Q&A with Verizon CEO Hans Vestberg on 5G, Facebook advertising, coronavirus and dealmaking

Published Mon, Jul 6 20201:00 PM EDTUpdated Mon, Jul 6 20201:40 PM EDT

Key Points

Verizon CEO Hans Vestberg says 5G's benefits are still confusing because iPhones aren't yet 5G-enabled and the network was built for businesses as much as it was for consumers.
Verizon pulled advertising from Facebook because "certain things on Facebook that were appearing next to our content were not compliant with our standard agreements."
Verizon won't buy a large media company because it doesn't enhance the company's strengths --- but Vestberg won't shut the door on eventual cable-wireless consolidation down the road.

A View from the Top is a weekly Q & A series exclusively available on CNBC Pro . Each week, Alex Sherman will speak with a new business leader about decision-making, investing and industry news. Verizon CEO Hans Vestberg, whose company is banking on 5G technology for new revenue streams, joins us for our first conversation for CNBC Pro. This interview has been lightly edited for length and clarity. 5G rollout explained Alex Sherman, CNBC: When investors think about Verizon these days, almost everyone thinks 5G. But I still think there's rampant confusion about what 5G is going to mean from a specific practical perspective immediately, not five or 10 years down the road. Can you help people understand why 5G will be so transformative immediately? Hans Vestberg, Verizon CEO: I understand why people don't get it yet. Because 4G was basically a consumer product only. You increase the speed and throughput, and you can get a text message faster and view Netflix easier on the phone. When 5G technology was defined somewhere around 2010, the whole idea of 5G was we should do this for industry and society. And then the requirements of the technology is far more difficult. So, suddenly, from the two capabilities of speed and throughput, meaning how much data and how fast the data comes, became eight capabilities. We call it the eight currencies . Of course, for a consumer today, they haven't seen much of those other capabilities. So, what we are building — and we're building it very differently from the other competitors in the market — we're building so we can deliver all eight capabilities. What are the practical uses of these capabilities? I'll give you two snapshots so you can understand. One of the capabilities is latency. That's how quickly from the Internet or the network you get data back and forth. That wasn't so important in 4G. The latency was a 100 or 200 milliseconds. We're building a network for 10 milliseconds. If you're Google or Amazon, this is super important because those companies deal in real-time decision making. Another capability is how fast can we keep up the signal? With 4G, if you drive a car over 200 km/hr (124 miles/hr), you will drop the mobile signal. With 5G, it's 500 km/hr (310 miles/hr). It's designed for high speed trains. Totally different use cases. One last one — today with the mobile network, we can connect roughly 50,000 people per square kilometer. In 5G, it's 1 million. This is just a portion of the capability we're building the network for. That's a big difference from any previous technology. And how do you monetize these new capabilities so that Verizon investors benefit? We build one network and we have three distinct businesses. One is 5G for consumers. You have a smartphone that's 5G and you're going to get new capabilities — AR, VR and high-speed. Then we have a second business —a new business — which is 5G to the home. Instead of bringing fiber to your home, we can use the 5G network to bring broadband to your home with the same speeds but with much quicker deployment and a more flexible solution than having to dig fiber to your home. Finally, we're building a 5G mobile edge compute. That's means we will bring the compute to the edge of the network. Instead of having a data center at, say, Amazon, you can ping that data at the edge of the network. So, those are the three business cases we're building. Not everyone is building a network like that, but we already have customers for this. 5G home — we launched in 2018 and we're deploying it now. 5G mobility — we've launched 35 cities and all major stadiums with our millimeter-wave speed, the fastest 5G spectrum in the world. And the last one — the 5G mobile edge compute — we've launched this with Amazon . That's 5G, and it takes a little bit to explain it. Why consumers haven't really seen it even though we've launched it over a year ago, and there are 5G phones out there, is that the consumer market has such a high penetration of iPhones, that when they get a 5G phone, that's when people are going to realize the power of 5G. The market share is so high for Apple . Has Apple told you that it will have 5G iPhones out by the end of the year? I cannot really answer questions on the Apple iPhone for obvious reasons. I don't know. Well, I would know, but I can't answer. But that's obviously an important piece. Very few people are moving between the Android system and the iOS platform. People tend to stay with what they have. And market share for iPhones is very high. That's an important event. We also need to understand, there's a mobility report that comes out every quarter. They predict the future of usage of the network. The expectation is by roughly 2024, 50% of U.S. subscribers will have a 5G phone. That's actually faster adoption than 4G from 3G. One more question on how Verizon benefits from building the network. I can see why this would be beneficial for equipment manufacturers, because consumers and businesses are going to need phones and networking equipment that can connect to 5G. But, should consumers and businesses expect to pay more for 5G? Is that how Verizon can make money from this? On the consumer side, we still only have a little bit more than 50% of our wireless customers on our unlimited plans. So we have broadened our unlimited offerings to get more of our metered customers in. And in order to enjoy 5G ultra wideband , you need to be on the higher levels of 5G. That's how we see it. We don't see it as additional cost. So that's the consumer mobility case. On the 5G home, that's a new market for us outside the Fios footprint. That's a market we don't play in. So every revenue dollar that comes in is 100% growth. The 5G mobile edge compute market, we're not in that market either. So, for 5G home and 5G mobility, we will see revenues from that in 2021. And for 5G mobile edge compute, we'll see revenue from that in 2022. So, just so that I'm clear, for consumers who have 4G Verizon mobile today, when this shift takes place and suddenly they have 5G everywhere, their bills will stay the same? We've created something for families called mix and match, where even if you're a family, you can have two people on a metered plan and two on unlimited, one on the highest unlimited and one on the lowest unlimited. That's unique to us. No one else in the market has that. We think about our customers and what they need. That's why we have a range of offerings around 5G. So I cannot answer no, it will not increase. If you have a metered plan on 4G and you want to go to unlimited on 5G, yes, your bill will be higher. And the pandemic hasn't pushed back your plans for lighting up 5G? We've said we're going to launch our coverage lowband spectrum this year when we think it's the right time to do it commercially. Our plans for deployment for nationwide, 5G home, and all of that haven't changed. In the first week of the pandemic, we decided to increase our Capex, invest more, for two reasons. First, we wanted to manage the loads of data on the network, which we did effectively. Secondly, we wanted to speed up our investment, and we thought it was a good time for the country. So we've actually increased our Capex this year in order to do more. Verizon amid the pandemic We recently saw two of your main competitors, Sprint and T-Mobile, merge. I think many people were skeptical that the deal would get regulatory approval and actually come together. Do you think it was the right thing for America that the deal was approved? I think that that's not for me to judge. Their plan is so different, and jurisdiction reviewed that and took a position. For me to have another opinion without having all the facts would be strange. Verizon has about 140,000 employees. As a CEO of a company that size, what are you looking for, specifically, to get so many people who are at home now back to work? Or, are you thinking, maybe many of these people can stay home indefinitely? First of all, we need to say that we've never closed. We've had more than 20,000 to 25,000 people working through the pandemic. We've had stores open because that's the only way that we can support our customers, and then we have 15,000 to 20,000 of our field engineers who have continued to work, so that's what we've been dealing with. Then, we have about 110,000 people working from home. We will start Monday (July 6) with our return to office. That means that we will have batches of 25% of our employees come in every fourth week. But, it's going to be voluntary, because some of them actually don't have the home environment to work, and they would like to come in to work. And we'll see how it works out. But we have a protocol for coming in to work. You need to have certain questions answered before you come to work, and then if you get the green light, you can come. Secondly, we're going to change the workplace for the future. We're going to see certain activities continue to work from home or at least being much more flexible than we have before. So for the first wave that returns this week, is there going to be testing at the offices or temperature checks? Do they have to wear masks inside? We'll have procedures in the building, such as wearing masks and all of that. Then we have an assessment, where you do your own assessment, with taking your temperature and all of that. We are helping our employees who need temperature checks to get one, etc. So, the main part, as an employee, you're doing before you arrive at the workplace. Then at the workplace there are certain rules as well. Assigned floors, there's no open areas. You have to wear masks. So yes, it's quite a lot of things you have to do before. Then we're going to see how many employees want to do this. Advertising on Facebook Let's shift to Facebook . You recently decided to pause advertising until Facebook could, and this is your company's wording, "make Verizon comfortable and is consistent with what we've done with YouTube and other partners." What specifically does Facebook need to do to make you feel comfortable again? I'm not going to go into details about what they need to do specifically, but first of all, we have a very high standard for our brands. Everything we do around our brand is super important. Where we show up, etc. What happened was that certain things on Facebook that were appearing next to our content were not compliant with our standard agreements with Facebook. So we decided to pause and work with them to see how we can avoid this in the future. What type of things are they gonna do in order to control that and to have this type of thing not happen again. This is not the first time. This happened with YouTube, and we worked with them and we solved it. We try to work with our partners that we're using for advertising. But, again, for us, we're very sensitive to our brand values and our brand standards. That's what happened. Is there a reason to single out Facebook here? Are no other social media companies doing this? We would treat any social network the same way. If you're not following the standards and procedures we've established with them, we would pause advertising until we see a remedy. We keep these standards for ourselves as well. Deals A few questions about Verizon's acquisition strategy. Before you became CEO, Verizon seriously looked at buying a number of large media companies— and in fact did buy AOL and Yahoo. When you became CEO, you made it immediately clear that Verizon was no longer interested in going this route. Why is that the right strategy for Verizon? We have so many other opportunities with 5G deployment and our network strategy. The team sat down and we talked about, 'where are our strengths?' And we double-downed on our strengths instead of managing something that we don't think we have the capabilities for — and that was long-form content. Remember, we have Verizon Media Group that's fully integrated and works well in our company. But it was more about that. And I usually never comment on M & A, but it was surrounding so many questions around Verizon that I decided to be clear. So that was the reason. And you always go back and look at your strategy and say 'what are your strengths?' And how can you build a strategy around those strengths? And we had so many other things we could dedicate capital to, and on top of that, we knew we had a great brand and network, and the best distribution in the United States. We are touching more consumers than any other brand daily. So, of course, we can partner with Disney, as we did with Disney+ , we can partner with Apple on exclusives on Apple Music , and still get the same sort of our offerings for customers but with a totally different model. There are some people in this industry that assume that wireless companies and cable companies are going to converge, like in Europe. That it's only a matter of time. Do you agree that that's where we're probably headed in the U.S.? There's a big difference between the cable companies in Europe and those in the United States. The cable companies in the United States are enormous. The cable companies in Europe are usually eaten up by the telecom companies. Here we have a couple of really large cable companies. It's very different how the cable companies have been built in the United States compared to in the rest of the world, so I wouldn't draw any conclusions from it. So, does that mean you're saying it's not inevitable in this country? I didn't answer that question. Ha. OK. One last thing. I'm hoping you'll indulge me and put your investor cap on for a second. As you look at the broader telecom landscape, where would you recommend investors pay attention if they want to support and make money from the various changes happening in telecommunications right now? Are there certain smaller companies that excite you right now? I think that what they should look at is the multi-faceted network we are building and the different changes we're enabling from the same type of network. And of course, be excited about 5G mobile edge compute, 5G home and then 5G mobility, which we're uniquely building and leading the pack on. I think we've outlined our M & A strategy. We look at tuck-ins on our existing strategy where we might see some holes. That's our strategy. We acquired BlueJeans, which of course is a great company. We've bought a couple of other smaller companies, but all of them are part of our core strategy, so that's how we see it right now.

Verizon CEO Hans Vestberg

Steven Ferdman | Getty Images

A View from the Top is a weekly Q&A series exclusively available on CNBC Pro. Each week, Alex Sherman will speak with a new business leader about decision-making, investing and industry news.

Verizon CEO Hans Vestberg, whose company is banking on 5G technology for new revenue streams, joins us for our first conversation for CNBC Pro. This interview has been lightly edited for length and clarity.

5G rollout explained

Alex Sherman, CNBC: When investors think about Verizon these days, almost everyone thinks 5G. But I still think there's rampant confusion about what 5G is going to mean from a specific practical perspective immediately, not five or 10 years down the road. Can you help people understand why 5G will be so transformative immediately?