Good morning, and welcome to Verizon's Third Quarter 2016 Earnings Conference Call. At this time all participants have been placed in a listen-only mode and the floor will be opened for questions following the presentation. [Operator Instructions] Today's conference is being recorded. If you have any objections you may disconnect at this time. It is now my pleasure to turn the call over to your host, Mr. Michael Stefanski, Senior Vice President, Investor Relations.

Thanks, Jay. Good morning, and welcome to our third quarter earnings conference call. This is Mike Stefanski, and I'm here with our Executive Vice President and Chief Financial Officer, Fran Shammo and Matt Ellis, our Senior Vice President and Chief Financial Officer of Finance Operations and Chief Financial Officer designee. Thank you for joining us this morning. As a reminder, our earnings release, financial and operating information, the investor quarterly, and the presentation slides are available on our Investor Relations website. A replay and a transcript of this call will also be made available on our website. Before we get started, I would like to draw your attention to our Safe Harbor statement on Slide 2. Today's presentation includes forward-looking statements about expected future events and financial results that are subject to risks and uncertainties. Factors that may affect future results are discussed in our filings with the SEC, which are available on our website. This presentation includes non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website. The quarterly growth rates disclosed in our presentation slides and during our formal remarks are an on a year-over-year basis, unless otherwise noted as sequential. Before Fran reviews the third quarter results, I'd like to highlight a few items from our quarterly earnings. For the third quarter of 2016 we reported earnings of $0.89 per share on a GAAP basis. These reported results include several significant non-operational items that I would like to highlight. Our reported earnings include a noncash pre-tax loss of $797 million. The pretax pension re-measurement adjustment due to settlement accounting resulted in a $555 charge and severance costs related to existing separation plans amounted to $242 million. The net impact after tax approximated $500 million or $0.12 per share. In third quarter 2015 earnings includes $0.05 per share of a noncash charge due to pension re-measurement. Excluding the effect of these nonoperational items, adjusted earnings per share was $1.01 in the third quarter a decline of 2.9% compared with $1.04 per share a year ago. Additionally, in the quarter we executed on our first on balance sheet asset-backed securitization transactions totaling $2.6 billion. The cash flow statement reflects asset-backed securitization proceeds in financing cash flow rather than operating cash flow. This captioning impacts the free cash flow metric, but overall net cash available remains unchanged relative to off-balance-sheet securitization. We plan to continue to securitize equipment receivables with on balance sheet financings in future periods. With that, I will now turn the call over to Fran.

Thank you, Mike. Good morning everyone and thank you for joining us today. 2016 continues to be a transformational year for us just as we had outlined over a year ago. During this transformation we are executing on a very challenging competitive environment, investing and positioning for the future growth and returning value to our shareholders. Competitive activity in the wireless market increased during the third quarter as expected and we responded in a measured way to grow and retain our valuable customer base by introducing new wireless plans and discipline promotions. We have been successful in retaining our high value postpaid smartphone base and improving service revenue trends. In the wireline market we returned to a strong quarter of execution following the strike that impacted the second quarter. We grew our Fios base and improved the consumer revenue trend. We are focused on continuously improving our overall cost structure through process improvements and operating efficiencies. This execution enabled us to deliver overall strong margins and adjusted earnings per share. We remain focused on our disciplined capital allocation that consists of investing for growth, returning value to shareholders and preserving our strong balance sheet. Our investments are consistent with our three-tier strategy starting with investing in our network by expanding our wireless capacity and prepositioning for future growth in both 4G and 5G. We continue to lead in all third-party measures for network performance and reliability. We are investing in new growth businesses in digital media technology to extend our ability to monetize the usage on our networks and create new revenue streams from advertising, content rights, telematics and other IOT solutions. In early September, our Board of Directors approved a 2.2% dividend increase which raises our annualized dividend to $2.31 per share. This was the 10th consecutive year that…

Thank you, Fran. Jay, we are now ready to take questions for Fran and Matt.

Thank you. [Operator Instructions] Your first question comes from Phil Cusick of JPMorgan. Please go ahead with your question.

Well that was harsh on for Simon. So first, and thanks for all your help in the last five years and good look going forward and Matt, congratulations on the new seat. How should we think about postpaid phones and accounts going forward given what seems like a saturated industry and reinvigorated competition, are you more in a mode to harvest the existing customers than hunting for more share and accounts?

Yes, thanks Phil I appreciate it. So look, I mean, as we came into the year, we said that one of the top priorities we had was to protect our high quality base and that's what you're seeing. Look, we want to continue to grow from a net subscriber base both in phones, but as I've said before smartphones are going to be a slower growth for the entire industry as it gets more densified. But just a couple things that happened this quarter that did have an impact on our overall growth and really it was more from a gross add basis because as you saw we gave you for the first time our phone churn which is at a 0.90% for the last six consecutive quarters. So you can see that we are continuing to maintain that base and protect our base. But of course this quarter, some things happened that affected our inward bound or gross adds. One was, as we previously talked when the competitive world launches new price plans and this quarter was around unlimited and obviously we did not respond to that. But as I've said, there's going to be a two to three-week period of time where there is an impact to our growth and we saw that. But as I've always said, after that three weeks everything kind of normalizes back out. So once we got through with that we were off to a really good start with the Samsung Note 7 and then unfortunately there was a total recall of that phone which definitely impacted our growth because historically Verizon has always been the number one leader in high-end Samsung phones, so that certainly impacted us. And then of course we had the Apple launch and as normal everyone is in…

Thanks Fran.

Jay, we can take Simon now.

Thank you. Your next question comes from Simon Flannery of Morgan Stanley. Please go ahead with your questions.

Thank you, Mike. And Fran I going to add my best wishes to you and thanks for everything. Just following on, on the topline and the growth question, could you just help us bridge the path to the GDP type growth that you referenced again for 2017 versus the decline of 2.9% normalized for this quarter? some of it I guess is around the service revenue, but you've got to help us with the building blocks and the timing of delivering that. And then I think you were hoping to give us an update on the data center transaction, if you have any news there? Thank you.

Sure, thanks Simon. I'll take the data center and I'll pass the other question on topline over to Matt. On data centers we are proceeding with the sale of our data centers. We are currently in negotiations and we should have something to formally announce to everyone here early in the fourth quarter. So more to come on that, but we are progressing with the sale of our data centers. So Matt?

So that's with one person, party is it?

At this point, yes we are in negotiations with one individual.

Okay, thank you.

Good morning, Simon. So your question about 2017 and where that GDP like topline growth will come from, so let's break it down by the different parts of the business predominately in Wallace as we've said we've been doing this transition. You've seen the year-over-year service revenue trajectory continue to improve. We had negative 6.2% in the first quarter. That came down to 5.4% in the second quarter and 5.2% this quarter. So as we go into 2017 we now have 60% of the base on the non-subsidized pricing. That will continue to expand and that will obviously be a contributor to the improvement in revenue next year. And as Fran mentioned earlier, we expect to get back to year-over-year growth by the end of the year in service revenue. We expect to see consistent trends within the wireline business, but remember we only have one quarter of Frontier in the 2016 comparison as we get into 2017. And then as you saw in our comments, we continue to make good progress in IOT and in the video advertising space and we continue to expect those pieces to continue to contribute to the revenue as we head into 2017. So when you add all those things up, we're confident at this point in time that we will be on track to deliver that GDP type topline growth and look forward to giving you more color commentary on that in our January call.

Great, thanks for the color.

Hey, Jay, next question please?

Your next question is from David Barden of Bank of America Merrill Lynch. Your line is open.

David? Jay, let's move to the next question.

Your next question is from John Hodulik of UBS. Please go ahead with your question.

Great and Fran again, it's been good working with you for the last five years and good luck in the future.

Thanks John.

Hey with the cable companies announcing that they are going to move forward with the MBNOs mid next year, is there anything you can tell you or about how Verizon sees the economics of those agreements? And obviously given your unique knowledge of the terms what do you think that, what kind of impact do you expect it to have on the sort of overall competitive environment that we're seeing in wireless? Thanks.

Yes, thanks, John. So look, I mean I'm not going to get into the agreement. Obviously we're under nondisclosure with Comcast on that agreement and the other cable providers, but look, I mean we knew what we entered when we bought the licenses back just several years ago. This is a wholesale agreement and as Lowell and I have repeatedly said, we would do the agreement today again if we had to. I mean, it's a good agreement for Verizon Wireless. It is a good wholesale agreement. I can't speak to the economics of what they're going to do. You have to ask them that question, but look as I've said before, the wireless pie continues to grow. Everyone wants to get a piece of this pie. The industry itself will continue to grow around that pie, so it's not like I believe the industry. With the carriers will lose share to anyone. I just think there's going to be more opportunity for growth. If you look at the future and you think about the LTE densification projects that we have going on and then you look at the whole 5G world for fixed wireless. That's going to enter into a whole new growth trajectory for the entire industry. So look, again we'll compete against the competition, we'll compete against new entrants in the marketplace, we'll wait to see what's launched. And as I said before, we will respond where we need to respond and we'll wait to see what happens.

Okay, thanks Fran.

Hey, Jay, next question please?

Yes, we have David Barden. Please go ahead with your question.

Can you hear me now?

Yes, thank you, David.

All right, so I dabbled with my mobile phone the first time and again thanks Fran for everything over the past few years. I want to ask few questions if I could, just first on the kind of it sounds like the IOT and AOL ADTECH is that you are going to be part of the kind of revenue equation on a go forward basis. I was wondering if you could talk a little about the margin profile of those relatives to kind of the margin of the kind of general business as we look at it today. And then second, specifically on the wireline margin side, obviously we have the new union contract and we're expecting that to kind of have some follow-on benefits into kind of the second half and into next year. Could you talk a little bit about the cadence at which we might see the margin trajectory of the business kind of start to graduate upwards towards the legacy 23% if possible, thanks?

Sure, David, thanks for the questions. I'm going to answer the first one, I'm going to have Matt answer the wireline one. So on IOT, look, I mean we're – we see the Telematics piece of this to be a really high growth engine for us and as I said in the prepared remarks, we're looking at a 24% without Telogis growth rate year-over-year and mainly most of that is all driven via Telematics and Hum. So we will continue on that. As far as the margin profile goes, look I mean these companies are still maturing. They are profitable, but we expect that the margin profile will continue to grow as we leverage and on to these platforms. The other thing too to note that in the IOT world since it is a platform based technology whether you look at IOT or smart cities, these are all very what I would call minimally capital-intensive type businesses and that would go for video as well. So when you think about the return on invested capital, you get there much quicker than say on a network-based type platform. So we're expecting that the ROI on this will happen relatively quickly, but the margin will come and we'll talk more about that as we grow this business. Matt, on Wireline?

Yes, so had a good quarter in Wireline as you saw the EBITDA margin improved to 21.02% so you're starting to see some of that improvement we've been talking about especially as we got out of the impacts from the work stoppage. So as we've said we expect that the new union contract would generate $500 million of cash savings through the term of the contract spread across 2017, 2018, and 2019, so you should certainly see that come through. We believe that you will continue to see the wireline margin expand. We had a good expansion in the past quarter and you should see us continue to make progress on that as we go forward into the fourth quarter and then into 2017.

Great, thanks, Guys.

Okay, Jay, next question?

Your next question is from Michael Rollins of Citi Research. Please go ahead with your questions.

Hi, thanks for taking the questions and in fact I just wanted to extend my best wishes since you first get upcoming retirement. If I could just follow-on two questions, first if you could talk a little bit about where you are in the testing of the 5G services and what you're learning in terms of the capabilities performance in the economic model and a potential third type into the Hum? And then secondly, just going back to the guidance on earnings where you mentioned that you want to get back to normal levels, but given the impact of installment plans and the purchase of the Verizon Wireless minority it's been a few years since I think you could call the changes normal. So how are you defining what normal earnings growth is for Verizon? Thanks.

Thanks, Michael. I'll take the first pool, I'm going to put the earnings one to Matt. So for the 5G obviously we've been mainly centered around lab testing of 5G we are now moving out into the commercial trial which we're going to span out across several different cities with several different types of testing, with different OEMs. So I wanted to give you an example, one city may be very density going into multidivisional job areas another one might be more urban with just looking at single-family homes. So, we're going to test this in very different types of commercial environments. The big issue that still has to be answered quite honestly is the scaling of the technology. So for each small cell how much can each small cell deliver to how many households and still deliver a consistent 1 Gb of speed or some speed that is comparable to a broadband connection to the home. So that still has to be answered and we expect to do gain more knowledge around that in 2017 with the number of commercial trials that we're going to launch. So at this point, that's really all there is just talk about I'm from a 5G perspective. Matt, I'll turn it over to you.

Yes, good morning, Mike. In terms of the EPS growth for next year and where does she come out, she has stopped topline and we've already talked about how you get to that GDP type growth next year and the changes year-over-year that you should expect to see. And then you're layering in on top of that the continued cost improvements we talked in your layer and I'll talk about the continued cost improvements we talked about in Wallace. Obliviously it started last year with the restructuring of the business. We continue to make good efforts in reducing the cost to run the business whether that's reducing the number of calls we receive, we're reducing the transaction times and moving more of the transactions online, et cetera, ct cetera and you should see more of that continue. Wireline, we have the full year benefit of the new union contract coming through. You've seen some of the headcount changes that we talked about that we'll continue to help us expand the margin there. And then in the other parts of the business whether it will be the IOT or the videos we continue to add scale there. The margins there should improve. So when you add those things up you kind of get to an improvement in EPS that we think is in line with what the expectation out on the street should be.

Thanks very much.

Hey Jay, if we could take the next question, please?

Your next question is from Craig Moffett of MoffettNathanson. Please go ahead with your question.

Hi, good morning everyone and Fran let me add my thanks and congratulations as well and to you too, Matt. I want to ask about the Yahoo transaction and first if you could just comment on press reports about the finding of a material adverse condition or a change and if you have any update to offer there? But then more broadly with respect to Yahoo and AOL, can you talk about how the proposed rulemaking at the SEC whereby their ISP would likely be held to an opt in standard for adjustability does that change your expectations of how you can monetize either the AOL or the Yahoo asset?

All right, thanks Craig. So on yahoo, look Lowell and Craig have both commented on this recently. So let me just reiterate what they have said. We are still evaluating what it means for this transaction. This was an extremely large breach that has received a lot of attention from a lot of different people. So we have to assume they will have a material impact on Yahoo. Lawyers had their first call yesterday with Yahoo to provide us information but as I understand that's going to be a long process. So unless Yahoo comes up with different process it's going to take some time to evaluate this. So until then we haven't reached any final conclusions around this issue. As far as the privacy goes, look I think there's a couple of things here. I mean obviously we take privacy and security of our customers extremely seriously. We live under the regulation of the SEC which has a very high standard for carriers around privacy and what we're looking for is that the FTC and the FCC come out with a common rule that makes it competitive across the entire ecosystem and that the rules are more consistent and so that everyone can compete equally and there's no winners and losers within the ecosystem. So we look forward to reviewing the final order of privacy from the FCC and hopefully the FTC and then we'll have to react to that. But look, I mean we're operating AOL today under the current environment and we will continue to operate and as you saw we'll continue to grow AOL under that purview of the privacy regulation. So I think we'll just have to wait to see where this all comes out, but we're hoping that it's an equal playing field across the board.

Thank you.

Thank you.

Jay, next question please?

Your next question is from Brett Feldman of Goldman Sachs. Please go ahead with your question.

Thanks for taking my question and once again Fran congrats and it's been great working with you. So my question is, if I look at your postpaid ARPA the quarter it was actually reasonably stable versus the prior quarter. So I was hoping you could maybe just give us a little more color on what drove that particularly the uptake rate and reaction to the new pricing you put in several weeks ago? And then just as an extension of that, if we extrapolate the trend we saw here suggests that maybe you would actually stabilize your service revenues a little sooner than you're talking about and I was wondering what you think the opportunity could be there to maybe get that stabilization a bit faster? Thanks.

Matt, why don’t you take this one?

Yes, so I think what this one comes back to Brett is and Fran talked about it within the basic the continued growth of our 14 smartphone base we had net adds of 357,014 smartphones during the quarter. That has obviously contributing we saw a very strong adoption from our existing base to the new price plans. We saw a number of those customers step up in terms of the buckets they are purchasing and so I think you see that we have a very strong relationship with our base and our consumers continue to take full advantage of the network. We've seen video use or total usage on the wireless network up about 45% this year and you continue to see that show up in the after trend. So yes, as you think about heading into 2017 we expect to see especially as we've got 60% of the base now on the non-subsidize pricing, we expect to continue to see some strong ARPA trends as we go forward into next year.

Great and actually just one quick followup, you had mentioned earlier that there were some device supply issues, for example the Note 7 and some of the iPhone 7 models recently. Have those cleared up and maybe just as a bigger picture, do you think that over the course of the holiday season you're likely to continue to suffer the supply issues and maybe that could contain some of the upgrades and activity levels we would normally expect?

Well, the Note 7 has been recalled totally and won't be re-launched. So obviously that's a permanent change to the lineup. We're bringing in new phones for the fourth quarter. As always Apple is always generally in a backlog situation for the industry. I don't expect that to change at least not in early in the fourth quarter. But other than that Matt, have you anything else to add?

No that sounds pretty much it would expect Apple to get caught up as we go through the quarter here and we will see how that plays out.

Great, thanks for taking the questions.

Thanks Brett.

Okay, Jay, next question please?

Your next question comes from Michael McCormack of Jefferies. Please go ahead with your question.

Great, thanks and again best of luck Fran and it has been great working with you. On the feature phone base you have north of 13 million phones out there. How should we think about that? Is there going to be an acceleration loss situation or is there something you are doing there either with respect to you are mitigating churn or care or attention efforts if you can comment on that that will be great. And then just on the delta between those that are on unsubsidized plans versus those making Edge payments, that gap continues to widen out a bit. Is there retention efforts going on there or is there something else we should be thinking about? Thanks.

Yes, so I'll have Matt do the feature phone one. Let me just answer the unsubsidized and subsidized Edge phone. So as you know, we have allowed our base to upgrade and choose whether they take a subsidized or an unsubsidized plan. So that currently is the policy that we have and we'll have to review that policy as time goes here into the fourth quarter, first quarter of next year. So there may be some shifts within that going forward, but right now that policy still holds and that's why you see some of the separation between the number of people who have moved to the unsubsidized plan versus the number of people who are currently on a device payment plan. So we'll update that in the fourth quarter as we go. Matt, on feature?

Yes, I think what you're seeing on feature phones is and Fran mentioned this in our earlier remarks that you're seeing some part of the move to prepaid has come from the feature phones. Look, we will have some people who have feature phones in postpaid stay as postpaid customers and we're very happy to glad that they will do that, but we also expect to see some of those continue to move into a prepaid environment which may be a better place for them to be. We also continue to see people moving from feature phones to smartphones and when we get that we see increased usage with those customers as well. So we will continue to monitor that, but we're happy with the trends, where they are going at the moment.

Great, I look forward to working with you Matt.

Thank you.

Jay, next question please?

Your next question comes from Tim Horan of Oppenheimer. Please go ahead with your question.

Hi and good luck guys. Can we get a little more color on the CapEx its feel and the whole industry seems to be coming at the low end of expectations and I know you focused on this at the end and densification a little bit more. Is this kind of a trend that is sustainable? And related to this, how do you think your network is kind of holding up versus your peers? A lot of your peers are spending a lot less CapEx, but the RootMetrics and other services are saying that their quality is kind of catching up with your network, just any thoughts? Thanks.

Yes, thanks Tim. So look, on the CapEx trend, I mean I think this was all related to the strike that we experienced in the second quarter and we're not going to be able to catch up on that from an overall year-over-year perspective. So that's why we've revised the guidance to the lower end of our range. But we're still spending around $17.2 billion this year in CapEx. The other thing too is, you have to remember, we're spending our CapEx around wireless for LT densification and as we have talked many, many times before, we do our usage projections well in advance of where we believe that usage will come and obviously we know that video is the major driver of the usage. With a 45% increase year-over-year I think the satnav is over 90% of our data usage is on the LTE network. We see that continuing to increase. So we're really preparing for two years out from where our usage is today. So we are densifying the network and we've seen this movie before where CapEx trend goes down and user catches up and then all of a sudden the networks falter. So look, I think the RootMetrics report speak for themselves once again we want hands down across the country. That is the brand that we live by and we will continue to build and densify our networks to meet our customer's demands before they actually realize they need it.

Thank you.

Okay, we have time for one last question.

Your last question comes from Amir Rozwadowski of Barclays. Please go ahead with your questions.

Thanks very much and once again Fran I wanted to echo prior comments wishing you the best of luck with your next endeavors and congrats now on the new role.

Thanks Amir.

I was wondering if we could talk more broadly Fran about your M&A strategy, clearly you folks have made concerted efforts improving your asset portfolio to support both the media cover and IOT initiatives. As it stands today, do you see any areas where you may need to bolster your pool of assets in order to move forward with these strategies or as you exit this transition year should we consider 2017 more of an integration here for you folks.

Yes, I think that's right. I mean I think we've made some strategic moves here around diversification. We know that the Telematics business is a business that has high potential and if you looked across the industry there are a lot of competitors in there, but no one really has a big share within that marketplace and we want to gain more share within that marketplace and we think we can with the assets that we've accumulated between Telogis and Fleetmatics here. So we'll continue to move in that direction, but I don’t think that there is anything large on the table at this point. We now have to integrate those assets and that's what our Telematics Group is actually doing right now. And as you saw, we launched Hum. Hum came out of the Telematics Group although it is for the majority sold through Verizon Wireless. It actually is a product to come out of the Telematics Group. So we will continue to innovate in that area. You're starting to see us do a little few things around smart cities because we believe that with the pre-positioning of 5G and the latency issues smart cities is going to be an area of growth for the future. I mean we have demonstrated with certain cities where we're deploying it now that we can actually save them money on a lot of different things and that their payback is relatively quick. So I think that is just something that we're positioning for the future. And then around media Co. obviously we have the Yahoo asset sitting out there, but to date we have accumulated assets that we believe are really strategic for us to grow this business. And as we've said before, we know that the wallet share of consumer for communications has been flat for relatively the last 15 to 20 years. So we have to think about a different way to monetize our network capability and that monetization will come through advertising. And it's real simple, I mean, the equation is, if you get more views, you get more advertisers, therefore you generate more revenue. And we see that now with AOL, even with the 10% increase in revenue year-over-year which is the first time we've given that to you, we're starting to see that advertisers are coming to our platforms. So now we just have to integrate and execute on that model and we believe we have the right assets to do that. So the long and short of the answer is, there is nothing large out there that we need to be successful with at this point in time.

Thank you and a quick followup if I may on the mediocre strategy. You know it does seem like increasingly many are attempting to gain share from consumers via video not just some of your peers in the market but on a whole technology company level as well. How do you view your positioning and your ability to do differentiate going foreward? And I guess the question I have is, what have you learned about your strategy thus far be it with AOL Verizon digital media services go90 and how is that informing your strategy going forward in your ability to differentiate?

No, I think the big differentiation here Amir is, we're developing content for short foremen and really for life and that's really the differentiation is short form content whether that's over the top or via mobile. Also I think the differentiation for us is the integration across our platform. So if you go to AOL now you're going to start to see Complex come through. You will see RatedRed and seriously TV in the future come through on that platform. If you look at the NFL we've adopted that into the go90 platform and I know there's been some articles around viewership of NFL. We've actually seen a healthy increase year-over-year on our platform around the NFL. So, you know, we are headed in the right direction. The key learnings here have been, you need to have the right content that is appealing to the audience that you're going after and you've seen us make moves. You're going to see us move out of certain content that was originally in go90 that just isn't the right content. But sports news live original content is with the direction that we're taking on this platform and we think we will be successful with that.

Thanks very much for taking my questions.

Sure, thanks Amir.

Thanks for all the questions. So for one last time I have the privilege to turn the call back to Fran.

Thanks Mike. Before we end I want to highlight just a few key points. Number one, we are focused on maintaining leadership in network quality customer loyalty and financial performance. Strategically, we are aggressively building new businesses with revenue streams and ecosystems are expanding the entire industry. I am confident that Verizon will remain a leading player in the next growth phase of the industry and create value for our shareholders. Finally, I want to thank the Board, our investors and all of you on this call. It has been a pleasure working with all of you. It has been an honor and privilege to serve as the CFO of Verizon for the last six years. Thank you again for joining Verizon and have a great day.

Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation and for using Verizon Conference Servicss. You may now disconnect.