Verizon Wireless 2013 Annual Report Download - page 13

Byinvestinginourowncapabilities,wearealsoinvestinginthemar-
kets we serve by providing our communities with an ecient, reliable
infrastructure for competing in the information economy. We are com-
mitted to putting our customers rst 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 share-
owners, create meaningful work for ourselves and provide something of
lasting value for society.
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, nancial position
and sources and uses of cash. In addition, we highlight key trends and
uncertainties to the extent practicable.
Trends
We expect that competition will continue to intensify with traditional,
non-traditional and emerging service providers seeking increased market
share. We believe that our networks dierentiate us from our competi-
tors, enabling us to provide enhanced communications experiences to
our customers. We believe our focus on the fundamentals of running a
good business, including operating excellence and nancial discipline,
gives us the ability to plan and manage through changing economic
conditions. We will continue to invest for growth, which we believe is the
key to creating value for our shareowners.
Connection and Operating Trends
In our Wireless segment, we expect to continue to attract and main-
tain the loyalty of high-quality retail postpaid customers, capitalizing
on demand for data services and bringing our customers new ways of
using wireless services in their daily lives. We expect that future connec-
tion growth will continue as we introduce new smartphones, Internet
devices such as tablets and our suite of 4G LTE devices. We believe these
devices will attract and retain higher value retail postpaid connections,
contribute to continued increases in the penetration of data services and
keep our device line-up competitive versus other wireless carriers. We
expect future growth opportunities will be dependent on expanding the
penetration of our network services, oering innovative wireless devices
for both consumer and business customers and increasing the number
of ways that our customers can connect with our network and services.
Service and equipment pricing play an important role in the wireless
competitive landscape. As the demand for wireless services continues to
grow, wireless service providers are oering service plans that include
unlimited voice minutes and text messages and a specic amount of
data access in varying megabyte or gigabyte sizes or, in some cases,
unlimited data usage. Wireless service providers are also oering price
plans that decouple service pricing from equipment pricing and blur the
traditional boundary between prepaid and postpaid plans. In addition,
some wireless providers are oering a credit to new customers to reim-
burse early termination fees paid to their former wireless service provider,
subject to certain limitations. We seek to compete in this area by oering
our customers services and equipment that they will regard as the best
available value for the price, as well as service plans that meet their wire-
less service needs.
In our Wireline segment, we have experienced continuing access line
losses as customers have disconnected both primary and secondary lines
and switched to alternative technologies such as wireless, voice over
Internet protocol (VoIP) and cable for voice and data services. We expect
to continue to experience access line losses as customers continue to
switch to alternate technologies.
Despite this challenging environment, we expect that we will continue
to grow key aspects of our Wireline segment by providing network reli-
ability, offering innovative product bundles that include broadband
Internet access, digital television and local and long distance voice ser-
vices, oering more robust IP products and service, and accelerating our
cloud computing and machine-to-machine strategies. We will also con-
tinue to focus on cost eciencies to attempt to oset adverse impacts
from unfavorable economic conditions and competitive pressures.
Operating Revenue
We expect to experience service revenue growth in our Wireless segment
in 2014, primarily as a result of continued growth in postpaid connec-
tions driven by increased sales of smartphones, tablets and other Internet
devices. We expect that retail postpaid average revenue per account
(ARPA) will continue to increase as connections migrate from basic
phones to smartphones and from our 3G network to our 4G LTE net-
work, and as the average number of connections per account increases,
whichweexpecttobedrivenbyourMoreEverythingplansthatallow
for the sharing of data among up to 10 devices. We expect that our future
service revenue growth will be substantially derived from an increase in
the usage of innovative wireless smartphones, tablets and other Internet
devices in addition to our pricing structure that will encourage cus-
tomers to continue adding data-enabled devices onto existing accounts.
We expect that continued emphasis on increasing smartphone pen-
etration, including continuing to migrate customers from basic phones
to smartphones and from 3G devices to 4G LTE devices, will positively
impact our revenue.
WeexpectFiOSbroadbandandvideopenetrationtopositivelyimpact
ourMassMarketsrevenueandsubscriberbase.WealsoexpectStrategic
services revenues to continue to grow as we derive additional enterprise
revenues from cloud, security and other solutions-based services and
customers continue to migrate their services to Private IP and other stra-
tegic networking services, although we have experienced decelerating
revenue growth within our Strategic services business. We believe the
trend in these growth areas as well as our oerings in telematics and
video streaming will help oset the continuing decline in revenues in
our Wireline segment related to retail voice connection losses as a result
of wireless substitution as well as the continued decline in our legacy
wholesale and enterprise markets.
Operating Costs and Expenses
We anticipate our overall wireless operating costs will increase as a result
of the expected increase in the volume of smartphone sales, which will
result in higher equipment and sales commission costs. In addition, we
expectcontentcostsforourFiOSvideoservicestocontinuetoincrease.
However, we expect to achieve certain cost eciencies in 2014 and
beyond as data trac continues to migrate to our lower-cost 4G LTE net-
work and as we continue to streamline our business processes with a
focus on improving productivity and increasing protability.
11
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued