2Q18 Review: Return to Wireless Growth, Valuation Support; Reiterate OW

July 30, 2018 04:00 AM GMT Verizon Communications 2Q18 Review: Return to Wireless Growth, Valuation Support; Reiterate OW Stock Rating Overweight Industry View InLine Price Target $56.00 Verizon has positioned itself well for the incoming CEO, with wireless already returning to growth and the first 5G fixed wireless offerings coming later this year. The stock continues to trade at multiyear lows on P/E and offers a ~4.5% yield. We reiterate our OW rating. Wireless outshines wireline. EPS of $1.20 beat MSe and consensus by 6c. Wireless service revenues (ex ASC 606) grew +2.5% Y/Y, meaningfully returning Verizon back to growth. Net adds of +531k was supported by wearables, while ARPU improvement reflects both accounting and lighter promotional pressures. In contrast, wireline accelerated its decline, as legacy offerings pressure the topline. Likewise, margins are expected to move below the 20% level going forward. 2018 guidance improved. While fundamental EPS guidance for the year continues to call for low singledigit % growth, the impact of ASC 606 is now expected to be 2731c overall, or 711c above the prior ~20c expectations. Furthermore, 2019 is expected to see half this impact, while the impact to 2020 is minimal. Capex for the year is now guided for the low end of the $1717.8B range. What's changed. Our model is updated for the quarter. We are improving our consolidated revenues to $130B, as wireless improvements offset the declines in wireline. Our EPS moves to $4.65, up 12c, which reflects the higher 2Q18 results relative to our number and the larger boost from ASC 606. Our 2018 capex moves to $17.2B to reflect updated guidance. Things to watch for. New CEO New CEO Hans Vestberg is taking over the role on August 1st. His background as the CEO of Ericsson should be valuable as Verizon moves ahead with its 5G fixed wireless launch later this year (perhaps in the fall). 5G launch We will be particularly focused on Verizon s choice of OTT partner and potential application across wireless and FiOS, as well as price points, technical performance and initial customer feedback. Unlike AT&T, Verizon has remained content with not owning content. At this point we believe Verizon is getting little value for the fixed broadband opportunity. Spectrum needs With upcoming microwave auctions, a Cband NPRM, CBRS MORGAN STANLEY & CO. LLC Simon Flannery EQUITY ANALYST Simon.Flannery@morganstanley.com Lisa Lam, CFA RESEARCH ASSOCIATE Lisa.Lam@morganstanley.com Verizon Communications ( VZ.N, VZ US ) Telecom Services / United States of America +1 212 7616432 +1 212 7614487 Stock Rating Overweight Industry View InLine Price target $56.00 Shr price, close (Jul 26, 2018) $51.18 Mkt cap, curr (mm) $212,875 52Week Range $54.7743.68 Fiscal Year Ending 12/17 12/18e 12/19e 12/20e ModelWare EPS ($) 3.60 4.54 4.64 4.80 Prior ModelWare EPS 3.68 4.48 4.66 4.87 ($) P/E 14.7 11.3 11.0 10.7 Consensus EPS ($) 3.76 4.64 4.73 4.83 Div yld (%) 4.4 4.7 4.8 4.9 Unless otherwise noted, all metrics are based on Morgan Stanley ModelWare framework = Consensus data is provided by Thomson Reuters Estimates e = Morgan Stanley Research estimates QUARTERLY MODELWARE EPS ($) 2018e 2018e 2019e 2019e Quarter 2017 Prior Current Prior Current Q1 1.04 1.28a Q2 0.96 1.14 1.20 Q3 0.98 1.19 1.17 Q4 0.86 1.03 1.11 e = Morgan Stanley Research estimates, a = Actual Company reported data Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. 1

activity and other spectrum options, we will be interested to see how Verizon aggressive decides to be. Dividend increase We expect Verizon to announce another low single digit dividend increase in September, although tax reductions could provide some flexibility to declare a bigger hike. 2019 Capex Despite guiding to capex at the low end of the range for 2018, management continues to keep the option open to accelerate spending in the future if the 5G opportunity warrants it. Oath outlook Oath revenues were light this quarter versus our expectations, while the company shut down Go90. We will be watching for any changes in strategic direction for this unit under the new CEO. 2

Risk Reward RiskReward Snapshot: Verizon Communications $ 80 70 60 50 40 30 20 10 $56.00 (+8%) Price Target $56 Our valuation is based on a 2018e dividend yield of 4.25%, 25bps above the 5year historical average yield of 4.5%. Bull $68 3.5% dividend yield (5 year historical low) Monetizing mobile data. Verizon is able to grow wireless revenues, as LTE penetration and connected devices drive data usage higher. Meanwhile, the Enterprise business benefits from the demand for cloud, security, and professional services. Base $56 4.25% dividend yield Industry leader. Verizon maintains its position as the industry leader, although wireless revenue growth slows. Wireline revenue loss improves, with strength in consumer, but Enterprise continues to muddle along. Bear $40 6.0% dividend yield (50bps above 5 year historical high Free cash flow pressure. Wireless competition drives churn higher, while capex / spectrum purchases pressure free cash flow. Rising interest rates make the dividend yield less attractive, while investors demand more compensation due to an elevated payout ratio. $52.01 $68.00 (+31%) $40.00 (23%) 0 Jul16 Jan17 Jul17 Jan18 Jul18 Jan19 Jul19 Price Target (Jul19) Historical Stock Performance Current Stock Price Source: Morgan Stanley Research, Thomson Reuters. WARNINGDONOTEDIT_RRS4RL~VZ.N~ Investment Thesis Improved growth profile, with wireless service revenue ~70% of consolidated revenue, and wireless EBITDA ~85% of consolidated EBITDA. Key Value Drivers Highest dividend yield in the Dow Jones. We believe that Verizon is wellpositioned in a competitive wireless industry, with an attractive portfolio of spectrum, and LTE covering 309M POPs. Opportunity includes ~15m basic phones, ~7m 3G smartphones + higher connections per account + customers trading up to higher tiered data packages. FiOS network is best in class, well positioned vs. cable competition, and the roll out is largely complete. Potential Catalysts Continued strength in wireless Rates remain lower for longer Defensive market Developments around mobile video, and internet of things Risks to Achieving Price Target Rising interest rates make the dividend yield less attractive Competitive price pressure from wireless competitors Wireline business faces significant secular pressures 3

Estimate Changes Exhibit 1: Estimate Changes NEW OLD DIFF. 3Q18E 2018E 3Q18E 2018E 3Q18E 2018E CONSOLIDATED Adjusted EPS $1.17 $4.65 $1.19 $4.53 ($0.02) $0.12 Total Revenue 32,482 130,445 32,062 128,865 420 1,580 % y/y growth 2.4% 3.5% 1.1% 2.2% 132 bps 125 bps Adjusted EBITDA 12,171 47,936 12,283 47,733 (112) 203 % margin 37.5% 36.7% 38.3% 37.0% 84 bps 29 bps Total Capex 4,629 17,226 4,264 17,466 364 (240) % of revenues 14.3% 13.2% 13.3% 13.6% 95 bps 35 bps WIRELESS Service Revenues 15,842 62,891 15,628 62,084 213 806 % y/y growth 0.0% 0.4% 1.3% 1.6% 135 bps 128 bps Equipment Revenues 5,046 21,546 4,968 21,213 78 334 % y/y growth 15.9% 14.1% 14.2% 12.3% 179 bps 177 bps EBITDA 10,740 42,391 10,554 40,839 186 1,551 % service revenues 67.8% 67.4% 67.5% 65.8% 26 bps 162 bps Capex 2,218 8,460 2,188 8,903 30 (443) Postpaid Net adds 530 2,378 487 2,187 43 191 Prepaid Net adds (264) (1,144) (22) (775) (242) (368) Phone net adds 234 797 191 707 43 90 Postpaid Churn 0.97% 0.99% 0.97% 0.98% 0 bps 1 bps Postpaid ARPU $42.95 $42.52 $42.51 $42.07 $0.44 $0.44 % y/y growth 2.5% 2.9% 3.5% 3.9% 1.0% 1.0% WIRELINE Wireline Revenues 7,368 29,718 7,530 30,122 (162) (403) % y/y growth 3.8% 4.0% 1.7% 2.7% 212 bps 130 bps EBITDA 1,457 6,021 1,640 6,429 (183) (408) % margin 19.8% 20.3% 21.8% 21.3% 200 bps 108 bps Capex 1,992 6,876 1,677 6,797 315 79 Switched + VoIP (000) 11,818 11,136 10,681 9,868 1,137 1,268 % y/y growth 5.9% 13.1% 7.7% 23.0% 184 bps 989 bps Change (737) (1,685) (893) (2,953) 156 1,268 Broadband Adds (000) 5 (8) 10 20 (5) (28) DSL net adds (60) (232) (60) (239) 0 7 FiOS data adds 65 224 70 259 (5) (35) FiOS video adds (28) (126) (26) (107) (3) (20) ENTERPRISE Enterprise Solutions 2,149 8,771 2,234 8,962 (85) (192) % y/y growth 5.0% 6.7% 1.3% 4.7% 375 bps 204 bps Partner Solutions 1,200 4,807 1,219 4,840 (19) (33) % y/y growth 3.5% 2.8% 2.0% 2.1% 150 bps 67 bps Business Markets 840 3,388 894 3,553 (54) (165) % y/y growth 7.0% 5.9% 1.0% 1.3% 600 bps 457 bps OTHER Revenues 2,549 9,803 2,549 9,823 0 (20) % y/y growth 3.0% 29.6% 3.0% 29.8% 0 bps 26 bps EBITDA (25) (476) 89 465 (115) (941) % margin 1.0% 4.9% 3.5% 4.7% 450 bps 958 bps Source: Company data, Morgan Stanley Research 4

2018 Guidance Exhibit 2: 2018 Guidance 2018 GUIDANCE VZ (7/24/18) VZ (1/23/18) MSe Consensus Adjusted EPS "Low singledigit % growth" [incl Straight Path] [before tax reform, ASC 606] "Low singledigit % growth" [incl Straight Path] [before tax reform, ASC 606] $4.65 $4.64 ASC 606 EPS impact 2018: +2731c Total Revenue [ex ASC 606] "grow at lowtomidsingledigit % rates on a GAAP basis" [ex ASC 606] "grow at lowsingledigit % rates on a GAAP basis" 130,445 130,353 % y/y growth 3.5% 3.4% Adjusted EBITDA 47,936 47,415 % margin 36.7% 36.4% Total Capex Low end of range: $17.0 17.8B [incl 5G] $17.0 17.8B [incl 5G] 17,226 17,435 % of revenues 13.2% 13.4% Service Revenue [ex revenue recognition impacts] "growth by the middle part of 2018" [ex revenue recognition impacts] "growth by the middle part of 2018" 62,891 % y/y growth [GAAP basis] "turn positive by the end of 2018" [GAAP basis] "turn positive by the end of 2018" 0.4% Equipment Revenue 21,546 % y/y growth 14.1% Effective tax rate Low end of range: 2426% 2426% 24.3% Tax reform impact OCF: +$3.54.0B; EPS: +5565c OCF: +$3.54.0B; EPS: +5565c Source: Company data, Morgan Stanley Research, Thomson Reuters 5

Charts Verizon Consolidated Results Exhibit 3: EPS of $1.20 beats estimates by 6c Verizon EPS v. MS Estimates, Consensus MS Estimates Consensus 10c 8c 8c 7c 7c 6c 6c 6c 6c 4c 2c 0c 2c 4c 3c 3c 3c 2c 2c 2c 2c 1c 1c 1c 1c 1c 1c 1c 0c 0c 0c 0c 0c Average, 2c 1c 1c 1c 1c 2c 3c 3c 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Source: Company Data, Morgan Stanley Research, Thomson Reuters. Exhibit 4: Revenues see tail end of acquisition impacts CONSOLIDATED REVENUE ( % y/y growth ) AT&T 30% 25% 20% 15% 10% 5% 0% 5% 10% 22.3% 24.4% 22.7% 18.6% Verizon 4.6% 6.6% 5.4% 3.3% 1.5% 0.7% 0.7% 0.1% 2.9% 0.4% 5.0% 3.6% 5.1% 4.0% 5.8% 1.7%3.0% 2.5% 2.1% 3.4% Exhibit 5: Higher handset insurance claims reduces overall margins CONSOLIDATED EBITDA ( % margins ) AT&T Verizon 40% 38% 35% 33% 30% 28% 25% 34.8% 32.2% 33.4% 30.8% 32.8% 33.1% 33.2% 33.2% 34.1% 34.2% 32.8% 32.7% 28.4% 29.1% 36.2% 36.3% 36.5% 29.2% 38.1% 37.3% 38.1% 34.8% 37.9% 36.8% Exhibit 6: Capex guide now moved to low end of $1717.8B in 2018 Verizon LTM Capital Expenditures ( $ billions ) Wireless Wireline $20b $18b $16b $14b $12b $10b $8b $6b $4b $2b $0b $17.1 $17.8 $17.5 $16.9 $16.6 $17.1 $16.7 $16.8 $16.9 $17.2 $18.7 $18.1 $5.0 $5.0 $5.0 $4.7 $4.5 $4.5 $4.5 $4.8 $5.0 $5.3 $6.0 $6.0 $11.2 $11.7 $11.5 $11.2 $11.0 $11.2 $10.9 $10.5 $10.7 $10.6 $11.2 $10.4 Exhibit 7: Tax reform savings help FCF Verizon Free Cash Flow ($ billions) $8b $6b $4b $2b $0b $2b $4b $6b $5.1 $5.3 $5.7 $4.0 $4.3 $2.3 $2.3 $3.0 $2.4 $2.3 $1.5 $0.7 $2.4 $2.1 $2.9 $2.8 $3.0 $2.4 $3.3 $1.7 $2.3 $2.4 $2.4 $2.4 $1.9 $2.4 $2.4 $0.6 ($0.8) ($0.3) $0.5 ($1.7) ($2.9) ($3.7) ($0.6) ($1.4) Free Cash Flow (After Dividend) Dividend Exhibit 8: Guiding for low single digit EPS growth in 2018, on a comparable basis to 2017's $3.74. ASC 606 impacts improved by 7 11c Bells' LTM Adjusted EPS $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Verizon, $3.96 AT&T, $3.16 6

Wireless Exhibit 9: Service revenue grew +2.5% Y/Y under old accounting standard WIRELESS SERVICE REVENUE ( % y/y growth ) AT&T Verizon 2% 0.8% 0.4% 0% 2.1% 1.7% 1.7% 1.3% 2% 1.1% 1.9% 2.9% 2.5% 4.1% 2.6% 2.4% 4% 5.6% 5.4% 5.2% 4.9% 5.1% 2.9% 5.5% 6.2% 6.1% 6% 6.7% 8% 7.4% Exhibit 10: Wireless margins move higher on low upgrade quarter WIRELESS EBITDA ( % service revenue ) AT&T Verizon 80% 70% 60% 50% 40% 30% 20% 60.5% 61.5% 59.5% 59.7% 62.5% 62.9% 59.6% 56.4% 52.9% 52.8% 52.0% 68.0% 68.1% 49.7% 49.8% 50.0% 49.1% 50.2% 50.1% 43.6%54.1% 55.7% 44.2% 45.2% Exhibit 11: Wearables lift net add numbers VERIZON POSTPAID NET ADDS ( phone / tablet mix) Phones Tablets / other Total 2,500 2,000 1,500 1,000 500 0 (500) 1,289 1,519 859 1,070 430 449 640 615 591 614 603 442 648 529 424 256 274 329 478 (8) 86 (36) 167 358 (307) (289) (18) 1,174 743 260 431 284 (24) 531 332 199 Exhibit 12: LTM postpaid net adds extend last quarter's improvement VERIZON LTM POSTPAID NET ADDS ( phone / tablet) Phones Tablets / other Total 6,000 5,201 4,974 5,000 4,507 4,582 4,063 4,000 3,216 3,000 3,889 3,689 3,445 3,390 2,288 3,106 2,725 1,341 1,340 1,501 2,084 2,651 2,000 1,612 2,079 1,310 1,000 1,312 1,285 1,062 1,192 957 1,413 1,140 200 991 491 209 (72) 510 774 1,039 0 (1,000) 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 Exhibit 13: Postpaid churn of 1.02% is driven by phone churn of 0.75% POSTPAID CHURN AT&T Verizon 1.30% 1.20% 1.10% 1.00% 0.90% 0.80% 0.70% 0.60% 1.16% 1.18% 1.15% 1.15% 1.10% 1.11% 0.97% 1.12% 1.01% 1.06% 0.94% 1.02% 1.04% 1.10% 1.06% 1.00% 1.04% 0.93% 0.96% 0.96% 0.94% 0.97% 0.97% Exhibit 14: ARPU Y/Y impacted by ASC 606, though there are also improvements in competitive promotional offerings POSTPAID ARPU ( % y/y growth ) AT&T Verizon 0% 5% 10% 15% 5.1% 9.3% 3.5% 3.5% 3.5% 4.9% 5.0% 4.2% 3.6% 4.2% 4.0% 6.1% 10.3% 9.0% 8.2% 7.3% 10.4% 8.3% 7.8% 9.1% 2.5% 5.8% 7.4% 9.4% Source: Company Data, Morgan Stanley Research 7

Wireline Exhibit 15: Legacy segments drag wireline lower WIRELINE REVENUE ( % y/y growth ) Verizon 0% 2% 4% 1.7% 0.3% 2.5% 1.6% 4.1% 4.4% 6% 8.0% 8% 6.7% 10% 11.9% 11.6% 12% 10.1% 14% 12.4% Exhibit 16: Margins expected to dip below 20% going forward WIRELINE EBITDA ( % margins ) Verizon 35% 30% 25% 20% 15% 10% 18.8% 19.5% 18.8% 14.0% 24.1% 22.7% 21.2% 20.8% 21.1% 20.9% 21.2% 20.2% Exhibit 17: FiOS video losses 37k in net adds, due to competition from OTT and cable VERIZON FiOS NET ADDS ( 000s ) FiOS Data FiOS Video 150 114 100 99 98 90 68 66 66 50 0 42 49 47 36 36 35 43 20 21 (50) (13) (13) (15) (18) (29) (22) (41) (37) Exhibit 18: Broadband loses 10k net adds in the quarter on softer FiOS results VERIZON BROADBAND NET ADDS ( 000s ) DSL FiOS Data Broadband 200 114 99 98 90 100 68 35 49 66 47 66 43 24 2 5 (10) 0 (27) (23) (10) 7 (19) (10) 0 (53) (83) (100) (112) (70) (66) (68) (62) (72) (76) (66) (59) (94) (108) (13) (200) 8

Valuation Exhibit 19: Verizon Dividend Yield v. 10 Year Treasury is Trading Below the Historical Average Verizon Dividend Yield v. 10 Year Treasury 400 300 200 100 Maximum: 341bps Last 5 Years, 224 bps Last 2 Years, 232 bps 0 Oct12 Oct13 Oct14 Oct15 Oct16 Oct17 Source: Company Data, Morgan Stanley Research, Thomson Reuters, Bloomberg. Current, 157 bps Exhibit 20: Verizon continues to trade on a P/E at a multiyear low relative to the S&P 500 VZ / S&P500 RELATIVE NTM P/E (FY 2) 50% 40% 30% 20% 10% 0% 10% 20% 30% 40% 50% Source: Thomson Reuters, Company data, Morgan Stanley Research AVERAGE, 22.8% CURRENT, 34.3% 9

Financials Exhibit 21: Verizon Communications: Income Statement ($MM) INCOME STATEMENT ($MM) 2016 2017 2018E 2019E CAGR '14 '19 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18E 4Q18E Total Revenues 125,455 126,034 130,445 130,985 0.6% 29,814 30,548 31,717 33,955 31,772 32,203 32,482 33,987 % y/y Growth 3.1% 0.5% 3.5% 0.4% 5.8% 0.1% 2.5% 5.0% 6.6% 5.4% 2.4% 0.1% Operating Expenses Cost of Services 51,424 51,556 54,264 53,921 1.7% 11,666 12,110 12,605 15,175 13,255 13,631 12,984 14,394 % y/y Growth 1.5% 0.3% 5.3% 0.6% 7.5% 0.9% 3.1% 5.7% 13.6% 12.6% 3.0% 5.1% % of Revenues 41.0% 40.9% 41.6% 41.2% 39.1% 39.6% 39.7% 44.7% 41.7% 42.3% 40.0% 42.4% SG&A 29,795 27,821 28,245 28,044 3.7% 6,782 7,054 7,012 6,973 6,488 6,707 7,327 7,723 % y/y Growth 9.3% 6.6% 1.5% 0.7% 10.5% 2.5% 5.6% 7.7% 4.3% 4.9% 4.5% 10.8% % of Revenues 23.7% 22.1% 21.7% 21.4% 22.7% 23.1% 22.1% 20.5% 20.4% 20.8% 22.6% 22.7% Depreciation and amortization 15,928 16,954 17,492 17,558 1.2% 4,059 4,167 4,272 4,456 4,324 4,350 4,390 4,428 % y/y Growth 0.6% 6.4% 3.2% 0.4% 1.0% 4.6% 8.4% 11.8% 6.5% 4.4% 2.8% 0.6% % of Revenues 12.7% 13.5% 13.4% 13.4% 13.6% 13.6% 13.5% 13.1% 13.6% 13.5% 13.5% 13.0% Total Operating Expenses 97,147 96,331 100,001 99,523 0.1% 22,507 23,331 23,889 26,604 24,067 24,688 24,701 26,545 % y/y Growth 3.9% 0.8% 3.8% 0.5% 7.0% 0.4% 1.2% 2.7% 6.9% 5.8% 3.4% 0.2% % Revenues 77.4% 76.4% 76.7% 76.0% 75.5% 76.4% 75.3% 78.4% 75.7% 76.7% 76.0% 78.1% EBITDA 44,236 46,657 47,936 49,020 2.5% 11,366 11,384 12,100 11,807 12,029 11,865 12,171 11,870 % Margin 35.3% 37.0% 36.7% 37.4% 38.1% 37.3% 38.1% 34.8% 37.9% 36.8% 37.5% 34.9% Income from uncons. biz (98) (77) (287) (100) (21) (28) (22) (6) (19) (228) (20) (20) % y/y Growth 14.0% 21.4% 272.7% 0.0% 5.0% 40.0% 4.3% 82.9% 9.5% 714.3% 9.1% 233.3% % of Revenues 0.1% 0.1% 0.2% 0.1% 0.1% 0.1% 0.1% 0.0% 0.1% 0.7% 0.1% 0.1% Other income and (expense) 223 (2,010) 475 (42) (846) (19) (511) (634) (75) 571 (14) (7) Interest Expense 4,376 4,733 4,775 4,632 1.2% 1,132 1,218 1,164 1,219 1,201 1,222 1,184 1,168 % of Revenues 3.5% 3.8% 3.7% 3.5% 3.8% 4.0% 3.7% 3.6% 3.8% 3.8% 3.6% 3.4% Pretax income 23,576 22,434 25,357 26,190 5.1% 5,205 5,836 6,015 5,378 6,289 6,510 6,438 6,120 % of Revenues 18.8% 17.8% 19.4% 20.0% 17.5% 19.1% 19.0% 15.8% 19.8% 20.2% 19.8% 18.0% Provision for income taxes 8,289 7,159 6,165 6,547 1.0% 1,342 1,932 2,021 1,864 1,478 1,547 1,610 1,530 % Tax Rate 35.2% 31.9% 24.3% 25.0% 25.8% 33.1% 33.6% 34.7% 23.5% 23.8% 25.0% 25.0% % Statutory tax rate 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% 37.9% Noncontrolling Interest (481) (449) (499) (499) 26.5% (103) (116) (116) (114) (121) (126) (126) (126) % y/y Growth 3.0% 6.7% 11.1% 0.0% 14.2% 10.1% 8.7% 8.6% 17.5% 8.6% 8.6% 10.5% % of Revenues 0.4% 0.4% 0.4% 0.4% 0.3% 0.4% 0.4% 0.3% 0.4% 0.4% 0.4% 0.4% Net Income Attributable To VZ 15,287 15,275 19,193 19,642 6.7% 3,863 3,904 3,994 3,514 4,811 4,963 4,829 4,590 % y/y Growth 8.2% 0.1% 25.6% 2.3% 1.7% 1.2% 3.1% 0.1% 24.5% 27.1% 20.9% 30.6% % of Revenues 12.2% 12.1% 14.7% 15.0% 13.0% 12.8% 12.6% 10.3% 15.1% 15.4% 14.9% 13.5% NI Before Special Items 15,768 15,724 19,692 20,141 4.0% 3,966 4,020 4,110 3,628 4,932 5,089 4,955 4,716 % y/y Growth 7.9% 0.3% 25.2% 2.3% 1.2% 0.9% 3.3% 0.4% 24.4% 26.6% 20.5% 30.0% Diluted EPS $3.74 $3.74 $4.65 $4.76 6.9% $0.95 $0.96 $0.98 $0.86 $1.17 $1.20 $1.17 $1.11 % y/y Growth 8.4% 0.1% 24.4% 2.3% 1.6% 1.3% 3.2% 0.0% 23.9% 25.4% 19.6% 29.2% Wghtd avg diluted shares 4,086 4,087 4,129 4,129 0.2% 4,087 4,082 4,089 4,090 4,107 4,139 4,134 4,135 % y/y Growth 0.2% 0.0% 1.0% 0.0% 0.0% 0.1% 0.1% 0.1% 0.5% 1.4% 1.1% 1.1% 10

Exhibit 22: Verizon Communications: Balance Sheet ($MM) BALANCE SHEET ($MM) 2016 2017 2018E 2019E 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18E 4Q18E ASSETS Current assets Cash and cash equivalents 2,880 2,079 4,166 6,133 4,307 4,583 4,487 2,079 1,923 1,750 2,402 4,166 Restricted cash 1,012 169 Shortterm investments Accounts receivable, net 17,513 23,493 24,757 25,041 16,863 19,771 21,549 23,493 22,595 23,099 23,480 24,757 Inventories 1,202 1,034 1,200 1,192 1,194 1,116 1,276 1,034 1,285 1,102 1,102 1,200 Net assets held for sale 882 149 275 Prepaid expenses and other 3,918 3,307 4,976 4,997 4,645 3,353 3,280 3,307 4,210 4,756 4,756 4,976 Total current assets 26,395 29,913 35,099 37,363 27,158 28,823 30,867 29,913 31,025 30,876 31,740 35,099 PPE gross 232,215 246,498 253,674 257,150 235,550 239,226 242,608 246,498 246,877 249,294 251,430 253,674 Less accumulated depreciation (147,464) (157,930) (165,324) (168,930) (150,337) (152,705) (155,986) (157,930) (158,955) (161,513) (163,410) (165,324) Plant, property and equipment, net 84,751 88,568 88,350 88,220 85,213 86,521 86,622 88,568 87,922 87,781 88,020 88,350 Investments in unconsolidated biz 1,110 1,039 747 647 1,080 1,075 1,054 1,039 994 787 767 747 Intangible assets 122,775 127,836 132,916 132,916 124,296 127,674 127,601 127,836 132,812 132,916 132,916 132,916 Other assets 9,149 9,787 10,943 10,943 8,984 8,885 8,538 9,787 11,763 10,943 10,943 10,943 Total Assets 244,180 257,143 268,055 270,089 246,731 252,978 254,682 257,143 264,516 263,303 264,386 268,055 LIABILITIES Current liabilities Debt maturing within one year 2,645 3,453 5,466 5,466 3,707 1,153 2,180 3,453 6,323 5,466 5,466 5,466 A/P and accrued liabilities 19,593 21,232 20,210 20,077 14,826 17,825 18,434 21,232 17,052 18,560 18,560 20,210 Liabilities of Discontinued Ops 24 25 4 Other 8,078 8,352 8,303 8,303 8,106 8,776 8,316 8,352 8,240 8,303 8,303 8,303 Total current liabilities 30,340 33,037 33,979 33,846 26,664 27,758 28,930 33,037 31,615 32,329 32,329 33,979 Longterm debt 105,433 113,642 106,250 99,542 112,839 116,390 115,317 113,642 112,734 109,174 107,712 106,250 Employee benefit obligations 26,166 22,112 19,955 18,880 22,079 21,775 21,131 22,112 20,689 19,955 19,955 19,955 Deferred income taxes 45,964 31,232 35,631 36,992 47,847 47,506 48,345 31,232 34,414 35,069 35,350 35,631 Other liabilities 12,245 12,433 14,375 14,375 12,265 12,788 12,508 12,433 12,719 13,201 13,201 14,375 Total Liabilities 220,148 212,456 210,190 203,634 221,694 226,217 226,231 212,456 212,171 209,728 208,547 210,190 Shareowners Common stock 424 424 429 429 424 424 424 424 429 429 429 429 Contributed capital 11,182 11,101 13,438 13,438 11,161 11,099 11,098 11,101 13,437 13,438 13,438 13,438 Reinvested earnings 15,059 35,635 46,095 55,669 16,153 18,159 19,373 35,635 39,974 41,657 43,995 46,095 Acc. other compr. income (loss) 2,673 2,659 3,205 2,523 2,609 2,284 2,683 2,659 3,705 3,205 3,205 3,205 Less common stock in treasury (7,263) (7,139) (6,990) (6,990) (7,144) (7,142) (7,141) (7,139) (6,992) (6,990) (6,990) (6,990) Less deferred compensation 449 416 285 285 290 365 411 416 228 285 285 285 Noncontrolling interest 1,508 1,591 1,403 1,102 1,544 1,572 1,603 1,591 1,564 1,551 1,477 1,403 Total shareowners' investment 24,032 44,687 57,865 66,455 25,037 26,761 28,451 44,687 52,345 53,575 55,839 57,865 Total Liabilities + SE 244,180 257,143 268,055 270,089 246,731 252,978 254,682 257,143 264,516 263,303 264,386 268,055 11

Exhibit 23: Verizon Communications: Cash Flow Statement ($MM) CASH FLOW STATEMENT ($MM) 2016 2017 2018E 2019E 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18E 4Q18E Reported Net Income 13,608 30,550 18,583 20,141 3,553 4,478 3,736 18,783 4,666 4,246 4,955 4,716 Adjustments for operating activities Depreciation 14,328 15,354 15,892 15,958 3,659 3,767 3,872 4,056 3,924 3,950 3,990 4,028 Amortization 1,600 1,600 1,600 1,600 400 400 400 400 400 400 400 400 Sales of assets, net 0 0 0 0 0 0 0 0 0 0 0 Mark to market adjustment for exch notes 0 0 0 0 0 0 0 0 0 Employee retirement benefits 2,705 440 (86) (385) (111) (112) (111) 774 (151) (149) 107 107 Deferred income taxes, net (1,063) (14,463) 1,916 1,361 2,025 (145) 697 (17,040) 702 652 281 281 Provision for uncollectible accounts 1,420 1,167 908 908 330 302 210 325 239 223 223 223 Income from unconsolidated businesses 138 117 308 100 28 39 33 17 30 238 20 20 Total Changes in current assets and liabilities (5,636) (4,947) (3,989) (1,338) (4,694) 1,600 (2,419) 566 (3,033) (184) (604) (168) Other, net (4,385) (4,513) 66 (1,373) (3,509) (2,092) 885 203 680 (400) (107) (107) Net cash provided by operating activities check 22,715 25,305 35,198 36,972 1,681 8,237 7,303 8,084 7,457 8,976 9,264 9,501 Cash flows from Investing Activities Capex (17,059) (17,247) (17,225) (17,428) (3,067) (3,944) (4,271) (5,965) (4,552) (3,286) (4,629) (4,758) Acquisitions and investments (4,299) (5,928) (1,193) 0 (1,746) (4,534) (15) 367 (1,002) (191) 0 0 Net change in shortterm and other current investments 0 0 0 0 0 0 0 0 0 0 0 0 Other, net 10,375 3,803 1,477 0 (20) 3,428 468 (73) 269 34 0 1,174 Net cash used in investing activities (10,983) (19,372) (16,941) (17,428) (4,833) (5,050) (3,818) (5,671) (5,285) (3,443) (4,629) (3,584) Cash flows from Financing Activities Proceeds from longterm borrowings 12,964 27,707 4,584 13,054 2,955 5,906 5,792 1,956 2,628 Proceeds from assetbacked LT borrowings 4,986 3,890 (3,208) (3,208) 1,283 1,595 0 1,012 1,178 (1,462) (1,462) (1,462) Repayments of LTD (19,159) (23,837) (6,568) (3,500) (5,592) (4,702) (6,163) (7,380) (2,984) (3,584) 0 0 Increase (decrease) in ST debt, ex current maturities (149) (170) (210) 0 (52) (100) (8) (10) 1,222 (1,432) 0 0 Dividends paid (9,262) (9,472) (9,826) (10,069) (2,354) (2,356) (2,357) (2,405) (2,407) (2,438) (2,490) (2,491) Proceeds from sale of common stock 3 0 0 0 0 0 0 0 0 0 0 0 Purchase of common stock for treasury 0 0 0 0 0 0 0 0 0 0 0 0 Dividend to VOD 0 0 0 0 0 0 0 0 0 0 0 0 Other, Net (2,705) (4,852) (942) (800) (1,760) (303) (959) (1,830) (281) (261) (200) (200) Net cash used in financing activities (18,308) (6,734) (16,170) (17,577) 4,579 (2,911) (3,581) (4,821) (1,316) (6,549) (4,152) (4,153) Increase in cash and cash equivalents (6,576) (801) 2,087 1,967 1,427 276 (96) (2,408) 856 (1,016) 483 1,763 Cash and cash equivalents, beginning of period 4,470 2,880 2,079 4,166 2,880 4,307 4,583 4,487 2,079 2,935 1,919 2,402 Cash and cash equivalents, end of period (2,106) 2,079 4,166 6,133 4,307 4,583 4,487 2,079 2,935 1,919 2,402 4,166 Levered FCF (OCF capex) 5,656 8,058 17,973 19,544 (1,386) 4,293 3,032 2,119 2,905 5,690 4,636 4,742 per share $1.38 $1.97 $4.35 $4.73 ($0.34) $1.05 $0.74 $0.52 $0.71 $1.37 $1.12 $1.15 12

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(as of June 30, 2018) The Stock Ratings described below apply to Morgan Stanley's Fundamental Equity Research and do not apply to Debt Research produced by the Firm. For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equalweight, NotRated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equalweight, NotRated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equalweight and NotRated to hold and Underweight to sell recommendations, respectively. STOCK RATING CATEGORY COVERAGE UNIVERSE INVESTMENT BANKING CLIENTS (IBC) OTHER MATERIAL INVESTMENT SERVICES CLIENTS (MISC) COUNT % OF TOTAL COUNT % OF TOTAL IBC % OF RATING CATEGORY COUNT % OF TOTAL OTHER MISC Overweight/Buy 1170 38% 292 39% 25% 550 39% Equalweight/Hold 1343 43% 363 49% 27% 645 46% NotRated/Hold 50 2% 5 1% 10% 7 0% Underweight/Sell 544 18% 81 11% 15% 211 15% TOTAL 3,107 741 1413 Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12 months. Due to rounding off of decimals, the percentages provided in the "% of total" column may not add up to exactly 100 percent. Analyst Stock Ratings Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a riskadjusted basis, over the next 1218 months. Equalweight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a riskadjusted basis, over the next 1218 months. NotRated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's industry (or industry team's) coverage universe, on a riskadjusted basis, over the next 1218 months. Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a riskadjusted basis, over the next 1218 months. Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months. Analyst Industry Views Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 1218 months to be attractive vs. the relevant broad market benchmark, as indicated below. InLine (I): The analyst expects the performance of his or her industry coverage universe over the next 1218 months to be in line with the relevant broad market benchmark, as indicated below. Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 1218 months with caution vs. the relevant broad market benchmark, as indicated below. Benchmarks for each region are as follows: North America S&P 500; Latin America relevant MSCI country index or MSCI Latin America Index; Europe MSCI Europe; Japan TOPIX; Asia relevant MSCI country index or MSCI subregional index or MSCI AC Asia Pacific ex Japan Index. Stock Price, Price Target and Rating History (See Rating Definitions) 14

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