Verizon Wireless 2008 Annual Report Download - page 24

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Verizon Business
Enterprise Business
Our Enterprise Business channel offers voice, data and Internet communi-
cations services to medium and large business customers, multi-national
corporations, and state and federal government customers. In addition
to traditional voice and data services, Enterprise Business offers managed
and advanced products and solutions through our Strategic Services. This
encompasses our focus areas of growth, including IP services and value-
added solutions that make communications more secure, reliable and
efficient. Enterprise Business also provides managed network services for
customers that outsource all or portions of their communications and
information processing operations and data services such as Private IP,
PrivateLine,FrameRelayandATMservices,bothdomesticallyandinter-
nationally. In addition, Enterprise Business offers professional services in
more than 30 countries around the world, supporting a range of solu-
tions including network service, managing a move to IP-based unified
communications and providing application performance support.
Enterprise Business revenues in 2008 decreased by $139 million, or 1.0%,
compared to 2007. The revenue decline is due to certain customers
moving traffic off of our network, partially offset by increases in customer
premise equipment revenue and security solutions revenue. The IP and
services suite of products continues to be Enterprise Business’ fastest
growing and includes Private IP, IP, VPN, Managed Services, Web Hosting
and VoIP. Enterprise Business revenues in 2007 increased by $386 million,
or 2.7%, compared to 2006, primarily reflecting growth in demand for our
strategic products, specifically IP services, Managed Services and security,
as well as the inclusion of the results of operations of the former MCI
business subsequent to the close of the merger on January 6, 2006.
Wholesale
Our Wholesale revenues relate to domestic wholesale services and
include all interexchange wholesale traffic sold in the United States, as
well as internationally destined traffic that originates in the United States.
The Wholesale line of business is comprised of numerous large and small
customers that predominately resell voice services to their own customer
base. A portion of this revenue is generated by a few large telecommuni-
cation carriers, many of whom compete directly with Verizon.
Verizon Business Wholesale revenues in 2008 decreased by $4 million,
or 0.1%, compared to 2007, primarily due to continued rate compres-
sion due to competition in the marketplace partially offset by increased
MOUs in traditional voice products. Verizon Business Wholesale revenues
in 2007 increased by $64 million, or 2.0% as compared to 2006, primarily
due to increased MOUs in traditional voice products, partially offset by
continued rate compression due to competition in the marketplace, as
well as the inclusion of the results of operations of the former MCI busi-
ness subsequent to the close of the merger on January 6, 2006.
International and Other
Our International operations serve retail and wholesale customers,
including enterprise businesses, government entities and telecommu-
nication carriers outside of the United States, primarily in Europe, the
Middle East, Africa, the Asia Pacific region, Latin America and Canada.
These operations provide telecommunications services, which include
voice, data services, Internet and managed network services.
International and other revenue in 2008 increased by $160 million, or
5.0%, compared to 2007, reflecting strong growth in our Internet suite
of products, specifically Private IP products, and the impact of favorable
foreign currency exchange rates on services billed in local currencies.
International and other revenue in 2007 increased by $113 million, or
3.6%, compared to 2006 as a result of higher revenue growth in our stra-
tegic products, specifically IP services. This increase was partially offset
by competitive rate compression and lower volumes with respect to our
voice products.
Operating Expenses
(dollars in millions)
Years Ended December 31, 2008 2007 2006
Cost of services and sales $ 24,274 $ 24,181 $ 23,806
Selling, general and administrative expense 11,047 11,527 11,998
Depreciation and amortization expense 9,031 8,927 9,309
Total Operating Expenses $ 44,352 $ 44,635 $ 45,113
Cost of Services and Sales
Cost of services and sales includes costs directly attributable to a service
or product, including salaries and wages, benefits, materials and sup-
plies, contracted services, network access and transport costs, customer
provisioning costs, computer systems support, costs to support our out-
sourcing contracts and technical facilities, contributions to the universal
service fund, and cost of products sold. Aggregate customer care costs,
which include billing and service provisioning, are allocated between cost
of services and sales and selling, general and administrative expense.
Cost of services and sales in 2008 increased by $93 million, or 0.4%,
compared to 2007. These increases were primarily due to higher costs
associated with our growth businesses, primarily FiOS services, including
TV and Internet services, and IP services, partially offset by productivity
improvement initiatives, headcount reductions and lower switched
access lines in service as well as lower wholesale voice connections.
The increase in cost of services and sales expense was also impacted by
unfavorable foreign exchange rate changes, higher utility costs and the
inclusion of the results of operations of a security services firm acquired
on July 1, 2007.
Cost of services and sales in 2007 increased by $375 million, or 1.6%, com-
pared to 2006. This increase was primarily due to higher costs associated
with our growth businesses, annual wage increases and higher customer
premise equipment costs, partially offset by productivity improvement
initiatives, headcount reductions and lower switched access lines in ser-
vice, as well as lower wholesale voice connections.
Selling, General and Administrative Expense
Selling, general and administrative expense includes salaries, wages
and benefits not directly attributable to a service or product, bad debt
charges, taxes other than income, advertising and sales commission
costs, customer billing, call center and information technology costs, pro-
fessional service fees and rent for administrative space.
Selling, general and administrative expenses in 2008 decreased by $480
million or 4.2%, compared to 2007. This decrease was primarily due to
declines in compensation expense, in part driven by headcount reduc-
tions, cost reduction initiatives and lower bad debt costs, partially offset
by the inclusion of the results of operations of a security services firm
acquired on July 1, 2007.
Selling, general and administrative expenses in 2007 decreased by $471
million or 3.9%, compared to 2006. The decrease was primarily due to
headcount reductions, cost reduction initiatives, as well as the impact
of gains from real estate sales and lower bad debt costs, partially offset
by higher advertising costs and the inclusion of the results of operations
of the former MCI business subsequent to the close of the merger on
January 6, 2006.
Management’s Discussion and Analysis
ofFinancialConditionandResultsofOperations continued