Sprint - Nextel 2008 Annual Report Download - page 43

Segment Earnings - Wireline
Wireline segment earnings are primarily a function of wireline service revenue, network and
interconnection costs and other Wireline segment operating expenses. Network costs primarily represent special
access costs and interconnection costs which generally consist of domestic and international per-minute usage
fees paid to other carriers. The remaining costs associated with operating the Wireline segment include the costs
to operate our customer care and billing organizations in addition to administrative support. Wireline service
revenue, and variable network and interconnection costs fluctuate with the changes in our customer base and
their related usage, but some cost elements do not fluctuate in the short term with the changes in our customer
usage. Our Wireline segment provides services to our Wireless segment which are generally accounted for based
on market rates which we believe approximate fair value. The following table provides an overview of the results
of operations of our Wireline segment for the years ended December 31, 2009, 2008 and 2007.
Year Ended December 31,
Wireline Earnings 2009 2008 2007
(in millions)
Voice ............................................... $2,563 $ 3,079 $ 3,509
Data ................................................ 662 959 1,210
Internet .............................................. 2,293 2,148 1,575
Other ............................................... 111 146 169
Total net service revenue .......................... 5,629 6,332 6,463
Cost of services and products ............................ (3,663) (4,192) (4,446)
Service gross margin ................................... 1,966 2,140 2,017
Service gross margin percentage .......................... 35% 34% 31%
Selling, general and administrative expense ................. (745) (965) (943)
Wireline segment earnings ........................ $1,221 $ 1,175 $ 1,074
Wireline Revenue
Voice Revenues
Voice revenues decreased $516 million, or 17%, in 2009 as compared to 2008 and decreased $430
million, or 12%, in 2008 as compared to 2007. The 2009 and 2008 decreases were primarily driven by volume
declines due to customer churn as well as overall price declines. Voice revenues generated from the sale of
services to our Wireless segment represented 31% of total voice revenues in 2009 as compared to 26% in 2008
and 23% in 2007.
Data Revenues
Data revenues reflect sales of data services, including ATM, frame relay and managed network services.
Data revenues decreased $297 million, or 31%, in 2009 as compared to 2008 and decreased $251 million, or
21%, in 2008 as compared to 2007 due to declines in frame relay and ATM services as subscribers migrated to
IP-based technologies. These declines were partially offset by growth in IP revenues. Data revenues generated
from the provision of services to the Wireless segment represented 19% of total data revenue in 2009 as
compared to 13% in 2008 and 8% in 2007.
Internet Revenues
Internet revenues reflect sales of IP-based data services, including MPLS. Internet revenues increased
$145 million, or 7%, in 2009 as compared to 2008 and increased $573 million, or 36%, in 2008 as compared to
2007. The increases were due to higher IP revenues as business subscribers are increasing requirements to
support wireless customer’s data traffic, as well as revenue growth in our cable VoIP, which experienced a 15%
increase in subscribers in 2009 as compared to 2008 and a 32% increase in 2008 as compared to 2007. Internet
revenues generated from the provision of services to the Wireless segment represented 11% of total Internet
revenues in 2009 as compared to 9% in 2008 and 5% in 2007.
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