Verizon Wireless 2012 Annual Report Download - page 47

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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) accessibility
of services and equipment to individuals with disabilities; (vi) intercon-
nectionwiththenetworksofothercarriers;and(vii)customers’abilityto
keep(or“port”)theirtelephonenumberswhenswitchingtoanothercar-
rier.Inaddition,wepayvariousfeestosupportotherFCCprograms,such
as the universal service program discussed below. Changes to these man-
dates, or the adoption of additional mandates, 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 granted. 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gov-
erning broadband Internet access services that it describes as intended
to preserve the openness of the Internet. These rules, which took effect
in November 2011 and are subject to a pending appeal, 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 transmit-
tinglawfultrafficoveraconsumer’sfixed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.
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
In2011,theFCCissuedabroadorderchangingtheframeworkforthe
interstate and intrastate switched access per-minute rates that carriers
charge each other for the exchange of voice traffic. The new rules will
gradually reduce to zero the rates that Verizon pays to other carriers and
the rates that Verizon charges other carriers. This order also established
a per-minute intercarrier compensation rate applicable to the exchange
of Voice over IP traffic regardless of whether such traffic is intrastate or
interstate. This order is subject to certain pending reconsideration peti-
tions and appeals.
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.UnderthebroadorderissuedbytheFCCin2011,thefocusofthe
USFwillbegraduallyshiftedfromsupportofvoiceservicestosupportof
broadbandservices.TheFCCisalsocurrentlyconsideringotherchanges
to the rules governing contributions to the fund. Any change in the cur-
rent 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.
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,
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
Other faCtOrs that may affeCt future results