Verizon Wireless 2009 Annual Report Download - page 17

Profitability Improvement – Our goal is to increase operating income
and margins. While our wireless, FiOS and IP services offerings continue
to positively impact operating results, economic and secular conditions
continue to affect parts of our wireline business, which we expect to con-
tinue into 2010. Specifically, business customers continue to be adversely
affected by the economy, including delaying decision-making regarding
spending on information technology and customer premises equipment.
The cumulative effect of unemployment is impacting usage volumes,
which is pressuring our margins. In addition, higher costs related to sever-
ance, pension and benefit charges and merger integration activities also
negatively impacted our operating results. However, we remain focused
on cost controls with the objective of reducing expenses to offset lower
revenue.
Operational Efficiency – While focusing resources on revenue growth
and market share gains, we are continually challenging our management
team to lower expenses, particularly through technology-assisted pro-
ductivity improvements, including self-service initiatives. The effect of
these and other efforts, such as real estate consolidation and call center
routing improvements, has led to changes in our cost structure with a
goal of maintaining and improving operating income margins. Through
our deployment of the FiOS network, we expect to realize savings annu-
ally in our ongoing operating expenses as a result of efficiencies gained
from fiber network facilities. As the deployment of the FiOS network con-
tinues and installation and automation improvements occur, average
costs per home connected have begun to decline. In addition, the inte-
gration of Alltel’s operations will continue, and we believe that the use
of the same technology platform is facilitating the integration of Alltel’s
operations with ours.
Customer Service – Our goal is 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 cata-
lyst to growing revenues and gaining market share. We are committed
to providing high-quality customer service and continually monitor cus-
tomer satisfaction in all facets of our business. We believe that we have
the most loyal customer base of any wireless service provider in the
United States, as measured by customer churn.
Performance-Based Culture – We embrace a culture of accountability,
based on individual and team objectives that are performance-based and
tied to Verizon’s strategic imperatives. Key objectives of our compensa-
tion programs are pay-for-performance and the alignment of executives’
and shareowners’ long-term interests. We also employ a highly diverse
workforce, since respect for diversity is an integral part of Verizon’s culture
and a critical element of our competitive success.
Trends
We expect that competition will continue to intensify with traditional,
non-traditional and emerging service providers seeking increased market
share. We believe that our networks differentiate us from our competi-
tors, enabling us to provide enhanced communications experiences to
our customers. We believe our focus on the fundamentals of running a
good business, including operating excellence and financial discipline,
gives us the ability to plan and manage through changing economic
conditions. We will continue to invest for growth, which we believe is the
key to creating value for our shareowners.
Customer and Operating Trends
We expect to achieve revenue and segment operating income growth
in our Domestic Wireless segment by continuing to attract and main-
tain the loyalty of high-quality retail postpaid customers, capitalizing on
customer demand for data services, and bringing our customers new
ways of using wireless services in their daily lives. We expect that future
customer growth may slow as a result of higher wireless market pen-
etration that is driving increased competition for customers within the
wireless industry on the basis of price, service quality and data service
offerings. We recently launched a simplified pricing structure for both
voice and data plans that we believe will drive increased penetration of
data bundles as well as attract and retain higher value customers, while
keeping our pricing within a reasonable competitive range versus our
competitors. Although we have experienced increases in our churn, the
rate at which customers disconnect individual lines of service, primarily
as a result of economic conditions, we expect that the combination of
improvements in economic conditions as well as these recent pricing
structure changes will result in higher customer retention. We expect
future growth opportunities will become more dependent on expanding
both the number and penetration of our wireless data offerings, offering
innovative wireless devices for both consumer and business customers,
and increasing the number of ways that our customers can connect with
our network and services
In recent years, we have experienced continuing access line losses in our
Wireline segment as customers have disconnected both primary and
secondary lines and switched to alternative technologies, such as wire-
less, VoIP and cable for voice and data services. We expect to continue
to experience access line losses as customers continue to switch to alter-
nate technologies.
Despite this challenging environment, we expect that aspects of our
business will continue to grow by providing superior network reliability
as we continue to offer innovative product bundles that include high-
speed Internet access, digital television and local and long distance voice
services and offering more robust IP products and services. Our FiOS
TV subscribers grew by 943,000 and 975,000 in 2009 and 2008, respec-
tively, and we achieved penetration rates of 24.5% and 20.8% for 2009
and 2008, respectively. We will continue to focus on cost efficiencies to
attempt to offset adverse impacts from unfavorable economic conditions
and secular changes.
Operating Revenue
We expect to experience service revenue growth in our Domestic Wireless
segment, primarily as a result of data revenue growth driven by increased
use of data services such as messaging, e-mail and Internet access.
However, during 2009, we began to experience sequential declines in
our overall wireless voice revenue, as any increases as a result of new
customer additions were offset by lower voice revenues per customer
due to factors such as the popularity of bundled plans and an increase
in the number of customers on our Family Share Plan as a result of cus-
tomers seeking to optimize the value they derive from our offerings.
We expect that our future service revenue growth will be substantially
derived from data revenue growth as we continue to expand our wire-
less data offerings on our third generation (3G), and starting in 2010, our
fourth generation (4G) wireless network and increase our sales and usage
of innovative wireless multimedia and smartphone devices, such as the
Motorola Droid. We also expect that recently announced changes in our
pricing structure will contribute to service revenue growth by increasing
data penetration and attracting customers. We believe the economic
conditions in 2009 adversely impacted our customers’ ability and desire
to maintain both wireline and wireless services.
As we continue the rollout of FiOS, we expect it to positively impact our
Mass Market revenues and subscriber base, but we expect to continue
to experience declining revenues in our Wireline segment primarily due
to access line losses as a result of wireless substitution, current economic
conditions and the transaction with Frontier described above.
15
Management’s Discussion and Analysis
of Financial Condition and Results of Operations continued