Verizon Wireless 2010 Annual Report Download - page 40

38
Management’sDiscussionandAnalysis
ofFinancialConditionandResultsofOperations – As Adjusted continued
Unbundling of Network Elements
Under Section 251 of the Telecommunications Act of 1996, incumbent
local exchange carriers are required to provide competing carriers with
access to components of their network on an unbundled basis, known
as UNEs, where certain statutory standards are satisfied. The FCC has
adopted rules defining the network elements that must be made avail-
able, including criteria for determining whether high-capacity loops,
transport or dark fiber transport must be unbundled in individual wire
centers. The Telecommunications Act of 1996 also adopted a cost-based
pricing standard for these UNEs, which the FCC interpreted as allowing
ittoimposeapricingstandardknownas“totalelementlongrunincre-
mentalcost”or“TELRIC.”
Wireless Services
The FCC regulates the licensing, construction, operation, acquisition and
transfer of wireless communications systems, including the systems that
Verizon Wireless operates, pursuant to the Communications Act, other
legislation,andtheFCC’srules.TheFCCandCongresscontinuouslycon-
sider changes to these laws and rules. Adoption of new laws or rules
may raise the cost of providing service or require modification of Verizon
Wireless’businessplansoroperations.
To use the radio frequency spectrum, wireless communications systems
must be licensed by the FCC to operate the wireless network and mobile
devices in assigned spectrum segments. Verizon Wireless holds FCC
licenses to operate in several different radio services, including the cel-
lular radiotelephone service, personal communications service, wireless
communications service, and point-to-point radio service. The technical
and service rules, the specific radio frequencies and amounts of spectrum
Verizon Wireless holds, and the sizes of the geographic areas it is autho-
rized to operate in, vary for each of these services. However, all of the
licenses Verizon Wireless holds allow it to use spectrum to provide a wide
range of mobile and fixed communications services, including both voice
and data services, and Verizon Wireless operates a seamless network that
utilizes those licenses to provide services to customers. Because the FCC
issues licenses for only a fixed time, generally 10 years, Verizon Wireless
must periodically seek renewal of those licenses. Although the FCC has
routinelyrenewedallofVerizonWireless’licensesthathavecomeupfor
renewal to date, challenges could be brought against the licenses in the
future. If a wireless license were revoked or not renewed upon expira-
tion, Verizon Wireless would not be permitted to provide services on the
licensed spectrum in the area covered by that license.
The FCC has also imposed specific mandates on carriers that operate
wirelesscommunicationssystems,whichincreaseVerizonWireless’costs.
These mandates include requirements that Verizon Wireless: (i) meet
specific construction and geographic coverage requirements during
the license term; (ii) meet technical operating standards that, among
other things, limit the radio frequency radiation from mobile devices
andantennas;(iii)deploy“Enhanced911”wirelessservicesthatprovide
thewirelesscaller’snumber,locationandotherinformationtoastateor
local public safety agency that handles 911 calls; (iv) provide roaming
services to other wireless service providers; and (v) comply with regula-
tions for the construction of transmitters and towers that, among other
things, restrict siting of towers in environmentally sensitive locations and
in places where the towers would affect a site listed or eligible for listing
ontheNationalRegisterofHistoricPlaces.Changestothesemandates
could require Verizon Wireless to make changes to operations or increase
its costs of compliance. In its November 4, 2008 order approving Verizon
Wireless’acquisitionofAlltel,theFCCadoptedconditionsthatimpose
additional requirements on Verizon Wireless in its provision of Enhanced
911 services and roaming services.
The Communications Act imposes restrictions on foreign ownership of
U.S. wireless systems. The FCC has approved the interest that Vodafone
Group Plc holds, through various of its subsidiaries, in Verizon Wireless.
TheFCCmayneedtoapproveanyincreaseinVodafone’sinterestorthe
acquisition of an ownership interest by other foreign entities. In addition,
aspartoftheFCC’sapprovalofVodafone’sownershipinterest,Verizon
Wireless, Verizon and Vodafone entered into an agreement with the
U.S. Department of Defense, Department of Justice and Federal Bureau
of Investigation which imposes national security and law enforce-
ment-related obligations on the ways in which Verizon Wireless stores
information and otherwise conducts its business.
Verizon Wireless anticipates that it will need additional spectrum to meet
future demand. It can meet spectrum needs by purchasing licenses or
leasing spectrum from other licensees, or by acquiring new spectrum
licenses from the FCC. Under the Communications Act, before Verizon
Wireless can acquire a license from another licensee in order to expand
its coverage or its spectrum capacity in a particular area, it must file an
application with the FCC, and the FCC can grant the application only
after a period for public notice and comment. This review process can
delay acquisition of spectrum needed to expand services, and can result
in conditions on the purchaser that can impact its costs and business
plans. The Communications Act also requires the FCC to award new
licenses for most commercial wireless services through a competitive
bidding process in which spectrum is awarded to bidders in an auction.
Verizon Wireless has participated in spectrum auctions to acquire licenses
for radio spectrum in various bands. Most recently, Verizon Wireless par-
ticipatedintheFCC’sauctionofspectruminthe700MHzband,andwas
the high bidder on 109 700 MHz licenses. The FCC granted all of those
licenses to Verizon Wireless on November 26, 2008.
The FCC also adopted service rules that will impose costs on licensees
that acquire the 700 MHz band spectrum either through auction or by
purchasing such spectrum from other companies. These rules include
minimum coverage mandates by specific dates during the license terms,
and,forapproximatelyone-thirdofthespectrum,knownasthe“CBlock,”
“openaccess”requirements,whichgenerallyrequirelicenseesofthat
spectrum to allow customers to use devices and applications of their
choice on the LTE network we are deploying on that spectrum, including
those obtained from sources other than us or our distributors or dealers,
subject to certain technical limitations established by us. Verizon Wireless
holds the C Block 700 MHz licenses covering the entire United States. In
adoptingits“netneutrality”rulesdiscussedabove,theFCCstatedthat
thenewrulesoperateindependentlyfromthe“openaccess”require-
ments that continue to apply to the C Block licensees.
The FCC is also conducting several proceedings to explore making
additional spectrum available for licensed and/or unlicensed use. These
proceedingscouldincreaseradiointerferencetoVerizonWireless’opera-
tions from other spectrum users and could impact the ways in which
it uses spectrum, the capacity of that spectrum to carry traffic, and the
value of that spectrum.
State Regulation and Local Approvals
Telephone Operations
State public utility commissions regulate our telephone operations with
respect to certain telecommunications intrastate rates and services and
other matters. Our competitive local exchange carrier and long distance
operations are generally classified as nondominant and lightly regu-
lated the same as other similarly situated carriers. Our incumbent local
exchange operations are generally classified as dominant. These latter
operations (California, Connecticut, Delaware, the District of Columbia,
Florida, Maryland, Massachusetts, New Jersey, New York, North Carolina,
Pennsylvania,RhodeIsland,Texas andVirginia)aresubjecttovarious
levels of pricing flexibility, deregulation, detariffing, and service quality
standards. None of the states are subject to earnings regulation.