement between AWS and DISH when will they work when they’re bringing business in, when do they decide to work with you versus somebody like AT&T or one of their other partners?
Sowmyanarayan Sampath
Most — a lot of it goes down to our integration with our network. So, one is a product differentiation. We are natively integrated into their cloud. Very few have that native integration that we have. So, I think that’s always a differentiated and there are a lot of use cases that call for that.
Second is go-to-market. I mean think about it, 97% of Fortune 500 companies, we have a direct billing relationship with today. More than a third of that, we are their primary infrastructure partner. So, it’s a combination of product and our relationship.
And those two always play a role in terms of where we work with because, look, we have options to work with all the three cloud providers. They have options to work with a few carriers, my peers as well. So it’s always a combination of that. What’s the product and what’s the go-to market? Do you have the right relationships to do that?
Unidentified Analyst
And you mentioned as your second vector of growth Sampath fixed/wireless broadband. I’d love some more context for how this plays in your enterprise strategy specifically. Is it sort of an ancillary service to address use cases that you can’t get to with One Fiber? Or can it be a primary use case in the enterprise market as well? — primary use case. So, 85% between 80% and 85%, it’s actually closer to 85% of all our fixed wireless access is primary use cases.
Within that number, more than half is a pure takeaway from cable and another half is opportunities that cable typically cannot reach. It’s the food truck, it’s the others. But the first half is pure takeaway from cable to do that. And we think about it last quarter alone, we probably took out 50,000 net adds straight away from cable broadband to get to fixed wireless access. And these are — what we are finding is it’s consistent across all our segments.
Around 30% comes from large enterprise, 70% comes from the mid-market, if you will. On the large enterprise, these are big 2,000, 5,000, 10,000 store, 10,000 location deployment of SD-WAN that use fixed wireless access as their primary access. We are going really hard after that opportunity. It’s a primary use case for us.
On the mid-market, similar, there the value prop is different, it’s speed, it’s reliability, it’s mean time to repair is much lower. And think about it, I don’t know what cable NPS is, but it’s definitely not what we have today. We have a product that has a better NPS than cable. It also is able to turn it on in a day. You can order your fixed wireless access from Verizon. I think at till 7:00 P.M. tonight, do it after your drink tonight. And then by 8:00 in the morning, I’ll have a box in your office, you can turn on in three minutes.
So, think about it. You put in an order at 7:00 o’clock at 8:03 in the morning, you’re on the best wireless network on earth. And so that, combined with really high reliability makes it a killer application for us. And next year is going to be even better because we’re going to kind of get to the back end of our C-band deployment. And that’s when it gets really big. We’ll have 14 million homes just on C-band — 14 million businesses just on C-band that we can sell into. So the trajectory is right for it. And lastly, look, it’s two, two and a half times the ARPU of a smartphone, and I don’t have a subsidy attached to it. So, the economics make sense for us, and we’re seeing really good traction in the market.
Unidentified Analyst
Switching gears a little bit, Sampath, how does the partnership with Kuiper play into your enterprise strategy?
Sowmyanarayan Sampath
Jonathan, we got into Kuiper quite early in the game, just given our deep relationship between Amazon and us. It’s quite early in the game right now for us. Kuiper will deploy when they’re ready to deploy. Two, three standard use cases, one is sell-side backhaul for us. There are some markets outside One Fiber in rural, sub-rural markets where we may need alternative backhaul capability. So, we’ll use that for that.
Second is even for our own internal operations, and Hurricane Ian was working its way through, can we provide bandwidth and very quick burst to take care of that. Third is enterprise opportunities. Imagine taking fixed wireless access and satellite and combining it, you can get five-nines or four-nine [ph] reliability really easy at a good price point to do that.
The last opportunity we have more work to do is on the digital divide. Verizon is committed to bridging the divide and getting things closer. So, there’s another opportunity for us. It’s quite early in the game. We’ve been doing pilots with them. We’ve been testing it proof-of-concepts there. But we like the technology, we like what it can do for us.
Unidentified Analyst
So, Sampath one opportunity that you didn’t mention in that list was the opportunity to do go direct-to-device via satellite. Is that not part of the sort of the scope of opportunities that you’re looking at with Kuiper?
Sowmyanarayan Sampath
Yes. We are looking at — look, we want a solution that is scalable. We want a solution that actually works. We’ve piloted everything that everyone has had. Look, we are early and given our size and scope, almost everyone wants to work with us. We want a solution that works.
If I provide 2 meg service over a single cell site that is that big, I can’t even sell smoke signals with that level of bandwidth. So for us, what’s important is we want a solution that works and scales. So, we’ll continue working with other providers to see what the right fit of technology, spectrum, and operational requirements are to make that work.
Unidentified Analyst
Got it. And the — there — so I think they operate in — so we think the sort of the killer opportunity in the direct-to-device realm is ultimately voice and data. Can you do that over a Ka/Ku-band via satellite with Kuiper?
Sowmyanarayan Sampath
Yes. Look, the Ka and Ku-bands are high-frequency bands. They provide more capacity for broadband use cases. So, they kind of used widely by the Leo providers. However, these bands have shorter range compared to the traditional L and-band that the geo providers end up using. So, they’re not perfect for direct-to-mobile service use cases that require broader coverage and limited antenna footprint.
Unidentified Analyst
Got it. Going back to the meg private network opportunity, how do you think about the — what gives you a competitive advantage in that space specifically? Is it the same — is it the same characteristics that you mentioned that you feel give you an advantage in the price base generally of a focus on networks, distribution, those sort of layers of capability that Verizon has built over the course of the year? Or is it something different, more technologically focused?
Sowmyanarayan Sampath
I think there are two pieces to that. I think one is technology focused, which is this native integration that we have with the three cloud providers. We have a really strong conviction that, that native integration that we have is we are very difficult to replicate those conditions using any other asset base.
So, for example, once you get to an edge use case, you get to 10, 12 millisecond type latency as well as very high throughput. Imagine, 1 GB plus throughput, a 10, 12, millisecond latency in a mobile environment, which is very difficult to replicate using any other sets of technology. So, I think we feel we have a mousetrap that works really well. But the second piece is how do you take these and work with an ecosystem to deploy.
Most of our other products we have tend to be horizontal in nature. They are horizontal products that we have some vertical flavor to it, but largely — in this case, we feel that outside private networks, we’re going to have to work with system integrators and application developers to build those vertical use cases, whether it’s quality control, whether it’s retail management, whether it’s worker safety, and they think there’s going to be, I would say, trillions of dollars of enterprise value that’s going to get created on top of our stack.
It’s not unlike 4G, where we came in when I worked on 4G business case, I was a puppy. I thought that Napster was the killer app. I was strongly convinced that Napster was the only killer app. I know that ages me a little, but look, I was an early puppy back then.
We feel we’re in a similar phase right now. I have conviction on what the verticals are that’s going to do well. I think logistics, manufacturing, health care, retail, public sector are going to do big ones. But like any large ecosystem play, we’ve got to let the market play itself out, just taking friction out of the process. So, a developer can come and sign up within minutes and not days to do this.
Unidentified Analyst
So, I think Napster was a killer app. We just had to wait for a legal version of it to come around for it to be a properly killer app. The — if we’re sort of back here in a couple of years, having this conversation, Sampath and you haven’t met the targets that you’ve laid out in this conversation. What do you think the sort of the — would have gotten in the way? What are the things that could potentially trip you up over the course of the next few years?
Sowmyanarayan Sampath
Yes. Jonathan, I’m really confident about the strategy and the plan I’ve built with my team here. Look, it’s coming back to those four areas, 5G mobility, scaling nationwide broadband, FWA primarily getting MEC and B2B solutions, including IoT and then these large network as-a-service deals that we do that.
We have been delivering killer wireless results. I think we’ve had four or five quarters of 150,000 plus four net adds in a very competitive market. So, that business is doing very well. Same with the IoT business. We are winning larger deals on the wireline side, especially with public sector, which has been a real strong suit for us.
I think right now; it’s how do we work through some of the wireline secular challenges. It’s that scissor curve, where the revenues cross each other. The revenues have crossed each other, but how do we continue to take out cost and be more margin accretive on our wireline services and at the same time, grow the wireless services, including them.
I think managing that balance is probably going to take up a huge portion of my time, but we have a place to do that because we want to get back to the 25% margin that we’ve — a long-term margin that we ascribed to the business. We are not there yet. So, I think that’s one area where I’m going to spend a lot of my personal time on.
Unidentified Analyst
Got it. And with a very large percentage of global Fortune 500 companies as your customer. You sort of got a front row seat for really how the economy is faring right now? What are you seeing in terms of sort of the impact of some of the economic uncertainty we’re seeing on your customers?
Sowmyanarayan Sampath
Yes, it’s a pretty interesting vantage point because when a company opens up, they do two things. They get a bank account and they call me for a phone number. It’s literally like I’m the first date when they open a new business to do that.
So, what we are finding is in the large enterprise, the global enterprise, the multinational companies, decision-making is taking longer. So, a deal is agreed on how long does it take for signature or final design has been done, how long does it take? That has stretched in the last 30 days.
We’ve seen that happen before in different cycles over the last two decades, but we are seeing slightly longer decision-making cycles than we have in the past. However, what is interesting is, more often than not, our deals do get through, primarily because digital is being prioritized over a lot of other investments.
I think COVID did give people a shock that they hadn’t invested enough in digital and cloud migration and things like that. So, any time you hear the word digital transformation, cloud migration, you’ve got to get a network to do of that. I think CFO say, yes, let’s move on faster quicker. So we’ve been quite protected just given our focus in space, but decision-making is going up.
Second is the difference between passion projects and bread and butter projects. We have seen a significant slowdown in passion projects. These are edge case projects on really high end of the innovation scale to do something. Those projects have scaled down. CFOs have prioritized their spend, prioritize their capital. But bread and butter projects, which is digital network, cloud, we’ve not seen any slowdown in that. So, there’s a change in mix, but our business is protecting.
On the small business side, look, we continue to see strong business formation. Employment is really strong, which is a good thing for us because employment is a big driver of our — at least on the phone nets, a piece of that.
We are seeing the — and there is some sharing going on where they have 10 lines, but hey, I mean even only nine lines, can they share phones? Can they do other things? It’s quite early in the space right now, but you’re seeing some early signs of this. But overall, SMB business formation has been strong, payments have been really strong, which is another leading indicator for us.
Unidentified Analyst
Sampath, this has been a fantastic conversation. I really appreciate you joining us today. Thank you.
Sowmyanarayan Sampath
Jonathan, thank you, and have an awesome day ahead.
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