Verizon Wireless 2014 Annual Report Download - page 12

Access Line Sale
OnFebruary5,2015,weannouncedthatwehaveenteredintoadeni-
tiveagreementwithFrontierCommunicationsCorporation(Frontier)
pursuant to which Verizon will sell its local exchange business and related
landlineactivitiesinCalifornia,Florida,andTexas,includingFiOSInternet
and Video customers, switched and special access lines and high-speed
Internet service and long distance voice accounts in these three states
for approximately $10.5 billion. The transaction, which includes the
acquisitionbyFrontieroftheequityinterestsofVerizon’sincumbentlocal
exchangecarriers(ILECs)inCalifornia,FloridaandTexas,doesnotinvolve
any assets or liabilities of Verizon Wireless. The assets and liabilities that
willbesoldarecurrentlyincludedinVerizon’scontinuingoperations.As
partofthetransaction,Frontierwillassume$0.6billionofindebtedness
from Verizon. The transaction is subject to the satisfaction of certain
closing conditions including, among others, receipt of state and federal
telecommunications regulatory approvals, and we expect this transac-
tion to close during the rst half of 2016.
ThetransactionwillresultinFrontieracquiringapproximately1.5mil-
lionFiOSInternetsubscribers,1.2millionFiOSVideosubscribersandthe
related ILEC businesses from Verizon. This business generated revenues
of approximately $5.4 billion, excluding revenue with aliates, for Verizon
in 2013, which is the most recent year for which audited stand-alone
nancial statements are currently available.
Tower Monetization Transaction
OnFebruary5,2015,weannouncedanagreementwithAmericanTower
Corporation (American Tower) pursuant to which American Tower will
have the exclusive rights to lease and operate over 11,300 of our wireless
towers for an upfront payment of $5.0 billion. Under the terms of the
leases, American Tower will have exclusive rights to lease and operate
the towers over an average term of approximately 28 years. As part of
this transaction, we will also sell 165 towers for $0.1 billion. We will sub-
lease capacity on the towers from American Tower for a minimum of 10
years at current market rates, with options to renew. As the leases expire,
American Tower will have xed-price purchase options to acquire these
towers based on their anticipated fair market values at the end of the
lease terms. We plan to account for the upfront payment primarily as
prepaid rent and a portion as a nancing obligation. This transaction,
which is subject to customary closing conditions, is expected to close
during the rst half of 2015.
Business Overview
Wireless
Demand for our fourth generation (4G) Long Term Evolution (LTE) smart-
phones and tablets continues to drive growth in our Wireless business.
During 2014, Wireless revenue increased $6.6 billion, or 8.2%, compared
to 2013 driven by service revenue growth of $3.6 billion, or 5.2%, which
does not include recurring equipment installment billings related to
Verizon Edge. Also contributing to the increase in Wireless revenue was
equipment revenue growth of $2.8 billion, or 35.1%, driven by higher
sales of equipment under both the traditional subsidy model and Verizon
Edge, a program that enables qualified customers to purchase their
devices on an installment payment plan. During 2014, retail postpaid
connections increased 5.5% compared to 2013, with smartphones rep-
resenting 79% of our retail postpaid phone base at December 31, 2014
compared to 70% at December 31, 2013. Also, during 2014, postpaid
smartphone activations represented 92% of phones activated compared
to 86% in 2013.
We are focusing the capital spending in our Wireless business on adding
capacity and density to our 4G LTE network, which is available to over
98% of the U.S. population in more than 500 markets covering approxi-
mately 309 million people, including those in areas served by our LTE
inRuralAmerica partners.Our4GLTEnetworkprovideshigherdata
OVERVIEW
Verizon Communications Inc. (Verizon or the Company) is a holding com-
pany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 around the world, we oer voice, data and video services
and solutions on our wireless and wireline networks that are designed
tomeetcustomers’demandformobility,reliablenetworkconnectivity,
security and control. We have two reportable segments, 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 enhanced services, including broad-
band data and video, corporate networking solutions, data center and
cloud services, security and managed network services and local and
long distance voice services, and also owns and operates one of the most
expansive end-to-end global Internet Protocol (IP) networks. We have a
highly skilled, diverse and dedicated workforce of approximately 177,300
employees as of December 31, 2014.
As advances in technology have changed the ways that our customers
interact in their personal and professional lives and that businesses
operate, we have continued to focus our eorts around higher margin
and growing areas of our business: wireless and wireline data and
Strategic services, including cloud computing services. Our strategy
requires significant capital investments primarily to acquire wireless
spectrum, put the spectrum into service, provide additional capacity for
growth in our wireless and wireline networks, invest in the ber optic
network that supports our wireless and wireline businesses, maintain
our wireless and wireline networks and develop and maintain signicant
advanced information technology systems and data system capabilities.
We believe that steady and consistent investments in networks and plat-
forms will drive innovative products and services and fuel our growth.
Our wireless and wireline networks will continue to be the hallmark of
our brand, and provide the fundamental strength upon which we build
our competitive advantage.
Strategic Transactions
Wireless Transaction
OnFebruary21,2014,wesetthestageforthenextphaseofourcom-
pany’sgrowthwhenwecompletedtheacquisitionofVodafoneGroup
Plc’s(Vodafone)indirect45%interestinCellcoPartnershipd/b/aVerizon
Wireless for aggregate consideration of approximately $130 billion (the
Wireless Transaction). The consideration paid was primarily comprised of
cash of approximately $58.89 billion and Verizon common stock with a
value of approximately $61.3 billion. With full control of Verizon Wireless
enhancing our operational eciency, we believe we are well-positioned
to meet the challenges of an increasingly competitive industry. See Note
2 to the consolidated nancial statements for additional information.
Spectrum Auction
OnJanuary29,2015,theFederalCommunicationsCommission(FCC)
completedanauctionof65MHzofspectrum,whichitidentiedasthe
Advanced Wireless Services (AWS)-3 band. Verizon participated in that
auction, and was the high bidder on 181 spectrum licenses, for which we
will pay approximately $10.4 billion. During the fourth quarter of 2014,
we made a deposit of $0.9 billion related to our participation in this auc-
tion.OnFebruary13,2015,wemadeadownpaymentof$1.2billionfor
these spectrum licenses. Verizon has submitted an application for these
licenses and must complete payment for them in the rst quarter of 2015.
10
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
VERIZON COMMUNICATIONS INC. AND SUBSIDIARIES