Verizon Wireless 2010 Annual Report Download - page 39

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Management’sDiscussionandAnalysis
ofFinancialConditionandResultsofOperations – As Adjusted continued
Regulatory and Competitive Trends
Competition and Regulation
Technological, regulatory and market changes have provided Verizon
both new opportunities and challenges. These changes have allowed
Verizon to offer new types of services in an increasingly competitive
market. At the same time, they have allowed other service providers
to broaden the scope of their own competitive offerings. Current and
potential competitors for network services include other telephone
companies, cable companies, wireless service providers, foreign telecom-
munications providers, satellite providers, electric utilities, Internet service
providers, providers of VoIP services, and other companies that offer net-
work services using a variety of technologies. Many of these companies
have a strong market presence, brand recognition and existing customer
relationships, all of which contribute to intensifying competition and may
affect our future revenue growth. Many of our competitors also remain
subject to fewer regulatory constraints than us.
We are unable to predict definitively the impact that the ongoing
changes in the telecommunications industry will ultimately have on our
business, results of operations or financial condition. The financial impact
will depend on several factors, including the timing, extent and success
of competition in our markets, the timing and outcome of various regula-
tory proceedings and any appeals, and the timing, extent and success of
our pursuit of new opportunities.
FCC Regulation
The FCC has jurisdiction over our interstate telecommunications services
and other matters under the Communications Act of 1934, as amended
(Communications Act). The Communications Act generally provides that
we may not charge unjust or unreasonable rates, or engage in unreason-
able discrimination when we are providing services as a common carrier,
and regulates some of the rates, terms and conditions under which we
provide certain services. The FCC also has adopted regulations governing
various aspects of our business including: (i) use and disclosure of cus-
tomer proprietary network information; (ii) telemarketing; (iii) assignment
of telephone numbers to customers; (iv) provision to law enforcement
agencies of the capability to obtain call identifying information and call
content information from calls pursuant to lawful process; (v) accessi-
bility of services and equipment to individuals with disabilities if readily
achievable; (vi) interconnection with the networks of other carriers; and
(vii)customers’abilitytokeep(or“port”)theirtelephonenumberswhen
switching to another carrier. In addition, we pay various fees to support
other FCC programs, such as the universal service program discussed
below. Changes to these mandates, or the adoption of additional man-
dates, could require us to make changes to our operations or otherwise
increase our costs of compliance.
Broadband
The FCC previously adopted a series of orders that impose lesser regu-
latory requirements on broadband services and facilities than apply to
narrowband or traditional telephone services. With respect to wireline
facilities, the FCC determined that certain unbundling requirements that
apply to narrowband facilities of local exchange carriers do not apply
to broadband facilities such as fiber to the premise loops and packet
switches. With respect to services, the FCC concluded that both wireline
and wireless broadband Internet access services qualify as largely dereg-
ulated information services. Separately, certain of our wireline broadband
services sold primarily to larger business customers were largely deregu-
lated when our forbearance petition was deemed granted by operation
of law. The latter relief has been upheld on appeal, but is subject to a
continuing challenge before the FCC.
InDecemberof2010,theFCCadoptedso-called“netneutrality”rules
governing broadband Internet access services that it describes as
intended to preserve the openness of the Internet. The rules require
providers of broadband Internet access to publicly disclose information
relatingtotheperformanceandtermsofitsservices.For“fixed”services,
the rules prohibit blocking lawful content, applications, services or non-
harmful devices. The rules also prohibit unreasonable discrimination in
transmittinglawfultrafficoveraconsumer’sbroadbandInternetaccess
service.For“mobile”services,therulesprohibitblockingaccesstolawful
websitesorblockingapplicationsthatcompetewiththeprovider’svoice
orvideotelephonyservices.Therestrictionsaresubjectto“reasonable
networkmanagement.”Therulesalsoestablishacomplaintprocess,and
state that the FCC will continue to monitor developments to determine
whether to impose further regulations. The rules are scheduled to take
effect following their review by the Office of Management and Budget,
and will be subject to appeals.
Video
The FCC has a body of rules that apply to cable operators under Title VI of
the Communications Act of 1934, and these rules also generally apply to
telephone companies that provide cable services over their networks. In
addition, the Act generally requires companies that provide cable service
over a cable system to obtain a local cable franchise, and the FCC has
adopted rules that interpret and implement this requirement.
Interstate Access Charges and Intercarrier Compensation
TheFCC’scurrentframeworkforinterstateswitchedaccessrateswas
established in the Coalition for Affordable Local and Long Distance
Services (CALLS) plan which the FCC adopted in 2000, and it has adopted
a separate framework that applies to dial-up Internet-bound traffic. The
FCC currently is conducting a broad rulemaking to determine whether
and how these existing frameworks should be modified.
An FCC rulemaking proceeding is also pending to address the regulation
of services that use IP. The issues raised in the rulemaking as well as in
several petitions currently pending before the FCC include whether, and
under what circumstances, access charges should apply to voice or other
IP services and the scope of federal and state commission authority over
these services.
TheFCC’scurrentrulesforspecialaccessservicesprovideforpricingflex-
ibility and ultimately the removal of services from price regulation when
prescribed competitive thresholds are met. More than half of special
access revenues are now removed from price regulation. The FCC cur-
rently has a rulemaking proceeding underway to determine whether and
how these rules should be modified.
Universal Service
The FCC has adopted a body of rules implementing the universal service
provisions of the Telecommunications Act of 1996, including provisions
to support rural and non-rural high-cost areas, low income subscribers,
schoolsandlibrariesandruralhealthcare.TheFCC’srulesrequiretele-
communications companies including Verizon to pay into the Universal
Service Fund (USF), which then makes distributions in support of the pro-
grams.CertainoftheFCC’srulesforsupporttohigh-costareasservedby
larger“non-rural”localtelephonecompaniesarethesubjectofapending
appeal. Separately, in response to growth in the size of the USF, the FCC
has capped the amount of distributions competitive carriers (including
all wireless carriers) may receive from the USF. In its 2008 order approving
VerizonWireless’ acquisition of Alltel, the FCC also requiredVerizon
Wireless to phase out the high-cost universal service support the merged
company receives by 20 percent during the first year following comple-
tion of the acquisition and by an additional 20 percent for each of the
following three years, after which no support will be provided. The FCC
currently is considering other changes to the rules governing contribu-
tions to, and disbursements from, the fund. Any change in the current
rules could result in a change in the contribution that Verizon and others
must make and that would have to be collected from customers, or in
the amounts that these providers receive from the USF.