America Online 2015 Annual Report Download - page 13

Wireless Transaction
On February21, 2014, we completed the acquisition of Vodafone
Group Plc’s (Vodafone) indirect 45% interest in Cellco Partnership
d/b/a Verizon Wireless for aggregate consideration of approximately
$130billion (the Wireless Transaction). The consideration paid was
primarily comprised of cash of approximately $58.89billion and
Verizon common stock with a value of approximately $61.3billion.
With full control of Verizon Wireless enhancing our operational effi-
ciency, we believe we are well- positioned to meet the challenges of
an increasingly competitive industry. See Note2 to the consolidated
financial statements for additional information.
Business Overview
Wireless
In our Wireless business, revenues grew 4.6% during 2015 driven
by a 54.4% increase in equipment revenue as a result of an increase
in device sales, primarily smartphones, under the Verizon device
payment program (formerly known as Verizon Edge), partially offset
by a decline in device sales under our traditional fixed-term service
plans. Customers on our fixed-term service plans have historically
paid higher fees for their wireless service in exchange for the ability
topurchase their wireless devices at subsidized prices. Under the
Verizon device payment program, our eligible wireless customers
purchase phones or tablets at unsubsidized prices on an installment
basis (a device installment plan). Customers that activate service
on devices purchased under the device payment program or on
a compatible device that they already own pay lower service fees
(unsubsidized service pricing) as compared to those under our fixed-
term service plans. The increase in activations of devices purchased
under the Verizon device payment program has resulted in a relative
shift of revenue from service revenue to equipment revenue and
caused a change in the timing of the recognition of revenue. This shift
in revenue was the result of recognizing a higher amount of equipment
revenue at the time of sale of devices under the device payment
program. For the year ended December31, 2015, phone activations
under the Verizon device payment program represented approximately
54% of retail postpaid phones activated compared to approximately
18% during 2014. During the fourth quarter of 2015, phone activations
under the Verizon device payment program represented approx-
imately 67% of retail postpaid phones activated. At December31,
2015, approximately 29% of our retail postpaid phone connections
participated in the Verizon device payment program compared to
approximately 8% at December31, 2014. At December31, 2015,
approximately 42% of our retail postpaid phone connections were on
unsubsidized service pricing. At December31, 2015, retail postpaid
connections were 4.4% higher than at December31, 2014, with
smartphones representing 84% of our retail postpaid phone base at
December31, 2015 compared to 79% at December31, 2014.
In August 2015, we launched a simplified shared data plan, the Verizon
Plan, that offers customers various sizes of data packages that can
be shared among up to 10 devices on a customer’s account. New
customers who wish to participate in this new plan can do so by
purchasing a device from Verizon either under our device payment
program or at full retail, or by using their own compatible device. In
addition, our current customers have the option of either moving
to the Verizon Plan, subject to certain restrictions, or keeping their
existing plan.
We are focusing our wireless capital spending on adding capacity
and density to our fourth generation (4G) Long Term Evolution (LTE)
network, which is available to over 98% of the U.S. population in
more than 500 markets covering approximately 312million people,
including those in areas served by our LTE in Rural America partners.
Approximately 91% of our total data traffic in December 2015 was
carried on our 4G LTE network. We are investing in the densification of
our network by utilizing small cell technology, in- building solutions and
distributed antenna solutions. Densification enables us to add capacity
to manage mobile video consumption and demand for IoT, as well
as position us for future fifth- generation (5G) technology. In 2015, we
announced our commitment to developing and deploying 5G wireless
technology. We are working with key partners to ensure the aggressive
pace of innovation, standards development and appropriate require-
ments for this next generation of wireless technology.
Wireline
In our Wireline business, revenues declined 1.8% during 2015 primarily
due to revenue declines in Global Enterprise resulting from lower voice
services and data networking revenues, as well as the negative impact
of foreign exchange rates. To compensate for the shrinking market for
traditional voice service, we continue to build our Wireline segment
around data, video and advanced business services — areas where
demand for reliable high-speed connections is growing. The decrease
in revenues in our Wireline segment was partially offset by revenue
increases in Consumer retail driven by Fios. During the year ended
December31, 2015, Fios represented approximately 79% of Consumer
retail revenue compared to approximately 76% in 2014. As the pen-
etration of Fios products increases, we continue to seek ways to
increase revenue and further realize operating and capital efficiencies
as well as maximize profitability. As more applications are developed
for this high-speed service, we expect that Fios will become a hub for
managing multiple home services that will eventually be part of the
digital grid, including not just entertainment and communications, but
also IoT technology used to support wireless communications in areas
such as home monitoring, health monitoring, energy management and
utilities management.
We continue to develop offerings on our Fios platform. During 2015,
Verizon announced the introduction of Fios Custom TV, which offers
customers the option of purchasing a package of channels that
includes a base set of select national networks and local broadcast
stations plus their choice of two sets of channels grouped into
various content categories, such as news, sports and entertainment.
Customers can add more sets of categorized channels to their
Custom TV package for an additional monthly fee. As with all Fios TV
packages, Custom TV customers also receive the Fios Local Package,
which contains local versions of the Fox, CBS, NBCU, and ABC
broadcast stations and other similar local content.
Capital Expenditures and Investments
We continue to invest in our wireless network, high-speed fiber and
other advanced technologies to position ourselves at the center of
growth trends for the future. During 2015, these investments included
$17.8billion for capital expenditures and $9.9billion for acquisitions of
wireless licenses. In addition, we acquired AOL to enhance our digital
media and advertising capabilities. See “Cash Flows Used in Investing
Activities” and Note2 to the consolidated financial statements for addi-
tional information. We believe that our investments aimed at expanding
our portfolio of products and services will provide our customers with
an even more efficient, reliable infrastructure for competing in the infor-
mation economy.
11Verizon Communications Inc. and Subsidiaries
Management’s Discussion and Analysis ofFinancialCondition and Results of Operations continued