Verizon Wireless 2008 Annual Report Download - page 44

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Notes to Consolidated Financial Statements
NOTE 1
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of Business
Verizon Communications Inc., (Verizon or the Company) is one of the
world’s leading providers of communications services. We have two
reportable segments, Domestic Wireless and Wireline, which we operate
and manage as strategic business units and organize by products and
services. For further information concerning our business segments, see
Note 17.
Verizon’s Domestic Wireless segment, operating as Verizon Wireless, pro-
vides wireless voice and data products and other value-added services
and equipment across the United States (U.S.) using one of the most
extensive and reliable wireless networks. Verizon Wireless continues
to expand our wireless data, messaging and multi-media offerings at
broadband speeds for both consumer and business customers.
Our Wireline segment provides communications services, including
voice, broadband video and data, network access, nationwide long-dis-
tance and other communications products and services, and also owns
and operates one of the most expansive end-to-end global Internet
Protocol (IP) networks. We continue to deploy advanced broadband
network technology, with our fiber-to-the-premises network, operated
under the FiOS service mark, creating a platform with sufficient band-
width and capabilities to meet customers’ current and future needs. FiOS
allows us to offer our customers a wide array of broadband services,
including advanced data and video offerings. Our IP network includes
over 485,000 route miles of fiber optic cable and provides access to
over 150 countries across six continents, enabling us to provide next-
generation IP network products and information technology services to
medium and large businesses and government customers worldwide.
Consolidation
The method of accounting applied to investments, whether consoli-
dated, equity or cost, involves an evaluation of all significant terms of
the investments that explicitly grant or suggest evidence of control or
influence over the operations of the investee. The consolidated financial
statements include our controlled subsidiaries. Investments in businesses
which we do not control, but have the ability to exercise significant
influence over operating and financial policies, are accounted for using
the equity method. Investments in which we do not have the ability to
exercise significant influence over operating and financial policies are
accounted for under the cost method. Equity and cost method invest-
ments are included in Investments in unconsolidated businesses in our
consolidated balance sheets. Certain of our cost method investments
are classified as available-for-sale securities and adjusted to fair value
pursuant to the Financial Accounting Standards Board (FASB) Statement
of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS No. 115).
All significant intercompany accounts and transactions have been
eliminated.
We have reclassified prior year amounts to conform to the current year
presentation.
Use of Estimates
We prepare our financial statements using U.S. generally accepted
accounting principles (GAAP), which require management to make esti-
mates and assumptions that affect reported amounts and disclosures.
Actual results could differ from those estimates.
Examples of significant estimates include: the allowance for doubtful
accounts, the recoverability of plant, property and equipment, the
recoverability of intangible assets and other long-lived assets, unbilled
revenues, fair values of financial instruments, unrecognized tax benefits,
valuation allowances on tax assets, accrued expenses, equity in income
of unconsolidated entities, pension and postretirement benefit assump-
tions, contingencies and allocation of purchase prices in connection
with business combinations.
Revenue Recognition
Domestic Wireless
Our Domestic Wireless segment earns revenue by providing access to
and usage of our network, which includes voice and data revenue. In
general, access revenue is billed one month in advance and recognized
when earned. Access revenue and usage revenue are recognized when
service is rendered. Equipment sales revenue associated with the sale
of wireless handsets and accessories is recognized when the products
are delivered to and accepted by the customer, as this is considered
to be a separate earnings process from the sale of wireless services.
Customer activation fees are considered additional consideration, and
to the extent that handsets are sold to customers at a discount, these
fees are recorded as equipment sales revenue at the time of customer
acceptance. For agreements involving the resale of third-party services
in which we are considered the primary obligor in the arrangements, we
record the revenue gross.
Wireline
Our Wireline segment earns revenue based upon usage of our network
and facilities and contract fees. In general, fixed monthly fees for voice,
video, data and certain other services are billed one month in advance
and recognized when earned. Revenue from services that are not fixed
in amount and are based on usage is recognized when such services
are provided.
We recognize equipment revenue for services, in which we bundle the
equipment with maintenance and monitoring services, when the equip-
ment is installed in accordance with contractual specifications and ready
for the customer’s use. The maintenance and monitoring services are
recognized monthly over the term of the contract as we provide the
services. Long-term contracts are accounted for using the percentage
of completion method. We use the completed contract method if we
cannot estimate the costs with a reasonable degree of reliability.
Customer activation fees, along with the related costs up to but not
exceeding the activation fees, are deferred and amortized over the cus-
tomer relationship period.
We report taxes imposed by governmental authorities on revenue-
producing transactions between us and our customers that are within
the scope of EITF No. 06-3, How Taxes Collected from Customers and
Remitted to Governmental Authorities Should Be Presented in the Income
Statement in the consolidated financial statements on a net basis.
VERIZON COMMUNICATIONS INC. AND SUBSIDIARIES