Verizon Wireless 2011 Annual Report Download - page 28

managing a multitude of home services that will eventually be part of
the digital grid, including not just entertainment and communications,
but also machine-to-machine communications, such as home moni-
toring, home health care, energy management services and utilities.
In 2011, we acquired Terremark Worldwide Inc. (Terremark), a global pro-
vider of information technology infrastructure and cloud services. This
acquisition enhanced our competitive position in managed hosting
and cloud services offerings to business and government customers
globally and is contributing to our growth in revenues. Additionally, in
2011 we acquired a provider of cloud software technology, which has
further enhanced our offerings of cloud services. We expect our provi-
sioning of cloud services to be instrumental to our future growth as it
allows us to meet the evolving demands of our customers.
In December 2011, we entered into agreements to acquire Advanced
Wireless Services (AWS) spectrum licenses held by SpectrumCo, LLC
and CoxTMI Wireless.The aggregate value of these transactions is
approximately $3.9 billion. The consummation of each of these transac-
tionsissubjecttovariousconditions,includingapprovalbytheFederal
CommunicationsCommission(FCC)andreviewbytheDepartmentof
Justice (DOJ). These spectrum acquisitions are expected to close in 2012.
In December 2011, we entered into commercial agreements with affili-
ates of Comcast Corporation, Time Warner Cable, Bright House Networks
and Cox Communications Inc. (the cable companies). Through these
agreements, the cable companies and Verizon Wireless became agents
toselloneanother’sproductsandservicesand,overtime,thecable
companies will have the option, subject to the terms and conditions of
the agreements, to sell Verizon Wireless service on a wholesale basis. In
addition, the cable companies (other than Cox Communications Inc.)
and Verizon Wireless have formed a technology innovation joint venture
for the development of technology and intellectual property to better
integrate wireline and wireless products and services. These commercial
agreements and the formation of the joint venture are currently under
review by the DOJ.
Investing in innovative technology like wireless networks, high-speed
fiber and cloud services has positioned Verizon at the center of the
growth trends of the future. By investing in our own capabilities, we are
also investing in the markets we serve by making sure our communi-
ties have a fast, reliable infrastructure for competing in the information
economy. We are committed to putting our customers first and being a
responsible member of our communities. Guided by this commitment
and by our core values of integrity, respect, performance excellence and
accountability, we believe we are well-positioned to produce a long-term
return for our shareowners, create meaningful work for ourselves and
provide something of lasting value for society.
On December 31, 2011, Chief Executive Officer Lowell C. McAdam
assumed the role of Chairman of the Board of Directors, thereby com-
pleting the succession plan that was put in place by our Board of
Directors.
In the sections that follow, we provide information about the important
aspects of our operations and investments, both at the consolidated and
segment levels, and discuss our results of operations, financial position
and sources and uses of cash. In addition, we highlight key trends and
uncertainties to the extent practicable.
OVERVIEW
Verizon Communications Inc. (Verizon, or the Company) is a holding
companythat,actingthroughitssubsidiariesisoneoftheworld’sleading
providers of communications, information and entertainment products
and services to consumers, businesses and governmental agencies
with a presence in over 150 countries around the world. Our offerings,
designedtomeetcustomers’demandforspeed,mobility,securityand
control, include voice, data and video services on our wireless and wire-
line networks. We have two reportable segments, Verizon Wireless and
Wireline. Our wireless business, operating as Verizon Wireless, provides
voice and data services and equipment sales across the United States
using one of the most extensive and reliable wireless networks. Our wire-
line business provides consumer, business and government customers
with communications products and services, including voice, broad-
band data and video services, network access, long distance and other
communications products and services, and also owns and operates
one of the most expansive end-to-end global IP networks. We have a
highly skilled, diverse and dedicated workforce of approximately 193,900
employees as of December 31, 2011.
In recent years Verizon has embarked upon a strategic transformation
as advances in technology have changed the ways that our customers
interact in their personal and professional lives and that businesses
operate. To meet the changing needs of our customers and the changing
technological landscape, we are focusing our efforts around higher
margin and growing areas of our business: wireless data, wireline data
and strategic services, including cloud computing services.
Our strategy requires significant capital investments to acquire wireless
spectrum, put the spectrum into service, expand the fiber optic network
that supports our wireless and wireline businesses, maintain our wireless
and wireline networks and develop and maintain significant advanced
database capacity.
• In our Wireless business, in 2011, strong customer and data services
growth primarily driven by strong demand for smartphones and
internet data devices resulted in revenue growth of 10.6% from 2010.
At December 31, 2011, smartphones represented nearly 44% of our
retail postpaid phone base, driving a 21% annual growth in data rev-
enue,whichaccountsfor40%ofVerizonWireless’totalservicerevenue.
In 2010, we launched our fourth-generation (4G) Long-Term Evolution
technology (LTE) mobile broadband network in 38 major markets,
and as of January 19, 2012, we have deployed 4G LTE in 195 markets
covering more than 200 million people throughout the country. We
expect to deploy 4G LTE in virtually all of our current 3G network
footprint by mid-2013. Our 4G LTE network is the fastest of its kind
in the United States with speeds up to ten times faster than those of
3G broadband. As a result of our investment in 4G LTE and the shift
to more data-centric devices, we expect to achieve both capacity
improvements as well as a reduced cost per megabyte, which will
allow us to hold or slightly improve our margins.
• In Wireline, during 2011 compared to 2010, revenues were positively
impacted by a 15.2% increase in strategic services revenue, which rep-
resented 48.7% of total Global Enterprise revenues at the end of 2011,
aswellastheexpansionofconsumerandsmallbusinessFiOSservices,
whichrepresented51%ofMassMarketsrevenueattheendof2011.
To compensate for the shrinking market for traditional voice service,
we continue to build the Wireline segment around data, video and
advanced business services — areas where demand for reliable high-
speed connections is growing. As more applications are developed
forthishigh-speedservice,weexpectthatFiOSwillbecomeahubfor
26
ManagEMEnt’s discussiOn and analYsis
OF Financial cOnditiOn and REsults OF OPERatiOns
VERIZON COMMUNICATIONS INC. AND SUBSIDIARIES