America Online 2015 Annual Report Download - page 22

2015 Compared to 2014
Wireless’ total operating revenues increased by $4.0billion, or 4.6%,
during 2015 primarily as a result of growth in equipment revenue.
Accounts and Connections
Retail (non- wholesale) postpaid accounts primarily represent retail
customers with Verizon Wireless that are directly served and managed
by Verizon Wireless and use its branded services. Accounts include
shared data plans, such as our new Verizon Plan and More Everything
plans, and corporate accounts, as well as legacy single connection
plans and family plans. A single account may include monthly wireless
services for a variety of connected devices. Retail connections
represent our retail customer device connections. Churn is the rate at
which service to connections is terminated.
Retail connections under an account may include: smartphones and
basic phones (collectively, phones) as well as tablets, LTE Internet
(Installed) and other connected devices. Retail postpaid connection
net additions decreased during 2015 primarily due to a decrease in
retail postpaid connection gross additions, partially offset by lower
retail postpaid connection churn rate. The decrease in retail postpaid
connection gross additions during 2015 was driven by a decline in
gross additions of smartphones, tablets and other Internet devices.
Retail Postpaid Connections per Account
Retail postpaid connections per account is calculated by dividing the
total number of retail postpaid connections by the number of retail
postpaid accounts as of the end of the period. Retail postpaid con-
nections per account increased as of December31, 2015 compared
to December31, 2014. The increase in retail postpaid connections
per account is primarily due to increases in Internet devices, which
represented 16.8% of our retail postpaid connection base as of
December31, 2015, compared to 14.1% as of December31, 2014.
Service Revenue
Service revenue, which does not include recurring device installment
billings related to the Verizon device payment program, decreased
by $2.2billion, or 3.1%, during 2015 primarily driven by lower retail
postpaid service revenue. Retail postpaid service revenue was
negatively impacted as a result of an increase in the activation of
devices purchased under the Verizon device payment program on
plans with unsubsidized service pricing. The increase in these acti-
vations resulted in a relative shift of revenue from service revenue to
equipment revenue and caused a change in the timing of the recog-
nition of revenue. 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. The
decrease in service revenue was partially offset by the impact of
an increase in retail postpaid connections as well as the continued
increase in penetration of smartphones and tablets through our
shared data plans. Service revenue plus recurring device installment
billings related to the Verizon device payment program increased 2.0%
during 2015.
Retail postpaid ARPA (the average revenue per account from retail
postpaid accounts), which does not include recurring device install-
ment billings related to the Verizon device payment program, was
negatively impacted during 2015 as a result of the increase in the
activation of devices purchased under the Verizon device payment
program on plans with unsubsidized service pricing. Partially offsetting
this impact during 2015 was an increase in our retail postpaid connec-
tions per account, as discussed above.
Equipment Revenue
Equipment revenue increased by $6.0billion, or 54.4%, during 2015 as
a result of an increase in device sales, primarily smartphones, under
the Verizon device payment program, partially offset by a decline in
device sales under traditional fixed-term service plans. 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 approximately 67% of retail postpaid
phones activated. The increase in these activations 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.
Other Revenue
Other revenue includes non- service revenues such as regulatory
fees, cost recovery surcharges, revenues associated with our device
protection package, sublease rentals and financing revenue. Other
revenue increased $0.3billion, or 7.5%, during 2015 primarily due to
a volume- driven increase in revenues related to our device protec-
tion package.
2014 Compared to 2013
Wireless’ total operating revenues increased by $6.6billion, or 8.2%,
during 2014 primarily as a result of growth in service revenue and
equipment revenue.
Accounts and Connections
Retail postpaid connection net additions increased during 2014
primarily due to an increase in retail postpaid connection gross
additions partially offset by an increase in our retail postpaid connec-
tion churn rate. Higher retail postpaid connection gross additions were
driven by gross additions of tablets as well as 4G LTE smartphones.
During 2014, our retail postpaid connection net additions included
approximately 4.2million tablets as compared to 1.4million tablets
in 2013.
Retail Postpaid Connections per Account
Retail postpaid connections per account increased 4.0% as of
December31, 2014 compared to December31, 2013 primarily due to
the increased penetration of tablets.
Service Revenue
Service revenue, which does not include recurring device installment
billings related to the Verizon device payment program, increased
by $3.6billion, or 5.2%, during 2014 primarily driven by higher retail
postpaid service revenue, which increased largely as a result of
an increase in retail postpaid connections as well as the continued
increase in penetration of 4G LTE smartphones and tablets through
our More Everything plans. The penetration of 4G LTE smartphones
was driven by the activation of smartphones by new customers as well
as existing customers migrating from basic phones and 3G smart-
phones to 4G LTE smartphones.
20 Verizon Communications Inc. and Subsidiaries
Management’s Discussion and Analysis ofFinancialCondition and Results of Operations continued