America Online 2015 Annual Report Download - page 14

Trends
In the sections that follow, we provide information about the important
aspects of our operations and investments, both at the consolidated
and segment levels, and discuss our results of operations, financial
position and sources and uses of cash. In addition, we highlight key
trends and uncertainties to the extent practicable.
The industries that we operate in are highly competitive, which we
expect to continue particularly as traditional, non- traditional and
emerging service providers seek increased market share. We believe
that our high- quality customer base and superior networks differ-
entiate us from our competitors and enable us to provide enhanced
communications experiences to our customers. We believe our focus
on the fundamentals of running a good business, including operating
excellence and financial discipline, gives us the ability to plan and
manage through changing economic and competitive conditions.
We will continue to invest for growth, which we believe is the key to
creating value for our shareowners. We are investing in innovative
technology, like wireless networks and high-speed fiber, as well as the
platforms that will position us to capture incremental profitable growth
in new areas, like mobile video and IoT, to position ourselves at the
center of growth trends of the future.
Connection and Operating Trends
In our Wireless segment, we expect to continue to attract and maintain
the loyalty of high- quality retail postpaid customers, capitalizing on
demand for data services and bringing our customers new ways
of using wireless services in their daily lives. We expect that future
connection growth will be driven by smartphones, tablets and other
connected devices. We believe these devices will attract and retain
higher value retail postpaid connections, contribute to continued
increases in the penetration of data services and help us remain
competitive with other wireless carriers. We expect future growth
opportunities will be dependent on expanding the penetration of
our network services, offering innovative wireless devices for both
consumer and business customers and increasing the number of ways
that our customers can connect with our network and services, and
we expect to manage churn by focusing on improving the customer
experience through simplified pricing and better execution in our distri-
bution channels.
Service and equipment pricing play an important role in the wireless
competitive landscape. As the demand for wireless services continues
to grow, wireless service providers are offering service plans that
include unlimited voice minutes and text messages and a specific
amount of data access in varying megabyte or gigabyte sizes or,
in some cases, unlimited data usage at competitive prices. Some
wireless service providers also allow customers to roll over unused
data allowances to the next billing period. Furthermore, some wireless
service providers offer price plans to new customers that undercut
pricing under the customer’s service plan with its current wireless
provider. Some wireless providers also offer promotional pricing and
incentives targeted specifically to customers of Verizon Wireless.
Many wireless service providers, as well as equipment manufac-
turers, offer device payment options that decouple service pricing
from equipment pricing and blur the traditional boundary between
prepaid and postpaid plans. These payment options include device
installment plans, which provide customers with the ability to pay for
their device over a period of time, and device leasing arrangements.
Historically, wireless service providers offered customers wireless
plans whereby, in exchange for the customer entering into a fixed-term
service agreement, the wireless service providers significantly, and in
some cases fully, subsidized the customer’s device purchase. Wireless
providers recovered those subsidies through higher service fees as
compared to those paid by customers on device installment plans. We
and many other wireless providers have limited or discontinued the use
of device subsidies. As a result of the increased penetration of device
installment plans, we expect the number of customers on plans with
unsubsidized service pricing to continue to grow in 2016. We compete
in this area by offering our customers services and devices that we
believe they will regard as the best available value for the price, while
meeting their wireless service needs.
In our Wireline segment, we have experienced continuing access line
losses as customers have disconnected both primary and secondary
lines and switched to alternative technologies such as wireless, voice
over Internet protocol (VoIP) and cable for voice and data services.
We expect to continue to experience access line losses as customers
continue to switch to alternate technologies. We also expect
Consumer retail revenues to increase, primarily driven by our Fios
services, as we seek to increase our penetration rates within our Fios
service areas.
Despite this challenging environment, we expect that we will be able
to grow key aspects of our Wireline segment by providing network
reliability, offering product bundles that include broadband Internet
access, digital television and local and long distance voice services,
offering more robust IP products and services, and accelerating our
cloud computing and IoT strategies. We will also continue to focus on
cost efficiencies to attempt to offset adverse impacts from unfavorable
economic conditions and competitive pressures.
Operating Revenue
We expect to experience revenue growth in our Wireless segment in
2016, primarily as a result of an increase in the sale of devices under
the Verizon device payment program. The increase in activations of
these devices with unsubsidized service pricing results in a relative
shift of revenue from service revenue to equipment revenue and
causes a change in the timing of the recognition of revenue. This shift
in revenue is the result of recognizing a higher amount of equipment
revenue at the time of sale of devices under the device payment
program. As a result of the increased penetration of device installment
plans, we expect the number of customers on plans with unsubsidized
service pricing to continue to grow in 2016.
We expect Fios broadband and video penetration to positively impact
our Mass Markets revenue and subscriber base. Although we have
experienced revenue declines in our Global Enterprise business, we
expect our Global Enterprise business to be positively impacted by
additional revenues from application services, such as our cloud,
security and other solutions-based services and from continued
customer migration of their services to Private IP and other strategic
networking services. We believe the trend in these growth areas as
well as our offerings in telematics and video streaming will help offset
the continuing decline in revenues in our Wireline segment related to
retail voice connection losses and the continued decline in our legacy
wholesale and enterprise markets.
We are focused on developing new products and services as well as
commercial models in mobile video and the IoT to monetize usage
on our networks and expand our revenue mix. Although we do not
expect to realize material incremental revenues from these initiatives in
2016, we expect these initiatives will have a long-term positive impact
on revenues.
12 Verizon Communications Inc. and Subsidiaries
Management’s Discussion and Analysis ofFinancialCondition and Results of Operations continued