Vodafone Analyst & Investor Day Monday 27 September 2004

Transcription

1 Vodafone Analyst & Investor Day Monday 27 September 2004 Verizon Wireless Andy Halford Chief Financial Officer 1 Safe Harbor Statement NOTE: This presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. For those statements, Verizon Wireless claims the protection of the safe harbor for forwardlooking statements contained in the Private Securities Litigation Reform Act of The following important factors could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: materially adverse changes in economic conditions in the markets served by us, an adverse change in the ratings afforded our debt securities or those of Verizon Communications by nationally accredited ratings organizations, the effects of the substantial competition that exists in our markets, which has been intensifying, and which may intensify further as a result of local number portability regulations that allow wireless customers to retain their phone numbers when switching wireless service providers, our ability to obtain sufficient financing to satisfy our substantial capital requirements, including to fund capital expenditures, debt repayment and distributions to our owners, our ability to obtain sufficient spectrum licenses, particularly in our most densely populated areas, our ability to develop future business opportunities, including wireless data services, and to continue to adapt to the changing conditions in the wireless industry, our ability to receive satisfactory service from our key vendors and suppliers, our ability to generate additional subscribers, with acceptable levels of churn, from resellers and distributors of our service, material changes in available technology, and technology substitution that could impact the popularity and usage of our technology, our continued provision of satisfactory service to our subscribers at an acceptable cost, in order to reduce churn, the impact of continued unionization efforts with respect to our employees, regulatory developments, including new regulations that could increase our cost of doing business or reduce demand for our services, developments in connection with existing or future litigation, and changes in our accounting assumptions that regulatory agencies, including the SEC, may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings. Vodafone Group Verizon Wireless is a joint venture of which 45% is owned by the Vodafone Group ( Vodafone ) and the remainder of which is owned by Verizon Communications. The following presentation and the slides and other information accompanying it (the "accompanying materials") have been prepared by, and represent the opinions of, Verizon Wireless. Vodafone does not warrant the accuracy or completeness of the presentation and accompanying materials or the reasonableness of the opinions expressed therein which are not necessarily those of Vodafone, its directors or officers. 2 1

2 Agenda US Market Overview VZW Customer Growth VZW Today Key Opportunities 3 U.S. MARKET OVERVIEW Background - The U.S. Population of 291 million Increasing 1.2% per annum 18% non-english primary language 50 states + Washington D.C. Covers 9.2 million sq. km (3.5 million sq. miles) Two and a half times the size of Western Europe 22% of world GDP GDP per head - $35,000 growing 3.4% per annum 5.4% unemployment, 2.1% annual inflation Telecommunications 3.1% of GDP and static Wireless 28% ($98B) of telecommunications and growing Sources: U.S. Census, World Fact Book, Blue Chip Economic Indicators (May 2004), U.S. Dept. of Labor, Worldbank, CTIA, VZW estimates 4 2

3 U.S. MARKET OVERVIEW Background - The U.S. Wireless Industry Slow wireless penetration Presently 58% - increasing 4-5% per annum Wireless numbers will soon exceed wireline numbers Prepay approximately 10% of the market High and resilient ARPU compares favorably to other countries Annualized ARPU of $620 to $650 in the last 4 years US ARPU in 1Q04 ($660) ahead of UK, Italy, Germany, but behind Japan High usage by international standards Minutes per customer per month 4 times greater than European levels Low data revenue 4% of ARPU below international countries Sources: U.S. Census, World Fact Book, Blue Chip Economic Indicators (May 2004), Worldbank, CTIA, VZW estimates 5 U.S. MARKET OVERVIEW Competitive landscape - 2Q04 Verizon Wireless 24% 40.4M 13.9M Nextel 8% 15.4M T - Mobile USA 9% 17.0M Sprint PCS 10% 35.2M 21.7M Other 21% 25.0M AT&T Wireless 13% Cingular 15% Sources: Company reports & VZW estimates 6 3

4 U.S. MARKET OVERVIEW $40 a month typically buys: Free Nights Free Weekends Free On-Net Mobile Free Long Distance (Mostly) Free Roaming 400+ Day Time Minutes 7 VZW CUSTOMER GROWTH First priority re-energizing growth Net Additions (000's) 1,295 1,407 1,496 1,387 1, Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 Note: Excludes acquisitions 8 4

5 VZW CUSTOMER GROWTH Boosting our net add share Net Add Share 28.0% 29.3% 21.0% 14.8% H 2004 Source: CTIA; VZW estimates 9 VZW CUSTOMER GROWTH And hence our market share Customer Share 22.9% 23.1% 23.6% 24.0% H 2004 Source: CTIA; VZW estimates 10 5

6 VZW CUSTOMER GROWTH Fuelled by a significant improvement in churn Annualized Churn 30.2% 28.0% 21.9% 18.3% H VZW CUSTOMER GROWTH That now leads all national carriers 2Q04 Annualized Churn 40.8% 33.6% 32.4% 27.6% 19.2% 17.4% AT&T Wireless T - Mobile USA Cingular Sprint PCS Nextel Verizon Wireless Source: Company reports 12 6

7 VZW CUSTOMER GROWTH Customer base mix 2Q04 Prepaid 4% Reseller 4% Postpaid 92% 13 VZW TODAY Nationwide coverage Market Presence 40.4M Customers 267M Licensed Pops 97 of 100 Top Markets Organization 45,000 Employees 1,250 Company Stores 4 Areas / 19 Regions Network 241M Covered Pops 20,500 Cell Sites 150 Switching Centers Managed Only Markets 14 7

8 VZW TODAY Achieved market leadership through: Network performance commitment and investment National, largely roaminginclusive, pricing Strong owned distribution Service commitment Brand reputation 15 VZW TODAY Effective distribution 1. Focus on direct distribution Stores 1,250 stores and kiosks B2B reps aligned by business size/scope Telesales and E-commerce Introduce common layout among all stores 2. Strong indirect presence 4,500+ RadioShack locations ~600 Circuit City locations, transitioning to VZW staffing model ~600 Best Buy locations launched on September 19th 6,500+ indirect agents VZW Store 16 8

9 VZW TODAY First-Class Brand Built on real-world business practices 50 specially equipped vehicles for drive testing 100,000 miles driven per year 300,000 minutes of testing our and our competitors network Industry leading redundancy built into our network 17 VZW TODAY Increasing ARPU Monthly Service ARPU ($) $47.83 $48.35 $48.85 $ H

10 VZW TODAY Increasing data contribution Data % of Service Revenue 4.2% 3.2% 3.6% 1.5% 1.7% 2.3% 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 19 VZW TODAY Data usage climbing 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 In 2Q04: Text messages: 2.3B Picture messages: 21M Downloads: 23M 20 10

11 VZW TODAY Major focus on costs Direct Telecom Per Minute Long Distance Cost Per Minute Roaming Cost Per Minute Note: Direct Tel. + LD + Roaming = Interconnect + Leased Line Costs 21 VZW TODAY Operational efficiency Direct Retail Outlets Distribution Efficiency Gross Adds & Upgrades / Outlet 1,225 1,259 1,

12 VZW TODAY Causing lowest costs in the industry 2Q04 Cash Expense Per Customer Per Month $41.57 $41.53 $41.18 $39.00 $33.84 $27.95 AT&T Wireless Sprint PCS Nextel T - Mobile USA Cingular Verizon Wireless Sources: Company reports & VZW estimates Note: Cash expense per customer = Opex. excluding depreciation & amortization over avg. customers 23 VZW TODAY Resulting in market leading operating income 2Q04 Operating Income ($B) $1.6 $0.2 $0.4 $0.4 $0.7 $0.8 AT&T Wireless T - Mobile USA Sprint PCS Cingular Nextel Verizon Wireless Source: Company reports 24 12

13 VZW TODAY And continued strong margin performance Operating Income Margin 17.9% 18.9% 18.5% 19.5% 23.6% 2Q03 3Q03 4Q03 1Q04 2Q04 25 VZW TODAY Significant network investment is key Capital Expenditures ($M) CapEx as a % of Service Revenue $6,000 35% $4,000 25% $2,000 15% $ %

14 VZW TODAY Increasing cash generation Cash Flow from Operating Activities ($B) $6.6 $7.6 $ H KEY OPPORTUNITIES Key opportunities Launch High-Speed Data Products and Services First wireless broadband WAN in the U.S. 1/3 of the network by YE 04; national by YE 05 Increase Penetration of the Business Segment Data Voice International Grow High Value Consumer Share Enhanced handsets high resolution cameras, music, games New content and applications VZW developer community Improve Competitive Service Advantage Focus, investment in tools for customer service reps Customer 1 st philosophy Worry Free Guarantee Improve customer satisfaction first call resolution 28 14

15 KEY OPPORTUNITIES Joint projects with Vodafone Global phone Single CDMA/GSM phone, and number Feature transparency Customer Support: one point of contact Integrated data access solution Data Roaming Coming Soon Joint Account Management Data content sourcing & platforms International SMS 29 VZW Model Strong Fundamentals Network Customer Service Value Value Brand Brand Consistently Strong Strong Performance Uniquely Positioned for for Growth Opportunities Ahead Ahead Demonstrated Market Market Leadership Disciplined Execution Quality base base Churn Churn ARPU ARPU Cost, Cost, Efficiency Sustained Results Growth Profitability Consistency 30 15