Verizon Wireless 2007 Annual Report Download - page 20

and exceeded 1.8 million total video customers, including our satellite
offeringfromDIRECTV.Alsoduring2007,revenuesfromourenterprise
customers grew 2.7% compared with last year, primarily driven by a
25.7% increase in revenues from sales of strategic services (Private IP, IP,
Virtual Private Network or VPN, Web Hosting and Voice over IP or VoIP).
At Domestic Wireless, we continue to add retail customers, grow rev-
enue and gain market share while maintaining a low churn (customer
turnover) rate.
• Profitability Improvement – Our goal is to increase operating income
and margins. In 2007, operating income rose 16.5% compared to 2006,
while income before provision for income taxes, discontinued opera-
tions, extraordinary item and cumulative effect of accounting change
rose 16.4% over the same period. Our operating income margin rose
to 16.7% in 2007, compared with 15.2% in 2006. Supporting these
improvements, our capital spending continues to be directed toward
growth markets, positioning the Company for sustainable, long-term
profitability. High-speed wireless data (Evolution-Data Optimized or
EV-DO) services, deployment of fiber optics to the premises, as well
as expanded services to enterprise customers are examples of these
growth markets. During 2007, capital expenditures were $17,538 mil-
lion compared with capital expenditures of $17,101 million in 2006,
excluding discontinued operations. We expect 2008 capital expendi-
tures to be lower than 2007 capital expenditures. In addition to capital
expenditures, Domestic Wireless expects, from time-to-time, to acquire
additional wireless spectrum through participation in the Federal
Communications Commission’s (FCC) wireless spectrum auctions and
in the secondary market, as spectrum capacity is needed to support
expanding data applications and a growing customer base. Domestic
Wireless also expects, from time-to-time, to acquire operating mar-
kets and spectrum in geographic areas where it does not currently
operate.
• Operational Efficiency – While focusing resources on revenue growth
and market share gains, we are continually challenging our manage-
ment team to lower expenses, particularly through technology-
assisted productivity improvements, including self-service initiatives.
The effect of these and other efforts, such as real estate consolidations,
call center routing improvements, the formation of a centralized
shared services organization, and centralizing information technology
and marketing efforts, has led to changes to the Company’s cost struc-
ture as well as maintaining and improving operating income margins.
With our deployment of the FiOS network, we expect to realize savings
in annual, ongoing operating expenses as a result of efficiencies gained
from fiber network facilities. As the deployment of the FiOS network
gains scale and installation and automation improvements occur, costs
per home connected are expected to decline. Since the merger with
MCI, we have gained operational benefits from sales force and product
and systems integration initiatives. Workforce levels in 2007 decreased
to 235,000 compared to 238,000 in 2006, primarily from a decrease at
Wireline due to continued productivity improvements and merger syn-
ergy savings, partially offset by an increase in headcount at Wireless.
• Customer Experience – Our goal is to provide the best customer
experience possible and to be the leading company in customer
service in every market we serve. We view superior product offerings
and customer service experiences as a competitive differentiator and
a catalyst to growing revenues and gaining market share. During 2007,
our Company received citations for superior products and customer
service, and we continued these initiatives to enhance the value of
our products and services. We are developing and marketing innova-
tive product bundles to include local wireline, long-distance, wireless
and broadband services for consumer and general business retail cus-
tomers. These efforts will help counter the effects of competition and
OVERVIEW
Verizon Communications Inc. (Verizon or the Company) is one of the
world’s leading providers of communications services. Verizon’s wireline
business provides communications services, including voice, broadband
data and video services, network access, nationwide long-distance and
other communications products and services, and also owns and oper-
ates one of the most expansive end-to-end global Internet Protocol (IP)
networks. Verizon’s domestic wireless business, operating as Verizon
Wireless, provides wireless voice and data products and services across
the United States using one of the most extensive and reliable wireless
networks. Stressing diversity and commitment to the communities in
which we operate, we have a highly diverse workforce of approximately
235,000 employees.
The sections that follow provide information about the important aspects
of our operations and investments, both at the consolidated and seg-
ment levels, and include discussions of our results of operations, financial
position and sources and uses of cash. In addition, we have highlighted
key trends and uncertainties to the extent practicable. The content and
organization of the financial and non-financial data presented in these
sections are consistent with information used by our chief operating
decision makers for, among other purposes, evaluating performance and
allocating resources. We also monitor several key economic indicators as
well as the state of the economy in general, primarily in the United States
where the majority of our operations are located, in evaluating our oper-
ating results and analyzing and understanding business trends. While
most key economic indicators, including gross domestic product, impact
our operations to some degree, we have noted higher correlations to
housing starts, non-farm employment, personal consumption expendi-
tures and capital spending, as well as more general economic indicators
such as inflation and unemployment rates.
Our results of operations, financial position and sources and uses of cash
in the current and future periods reflect Verizon management’s focus on
the following strategic imperatives:
• Revenue Growth – Our emphasis is on revenue growth, devoting
more resources to higher growth markets such as wireless, including
wireless data, wireline broadband connections, including Verizon’s
high-capacity fiber optics to the premises network operated under the
FiOS service mark, digital subscriber lines (DSL) and other data services,
as well as expanded strategic services to business markets, rather than
to the traditional wireline voice market. During 2007, we reported
consolidated revenue growth of 6% compared to 2006, primarily
driven by 15.3% higher revenue at Domestic Wireless, where we added
approximately 6.9 million retail net wireless customers, partially offset
by a decline in reseller customers, resulting in approximately 6.7 mil-
lion total wireless net customer additions. At Wireline, revenue growth
in the residential market, driven by broadband and video services,
coupled with growth in the business market derived from strategic
services, partially offset declines in the traditional voice mass market.
• Market Share Gains – We are focused on gaining market share. In
our wireline business, our goal is to become the leading broadband
provider in every market in which we operate. We added 1,253,000
wireline broadband connections during 2007 and we achieved our
goal of being among the top 10 video providers in the U.S. during
2007 through the continued deployment of FiOS. At Wireline, as of
December 31, 2007, we passed 9.3 million premises with our high-
capacity fiber network, and we have obtained over 1,000 video
franchises covering 12.5 million households with TV service available
for sale to 5.9 million premises. We had 943,000 FiOS TV customers,
adding approximately 736,000 net new FiOS TV customers in 2007
18
Management’s Discussion and Analysis
ofFinancialConditionandResultsofOperations
VERIZON COMMUNICATIONS INC. AND SUBSIDIARIES