Verizon Wireless 2012 Annual Report Download - page 48

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
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pro-
vide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 regulations for the construction of transmitters and towers that,
among other things, restrict siting of towers in environmentally sensi-
tive 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. Subsequently,
initsAugust23,2012orderapprovingVerizonWireless’acquisitionof
various spectrum licenses from several cable companies and wireless
carriers,theFCCadoptedconditionsobligatingVerizonWirelesstomeet
specified buildout milestones for the acquired spectrum and to offer
data roaming arrangements.
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 addi-
tion,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licensesinthe700MHzband.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addi-
tional spectrum available for licensed and/or unlicensed use or restricting
spectrumholdings.Mostrecently,onSeptember28,2012,pursuantto
legislationthatCongressenactedinFebruary2012,theFCCbeganapro-
ceeding to consider making available certain spectrum currently used for
television broadcast operations. On that day it also began a proceeding
to consider whether to limit the aggregate amount of spectrum any one
licenseecouldacquireorotherwiseregulatelicensees’spectrumholdings.
State Regulation and Local Approvals
Telephone Operations
State public utility commissions regulate our telephone operations with
respect to certain telecommunications intrastate matters. Our com-
petitive local exchange carrier and long distance operations are lightly
regulated the same as other similarly situated carriers. Our incumbent
local exchange 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.