Good morning and welcome to the Verizon First Quarter 2020 Earnings Conference Call. At this time, all participants have been pleased in a listen-only mode, and the floor will be open for questions following the presentation. [Operator Instructions] Today's conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to your host Mr. Brady Connor, Senior Vice President, Investor Relations.

Thanks, Brad. Good morning and welcome to our first quarter 2020 earnings conference call. This is Brady Connor and I'm here with our Chairman and Chief Executive Officer, Hans Vestberg; and Matt Ellis, our Chief Financial Officer. As a reminder our earnings release, financial and operating information and the presentation slides are available on our Investor Relations website. A replay and transcript of this call will also be made available on our website. Before we get started, I'd like to draw your attention to our safe harbor statement on slide two. Information in this presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Discussion of factors that may affect future results is contained in Verizon's filings with the SEC, which are available on our website. This presentation contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the financial materials posted on our website. The quarterly growth rates disclosed in our presentation slides and during our formal remarks are on a year-over-year basis, unless otherwise noted as sequential. Now, let's take a look at consolidated earnings for the first quarter. In the first quarter, we reported earnings of $1 per share on a GAAP basis. Reported first quarter earnings include a pre-tax loss from special items of approximately $1.4 billion, including a loss on spectrum licenses related to Auction 103 of $1.2 billion, and a net charge of $182 million related to a mark-to-market adjustment for our pension liability. Excluding the effects of these special items, adjusted earnings per share was $1.26 in the first quarter, up 5% compared to $1.20 a year ago. Let's now move to slide four and take a closer look at our first quarter earnings…

Thank you, Brady, and most welcome to this earnings call. This is an earnings call that is very different from all previous ones that I have done. I've been in crisis -- in the telecom crisis in 2000, bank crisis in 2008 and 2009. This is something totally different. It's a health crisis with a pandemic that impacts each and every one of us wherever you are in this world. I'm proud of the team of Verizon, how we have been backing up in this crisis, and how we work together. We decided very early on to split our team in our crisis management team, and the leadership team continued to drive our business forward. In the middle of February, we made that split in order to see that we're actually attending all the things that’s happening in a company the size of Verizon. Our COVID-19 response has been based on how we manage our four stakeholders. We have taken decisive action, but they're all balanced and thinking about the long-term and the positive impact for all our stakeholders. Let me quickly go over what we have done in different areas of stakeholders. On the employee side, the majority of all our employees are working from home. We moved quickly to a work-from-home environment. Today, we have high productivity in that setup. We have also retrained some 20,000 of our own employees to work with new tasks and work from home, and some additional 1,000 of third parties that is part of our delivery. But we also need to acknowledge we have a lot of our employees in frontline, serving customers, keeping up the networks at the same time as keeping some of our stores open. We have roughly 30% of our stores open, of course, with limited opening times…

Thank you, Hans, and good morning, everyone. As Hans discussed, we are in an unprecedented time. As a result of the impact of the COVID-19 crisis and the various measures taken to address the emergency, we experienced starkly different trends during the first two and half months of the first quarter than we did during the last few weeks. We understand that most of you are more interested in what we are currently seeing in the business, so I'll go through the quarterly results at a high level and spend more time addressing the most recent trends and how they impact our expectations for the second quarter and the full year. We will begin with a review of our consolidated operating and financial results. In the first quarter, consolidated operating revenue was $31.6 billion, down 1.6%. Growth in wireless service revenue in both the Consumer and Business segments was offset by sharp reductions in equipment revenue. Consolidated wireless equipment revenue was down over 16% in the first quarter driven by the Consumer segment, primarily as a result of the limited in-store customer engagement in March, due to COVID. Adjusted EBITDA was $11.9 billion, down slightly from last year, including the impact from COVID. Low wireless volumes in Consumer Group drove benefits to margins through decreased promotional spend lower equipment revenue and improved churn. These benefits were more than offset by higher bad debt expense, lower advertising revenues from Verizon Media Group in March and customer actions that resulted in a decrease in wireless fees and non-recurring usage charges. Our incremental bad debt reserve of $228 million was the largest component of these items. The headwinds from the deferral of commission expense that Brady highlighted earlier reduced EBITDA by $172 million, which is an impact of approximately 55 basis points to…

Thank you, Matt. Let me just round this off with our priorities going into this year and in the future. First of all, I feel that we're very well positioned to execute both in the near term and the long-term to create more value for all our stakeholders. We have the Verizon 2.0 transformation, which is a new leadership, a new network technology, a new go-to-market, and we are delivering on that. And I feel that we have good results already right now, but more to come. I think we also have a very good strategy around the COVID-19 response that is covering all our stakeholders in a balanced way in order to create long-term value for all of them. The 5G is still very much in the middle the center of our strategy. And as you heard me saying before we're in the middle of the execution and we're not halting that. We're keeping it up all the time and the team is doing great work there. And we see opportunity with 5G going forward both with building all the cities, the 5G mobile edge compute as well as making this nationwide 5G still this year. Matt talked about our discipline and the financials and our capital position and our capital allocation, I feel good about that. We have done tremendous not in the last 12 months, but also the last three months in order to put us in a good situation to continue to meet all the demands in our capital allocation all the way from our business to our shareholders to our debt holders. And ultimately I think the strong brand that we have has been reinforced in times like that both by the talent we have but also by the response to our business practices and the way we're dealing with our society. So, all-in-all, I feel good about our strategy. I think that we are in the middle of execution of it. We need to have a multipronged strategy where we're managing the crisis at the same time, but that doesn't mean we should not execute on our strategy. So, by that, I hand it back to you Brady.

Thanks Hans. Brad, we're ready to take questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Brett Feldman of Goldman Sachs. You may go ahead.

Thanks. Thanks for taking the question. A question about your updated EPS guidance. As you noted during your presentation, certain activity in the business has declined significantly. I would assume that there's a degree of cost savings associated with that. You also highlighted some areas where you're seeing some pressures. You highlighted roaming revenues as an example. So, I was hoping you can maybe just give us a little more insight into the puts and takes that caused you to see a slightly lower outlook for earnings over the course of the year. And then just point of clarification you said that this revised outlook reflects headwinds you expect to see in the second quarter. I'm curious whether you're saying that the variance in earnings that you expect to report this year will primarily be contained to the second quarter or if you're saying that those headwinds for the remainder of the year collectively resulting in a change? Thank you.

Hey Brett thanks for the question, and good morning everyone. So, as you look at the guidance and we went through some of it in the prepared remarks. But as you look at the items that are in there, when I think about the revenue side for the second quarter, really break it up into two major buckets. You think about the actions that we've taken and the actions -- or the impacts of changes in customer behavior. So, as I start off and think about the actions we've taken, it starts with, obviously, the Keep Americans Connected Pledge for that 60-day period. The vast majority of that is in the second quarter and so we'll see more impact in Q2 than we saw in Q1. Additionally, as we mentioned, we've given customers an extra 15 gigabits of data, and whether that be on metered plans or on hotspots for those customers who are on unlimited plans. So, that's going to have a significant impact on the overage fees that we would normally collect. Earlier this week, we announced that we would be extending that 15 gigabit from the end of April through the end of May. On the customer behavior side, one of the obvious ones is obviously international roaming. I think it's fair to say you can put a pretty low number in your model for international roaming revenue for the second quarter. But also in there as we think around especially in the SMB side of the business, we would expect to see those customers suspending some of the lines on their accounts over this time period, and that will have an impact on revenue too. So, when we add all those things up, we see that those should impact the year-over-year service revenue growth in kind…

Thank you.

Thanks Brett. Hey Brad, we're ready for the next question.

Thank you. The next question comes from John Hodulik of UBS. You may go ahead.

Great. Maybe just as a follow-up to Brett's question on that 300 to 500 basis points. Matt can you give us any more color in terms of maybe the sub-impact and the ARPU impact that you expect to see from all these different pieces? I mean, you gave some great detail on what's going on in April here, but maybe a sense for what the sort of total gross add impact that you expect to see? And then, maybe on the ARPU side, how big these components are that are being affected? And how that could potentially play out in that sort of 1% to 3% service revenue decline you're expecting? And then maybe a new topic on the Fios side. When did you guys start the new policy of not entering consumers' homes? And I saw -- I think you -- it shows here that Internet net adds are definitely slowing, but do you expect that to go negative? And then, what do you see for video trends as we look out into the second quarter? Thanks.

Yes. Thanks, John. So following up on the service revenue. When you think about the ARPU, you've got the base billing and then you've got the additional things that go in there whether that be international roaming, whether it be overages, whether it be late fees or whatnot. So we feel really good about the core billings within the business. We're seeing customers use our products and services, obviously on a -- in a very strong fashion and I should expect to see that continue. But where we will see some pressure is around the edges with those other parts of what we bill, whether as I say it be roaming overages or whatnot. So the vast majority of that 3% to 5% comes from those items that we bill that are in the service revenue line. And then on top of that, you'll have the impact of suspends on the SMB side. We'll see how much that plays in. So overall, most of the -- we will see an impact in ARPU there as we go through the quarter. But subs are looking in a great position as we mentioned the churn is at a low level. You're looking at about a 0.5 type of range right now in Consumer. Obviously, that's very low compared to where it has been. And I think it reflects the fact as you go into a time like this consumers obviously value the quality of their network connection with all the increased activity we've seen across it. So all in all, that's where you'll see the majority of the impacts in service revenue as we go into the second quarter here. And I'll turn it over to Hans and provide some comments around what we're doing with Fios and the engineers going into consumers' homes and whatnot.

Thank you, Matt. And John, let me say one thing that we have been balancing all the time is of course safe and -- safety and health for our employees. And that's why we were very early on to actually close down almost 70% of our stores and go to new sort of visiting hours and all of that. The same we have done with our engineers in the field very important for us to see that they are safe and healthy. And in the beginning here, we were very restricted on visited on homes. But we've also seen a lot of innovation. And the last couple of weeks here, we have actually innovated so we can start installing Fios without going into the homes with both what we call the Fios in the box, which is where the consumer or the customer is installing themselves. As well as we also have a virtual agent right now where the customer can be guided how to do the installation. That innovation we have been able to do in two, three weeks and now we start ramping that up. And I'm confident that over time, we almost can be back on a normal levels of installation, but with the safe and healthy of our employees and as well for our customers. And I think that again, just coming back to the importance on balancing, in a crisis like this you need to balance all the different stakeholders and see that you really have the priorities right. And our priority has been from the beginning the safety and health for our employees. That's very important. Second is of course to see that our networks are staying up because of the importance of our infrastructure in these times. Because we know that the country is needing our network and our technology staying up and having the highest quality as Verizon always has. So we are managing that every day here and I think we're managing it very well. And as said, the innovation is now piling up and we can go back to something that is normal, but in a totally new way of doing it. So I'm grateful for my team.

Great. Thanks guys.

Yeah. Thanks, John. Hey, Brad, we're ready for the next question.

Thank you. The next question comes from Phil Cusick of JPMorgan. You may go ahead.

Hey, guys. Thanks. To clarify one more time on this 3% to 5% in 2Q, can you please confirm that versus your prior expectation for year-over-year growth rather than just year-over-year? And also, can you quantify what the service revenue headwind was in the first quarter versus the regular business growth rate? And then second, Verizon Media revenue sounds like down 20% to 30% in the second quarter. What do the margins look like in this business? We don't really know much about what the sort of cost flexibility is there and whether margins can stay positive or flip to negative when revenue comes down quickly. Thank you.

Yes. Thanks, Phil. So as you look at the service revenue and you think about the impacts in there, the 3% to 5% is really is going to be 3% to 5% lower than they otherwise would have been. A reduction in the growth rates on a year-over-year basis is what you'll see there. There was a small impact on service revenue in the first quarter. If you think across both consumer in the 30 to 40 basis points of service revenue growth, so the 1.9% would have had some upside without the impact that we saw at the back end of March. But we're in -- we like where the position of the service revenue trajectory is. As you come into the quarter as you go into 2Q here, the core underlying performance of the wireless business in both consumer and business is very strong. And we expect to see that show up in our service revenues throughout the rest of the year.

Something about the Verizon Media Group, as Matt reported, of course, that we have seen an impact lately on our advertising. We're of course encouraged about the increased activity and the growth of engagement because that's ultimately going to pay off later on. And I think that first of all our Verizon Media team has been extremely innovative with new products and new ways of delivering services the last couple of weeks here in a time of this pandemic. I have to say that I have a lot of confidence in my Verizon Media Group to work with different scenarios given how this pandemic will develop and how it will hit Verizon Media Group. We have seen the last 18 months or I don't know six quarters that our Verizon Media Group has found ways to both reduce direct cost and find new ways to innovate. But all-in-all, we need to understand that of course advertising these days you are restrictive, you're cautious given the pandemic. But again I think that as I said in the beginning, we are working with different scenarios that can happen and we have different levers and activities that we can do given where this is going. That goes for all our different businesses, which of course they are in different form and shape at the moment but it also goes for the whole corporation. And then just adding on what Matt said about our wireless business, I think that one thing that worked in the brand, since we embarked on the unlimited some two years ago, we have constantly built a model, which can actually meet all the different scenarios, all the way from our Mix & Match, or in Visible, Yahoo Mobile the work we're doing with track phone, the network as a service. I think that regardless where it will go, we will have opportunities to actually serve our customers with the plans that they need. And I think that few others can do that in this market as well as we have the best network. So I think we're well-positioned in the world that might be uncertain, but we have all those different type of opportunities to serve our customers.

And just real quick on the cost side there that comes, obviously, the service revenue impact and the media revenue impact. But obviously we're doing things to manage the cost side of the business as we go through this period. And it's really building on the work we've been doing for the last few years now and it's put us in a position where we can take the actions that we need to in this time. We'll see some cost benefits as we go through this. But it also allows us to do the things to support our employees and customers and to keep investing in the business for the long haul even as we're in this unusual time period. So cost controls are very much on our mindset as we go through this time period as well.

If I can just clarify as well on Brett's question, you said that a lot of the impact I think for the EPS cuts in the second quarter. But I think it would make sense that you're guiding for probably weaker earnings through the year. Is that fair?

Most of the impact in the guide is the impact that we discussed in the second quarter. As we look to the second half of the year, obviously, there's a very wide range of potential outcomes there. So we'll see how that plays out. And obviously when we're on this -- the next earning call 90 days from now, we'll have a lot more to say about the second half of the year. But a lot of the commentary we had and a lot of the updates in the guide relates to what we'll see in 2Q. But we will see some of those revenue impacts you think about international roaming for example will stay with us for a longer time period. But we'll wait and talk more about the second half of the year when we have better visibility into it.

Thanks guys.

Yeah. Thanks, Phil. Hey, Brad, we're ready for the next question.

Thank you. The next question is from David Barden of Bank of America. You may go ahead.

Hey, guys, thanks for taking the questions. I guess two if I could, first, just kind of looking at the slide 17 where you give us the COVID environment effect on the mobile business. Could you give us some of that similar color consumer SMB and enterprise on the wireline side? And then second, obviously, last quarter there was a big investment in the business services group in terms of trying to modernize the tech and the go-to-market capabilities. Could you elaborate a little bit on what's been accomplished thus far in that exercise? And what in the current environment your expectations might be for the return on that investment at this stage? Thanks.

Yeah. Thanks, Dave. That's -- let's unpack those. Starting off with the wireline impact on the current environment. In Fios, we talked a little bit about that. We saw good volumes in Internet in the first quarter, but that was largely a reflection of low churn as we came into this. And obviously a lot of appreciation from our customer base on the quality of the Fios Internet product. As you go into the second quarter, you're going to continue to see the benefit on the churn side, but obviously we'll have some impact on the gross adds side from the employee actions that Hans mentioned where we're not allowing employees to really enter customers' homes. What's really good -- what you see from us is say okay, how do we react to this? So Hans talked about the FiOS in a box right. Let's not let this environment completely stop what we're doing. How do we -- yes there's an obstacle in our way. Let's find a way around it. This team is phenomenal on doing that. So, we will have some gross adds here in the quarter that we might not have expected when we first stopped going into customers' homes. As you look across the other parts of wireline, as you get into SMB, and the larger businesses obviously, as we've seen an uptick in usage across the core networks and we've been doing a number of things to help especially our larger enterprise customers adapt very quickly to having their -- a large number of their employees work from home and having to update their systems to be able to handle that change in network traffic and where the work is performed. So, I would expect to see a continuation of that. But it won't massively change the ongoing wireline trends -- revenue trends that we've seen across the business as we think about second quarter here. In terms of the investment in VBG and what you see in the margins in the first quarter there, I think we came in with a decent margin for that group. But as I said on the call back in January, this isn't a one quarter investment in the business. There's a number of things that we need to do to upgrade the capabilities of our Business group, so that we can be that partner of choice for businesses as we enter the fourth industrial revolution. And so there's a lot of good activity going on there. And I'll stick with what I said on the last call that we'll be investing in that for quite a while here. We should start to see the impact -- the benefits on the cost side towards the end of this year. And then, the impacts on the revenue side in '21 and really getting full steam in '22, so a lot to come there. And Hans, I'll let you follow-up on that.

Yes you're absolutely right, Matt. This is -- we are clear on the strategy of the Verizon Business Group. I just want to remind all of you we brought together several different groups on wireline and wireless and this go-to-markets. Tami and the team has very clear strategy of doing the transformation. That has not slowed down. We continue with that because, when coming into this COVID-19, we see even a more importance of Verizon Business Group and then me and Matt talked about, this is one of the areas we see that we have a great opportunity going forward as we build a Verizon Intelligent Edge Network as we come with 5G and the trends in the industry. I mean digitalization all of that which of course has been accentuated in this COVID-19. So, I feel good about what we're doing here. The team is running as fast as they can with this transformation. But as Matt said, this is not the one quarter thing, but we're not holding back on the transformation. And in that transformation, we said we will invest and one investment was of course the BlueJeans, which we have had in our portfolio for a couple of quarters as a distributor. But as this turned out, we felt that it was a good opportunity to actually make the acquisition and we have been testing them. It's a great product. And we stitch that into our go-to-market in the Verizon Business Group. But I also see it as a great opportunity for the 5G. Because ultimately 5G at the edge, we will have a lot of low latency enormous throughput where video and transcoding will be important. So, adding that asset is also important for the future. So, once again we feel good about our strategy in Verizon Business Group and how they have performed. And we have some more work to be done and we're not holding back on that transformation as that will put us in even stronger position when they're done.

Thanks guys.

Thanks, Dave. Hey Brad, we’re ready for the next question.

The next question comes from Simon Flannery of Morgan Stanley. You may go ahead.

Good morning. Thanks for all the color on the COVID-19. Very helpful. I wonder Matt if you could get into a little more on the bad debt, help us understand where that is across the Consumer versus Business. I'm guessing a lot of it's in SMB. How does that break wireless wireline? And then, Hans, could you talk a little bit about the digital channels. You talked a lot about FiOS in a box. How are you thinking about maybe pushing more of the phone sales and wireless sales through the online channel? Where are you today? And what can you do to increase that percentage? Thanks.

Thanks Simon. So, on the bad debt as we look at that the vast majority of it is sitting in the Consumer side just because of the relative difference in the size of the businesses between Consumer and SMB. As we did the bad debt reserve this year, we're now operating under the new CECL accounting standards. It requires us to take a more forward look at expected losses. And so really what we did, we took -- we looked at how many customers have availed themselves of the pledge. We used that as a starting point for the reserve. I can tell you as of around mid-April, we have around 800,000 customers who have signed up for the pledge and some of the various other state ordered. The vast majority of those are in mobile and that provided some of the bases. But it's too early to know exactly how the bad debt requirements will play out. We'll monitor that closely here as we go forward. But certainly we're seeing different payment patterns across different parts of our customer base. Actually encouraged by what we're seeing on the consumer side here over the last couple of weeks. And another proof point that as we've talked about in the past as we saw in the financial crisis that consumers continue to put their phone bill high up their list of priorities for payments. And certainly we're monitoring closely on the Business side, especially within SMB, how that's going to play out. Nothing in the payment patterns at this point is overly pessimistic but we're obviously going to stay very close to that and work to keep our relationship with our customers wherever possible. So that hopefully gives you a little background on how we look at the bad debt. And I'll let Hans answer the question on how we see digital channels going forward.

So let me just lay out how we're running the company right now. We're basically running the company in a three-pronged strategy. The first prong is of course, the crisis management, where we have a team that is dealing with all the challenges with pandemic for our employees, for our customers and for the society at large. Secondly, I have the majority of my leadership team, running business as usual. We have our 5G governance early this week where we went through all the deployment, all the 5G mobile edge compute, all the new business cases just running as normal. And then we have a team, which also think about the new normal. What will be the new normal when we come out on this pandemic? And one of the question which is I think, I believe is going to happen we're going to see much more digital sort of omnichannel from our customers and we are ready for it. We have already pivot to it. We're probably going to see another environment – work environment that we need to think about. We're probably going to also see a different type of product that we need to put forward. So I try to see that we have all these three prongs working at the same time in order for us to come up even stronger from this crisis, as well as managing today and not missing our target put up, as well as managing the crisis at the same time. So I can only confirm I have the same feelings you have. We're going to see much more of digital usage of ordering. But we're also going to see things that we never thought were possible. I mean Telehealth will increase over time. People are now and still they don't need to go to hospital. We're going to see education – remote education growing because people see that it's actually working. All that's going to be new normal, where we – our assets are extremely important in that delivery to all our customer groups. So you need to work on all three of them and we are working all three of them to come even stronger out on this crisis.

Great. Thank you.

Yes, thanks, Simon. Hey, Brad, we are ready for the next question.

Thank you. The next question comes from Craig Moffett of MoffettNathanson. You may go ahead.

Yes, hi. I wonder if I could just ask a slightly longer-term question in the context of the COVID crisis. Your investments in wireless which have largely been – in 5G I mean, which have largely been on the back of millimeter wave spectrum have almost necessarily been in dense urban gathering places, like stadiums and arenas and airports and what have you, which is obviously where people aren't today. Do you stop and say there may be a real change in social patterns that suggest a different set of investment priorities that are more along the lines of coverage and less around dense urban usage? Or is that likely to be sort of a short-term blip just given how long the planning windows are for network densification? I ask this in the context of a spectrum strategy, where it could well be that mid-band spectrum becomes even more important now given a potential pivot away from those very dense urban gathering places.

Thank you, Craig. It's still to be seen first of all of what will be the social patterns for the time. I feel pretty confident that dense urban areas will continue to be dense urban areas. At the moment, we still see a lot of usage in dense urban areas. It's just that we see less movement of people because they are staying home. So people live where they live today. So we are not changing the strategy how we execute both on the broader nationwide, as well on our city deployment. And ultimately, we see that as being a very compelling offering going in the future. On the mid-band, as I said before, especially on the C-band, we think that is an attractive spectrum because first of all as you said, it is a good coverage. But also it's a global roaming standard for 5G. And of course, we want to be part of that. And we are encouraged by FCC's plan to conduct a C-band auction in December. And we will always do our normal return on investment between the different densifications, buying spectrum, putting more software and keeping in mind that we want to continue to have the same headrooms in the network as we always have in order to have the best network. So yes it plays in. It's a little bit too early to say that we're going to have a changed total social pattern in the United States. Initially, I don't think so. People live where they live and that's going to continue to be the same.

And can you comment specifically about, the L-band uplink concept and the availability now of Ligado spectrum?

Yes I can, or at least having some views on it. We of course are following what FCC has come out. We still feel that are several challenges with L-band. As -- first of all it's not used, that frequency is not used anywhere in the world. That means that there are no equipment, no handsets and things like that which you need an ecosystem. That's so important. But as with all frequencies and all, the spectrum, we're of course looking into it. And we have done it for seven years. This is nothing new. I think that Ligado has been around for about 10 years. So it's nothing new. So we are continuing -- our engineers are always looking into new development if something can happen. But so far we have seen a little bit more headwind than anything else on that band.

Thank you.

Yeah. Thanks, Craig. Hey Brad, we're ready for the next question.

Thank you. The next question comes from Colby Synesael of Cowen. Your line is open.

Great, two if I may. First off I was wondering, if can you give us the number of customers that have stopped paying their bills I guess specifically their wireless bills, as a result of COVID-19? And I assume that that number was included in your, disconnect? You'd mentioned, I think 800,000 in response to Simon's question. Just trying to understand where that number comes into play? And then secondly as it relates to, free cash flow and the dividend. I was wondering if you can just give us some framework in terms of how to think about the potential dividend payout, expected in 2020? Thank you.

You can start, if you unmute.

Sorry about that. Hans it's really helpful. Thanks Colby. So the number of customers who are referred to in the prior question was the number of customers who have told us their ability to pay their bills has been impacted by COVID. That's not to say they've been disconnected. They haven't been disconnected. Just like every other customer that doesn't pay completely on time that we work with them. And the vast majority of those we end up getting them back on a payment schedule and they continue their relationship with us. So, we haven't -- and even those who have -- provided themselves of that, doesn't necessarily mean that they have completely stopped paying. They are just indicating to us that they've seen an impact. But when you look at the total impact we've seen, when I compare it to some of the numbers reported by -- whether it be on the mortgage side or the auto loan side we're seeing a better overall performance in terms of the customer payment profile than what we've seen. And that's consistent with what we saw in the financial crisis in 2008 as well. I mean we have a very important product for our customers and they value it. They value the connection they get from the best network and we see those, show up in the payment. So Hans, I think, you wanted to make some comments around the second question on free cash flow?

Yeah. First of all, I think we talked about where we stand on the balance sheet and the great work the team has done with the balance sheet not only the last couple of years but also in the first quarter. And we feel that we're in a very good position with our balance sheet. And that can be seen that we both increased our CapEx this quarter as well as made the acquisition of BlueJeans. We have our capital allocation priorities very clear for us. Number one is the business. Number two is the shareholders. Three is the debt reduction and number four is the buyback. And we feel that we're in a really good situation to continue to put our Board in the right position to serve our shareholders with dividend. But as we said on the Investor Day, when it comes to buybacks that's probably unlikely happening this year given the situation, but all other priorities we are definitely in a very good position to serve at this moment.

Okay, thank you.

Thanks, Colby. Hey Brad, we're ready for the next question.

The next question comes from Michael Rollins with Citigroup. Your line is open.

Thanks and good morning. Just a couple of follow-ups, first you gave a lot of detail on the potential impacts on revenue. I was curious if you could provide some additional details to quantify or help to approximate the variability of wireless expenses to the variability of gross adds or overall device sales? And then secondly, does the temporary use of other license holder's spectrum, increase Verizon's interest to rent or lease spectrum on a commercial basis in the future? Thank you.

Thanks Mike. So I'll answer the first question on the variability of expenses. So obviously as we have lower volumes, you see lower handset costs and that obviously close through immediately. But a lot of the other expenses as you think about it in the immediate term don't necessarily move. Even promo costs for example as we've talked about before, we now under, 606 amortize a lot of the promo expense over the expected life. So you see that come across over 2.5 years typically versus an immediate cost. So if we get a reduction, a benefit of lower promo expenses also gets amortized over that time period in the income statement. So you're going to see that flow through there. Other areas where you see an impact from volumes, where we have lower volumes, especially in store we see lower accessory sales and those typically have a good margin on. And so, there are impacts there as well from seeing lower sales, not just in terms of lower expenses, but there is an impact on the revenue line that can come with that. So net-net, you do see a reduction in cost with lower volumes, but there's some other things that go in the other direction and some of the benefits and expense are going to get realized over time, rather than immediately in there. So, hopefully, that helps you think around how that shows up in the income statement. Hans, I'll let you add -- follow up on the question on the spectrum that we took advantage of.

Yes. First of all, we want to thank the FCC for so rapidly come out and lending out spectrum to all the players in the market, because nobody knew how the usage will be on the network. As you can see, when we exclude the temporary spectrum that we lent from FCC, we have the same headroom and the network has performed very well. On top of that, we are, of course, adding capacity right now and also put in the DSS, the dynamic spectrum sharing, which I can report that the tests are going very well. We're on plan for putting that opportunity in the hands of Tami and Ronan to decide when they want to turn on nationwide. So, I think, we have a very good spectrum strategy and with the spectrum we have and we're very happy with it and we're going to continue with that. So, I think, that's where we are right now.

Thank you.

Yeah. Thanks Mike. Hey, Brad, we have time for one last question, please.

Thank you. Your last question comes from Jennifer Fritzsche of Wells Fargo. You may go ahead.

Great. Thank you for taking the question. Hans, I just wanted to follow-up on your DSS comments. So if I go back to my notes from mid-February following the Analyst Day, it seemed like you were very firm in saying DSS by year-end -- with 5G by year-end with DSS. Is there any change to that? And then, just on the infrastructure behind it, you also talked about -- or Kyle talked about five times the amount of small cells for 5G this year. Has any of the shifts, given the changes in social patterns, shifted back the macro there? Thank you.

Thank you, Jennifer. First of all, we feel good about the dynamic spectrum sharing. We are continue to do the test and deploying equipment and the hardware in the field that is needed for doing that. I'm certain that Kyle and his team will put it in the hands of Ronan and Tami and decide when they turn it on in the second half. That's where we are today. So we're not -- have any supply issues to doing that or supply chain issues. The same go for the five times more -- 5G ready base station this year. We continue to just accelerate. And Kyle actually said publicly that we were ahead of the plan when we ended March. I can say today, we're still on plan on that 5x. We have no supply chain issues. We have, of course, complications with some municipalities, but our team is all around that and working with municipalities, finding new way, digital approval, things that we never thought were -- digital permitting processes, et cetera, which we never thought were possible. So, all-in-all, we are not giving up on those targets. And so far it looks really good. And that's how a company should execute in times like this, managing the crisis, seeing that it will be a new and rethink how the new normal will look like. And that's what my team is doing every day right now and we are very focused on doing that. And the good thing is that, we feel good about our strategy where it stands.

Thank you.

Yes. And thanks Jennifer and Hans and team. And everybody, make sure you stay safe and be well. And with that, we'll conclude the call.

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