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| VZ > SEC Filings for VZ > Form 10-Q on 30-Jul-2012 | All Recent SEC Filings |
30-Jul-2012
Quarterly Report
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 wireline 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 wireline business provides consumer, business and government customers with communications products and services, including voice, broadband 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 Internet Protocol (IP) networks. We have a highly skilled, diverse and dedicated workforce of approximately 188,200 employees as of June 30, 2012.
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, during the three months ended June 30, 2012 compared to the similar period in 2011, strong customer and data services growth driven by strong demand for smartphones and Internet data devices resulted in revenue growth of 7.4%. At June 30, 2012, smartphones represented 49.7% of our retail postpaid phone base, driving an 18.5% increase in data revenue as compared to the similar period in 2011. Data revenue accounted for 43.6% of Verizon Wireless' service revenue during the three months ended June 30, 2012.
In 2010, we launched our fourth-generation (4G) Long-Term Evolution (LTE) technology mobile broadband network, and as of July 18, 2012, we have deployed 4G LTE in 337 markets covering more than 230 million people throughout the country, which is nearly 75% of the United States population. We expect to deploy 4G LTE in virtually our entire current third-generation (3G) network footprint by mid-2013. Our 4G LTE network has speeds up to ten times faster than those of 3G broadband. As a result of our investment in 4G LTE, we expect to achieve both capacity improvements as well as reduced costs per megabyte.
• In Wireline, during the three months ended June 30, 2012 compared to the similar period in 2011, revenues were positively impacted by higher revenues in Consumer retail driven by FiOS services. This represented approximately 65% of Consumer retail revenue during the three months ended June 30, 2012, as compared to approximately 57% during the similar period in 2011. As the FiOS product matures, we continue to seek ways to increase incremental revenue and further realize operating and capital efficiencies as well as to maximize profitability. As more applications are developed for this high-speed service, we expect that FiOS will become a hub for managing multiple 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 monitoring, home health care, energy management services and utilities.
Also positively impacting Wireline's revenues during the three months ended
June 30, 2012 was a 4.4% increase in strategic services revenue, which
represented 52% of total Global Enterprise revenues. Enterprise and wholesale
customers continue to be adversely affected by the economy, resulting in delayed
decision-making regarding spending, particularly on information technology. 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.
On June 25, 2012, Verizon Wireless entered into a license exchange agreement with a subsidiary of T-Mobile USA, Inc. (T-Mobile) pursuant to which the parties agreed to exchange a significant amount of Advanced Wireless Services (AWS) spectrum. The transaction is contingent upon the closing of Verizon Wireless' purchases of spectrum from SpectrumCo, LLC (Spectrum Co), Cox TMI Wireless (Cox) and Leap Wireless and is subject to approval by the Federal Communications Commission (FCC), which is expected to occur in 2012, as well as other customary closing conditions. The exchange includes a number of intra-market spectrum swaps that will result in more efficient use of the AWS band for both companies, and will also give both companies additional spectrum depth in specific markets to meet LTE capacity needs and enable LTE expansion. The exchange will result in an overall net transfer of spectrum from Verizon Wireless to T-Mobile and a cash payment from T-Mobile to Verizon Wireless.
On April 18, 2012, we announced plans to conduct an open sale process for all of our 700 megahertz (MHz) A and B spectrum licenses in order to rationalize our spectrum holdings. We acquired these licenses as part of the FCC Auction 73 in 2008. The sale of these licenses is contingent upon the close of the purchase of the AWS licenses from SpectrumCo, Cox and Leap Wireless described below.
In December 2011, we entered into agreements to acquire AWS spectrum licenses held by Spectrum Co and Cox, respectively. The aggregate value of these transactions was approximately $3.9 billion. The consummation of each of these transactions is subject to various conditions, including approval by the 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 affiliates 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, of selling 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 and the FCC.
During 2011, we also entered into agreements with a subsidiary of Leap Wireless, and with Savary Island Wireless, which is majority-owned by Leap Wireless, for the purchase of certain of their AWS and PCS licenses in exchange for cash and our 700 MHz A block license in Chicago. The consummation of each of these transactions is subject to customary closing conditions, including approval by the FCC. These transactions are expected to close in 2012.
On June 1, 2012, Verizon agreed to acquire HUGHES Telematics, Inc. for approximately $0.6 billion in cash, and the acquisition was completed on July 26, 2012. As a result of the transaction, HUGHES Telematics became a wholly-owned subsidiary of Verizon. The debt obligations of HUGHES Telematics, which were approximately $0.1 billion as of the date of acquisition, were repaid by Verizon during July 2012. Had this acquisition been consummated on January 1, 2012 or 2011, the results of the acquired operations of HUGHES Telematics would not have had a significant impact on the consolidated results of operations of Verizon. The acquisition is expected to accelerate our ability to bring more telematics offerings to market for existing and new HUGHES Telematics and Verizon customers.
In February 2012, Verizon entered into a joint venture with Coinstar, Inc., which will offer access to media rentals through online and mobile content streaming from Verizon to consumers across the country as well as physical media rentals through Redbox kiosks.
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 communities 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.
Trends
There have been no significant changes to the information related to trends affecting our business that was disclosed in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2011 except to the extent described above.
In this section, we discuss our overall results of operations and highlight items of a non-operational nature that are not included in our segment results. We have two reportable segments, which we operate and manage as strategic business units and organize by products and services. Our segments are Verizon Wireless and Wireline. In "Segment Results of Operations," we review the performance of our two reportable segments.
Corporate, eliminations and other includes unallocated corporate expenses such as certain pension and other employee benefit related costs, intersegment eliminations recorded in consolidation, the results of other businesses such as our investments in unconsolidated businesses, lease financing and divested operations, and other adjustments and gains and losses that are not allocated in assessing segment performance due to their non-operational nature. Although such transactions are excluded from the business segment results, they are included in reported consolidated earnings. Gains and losses that are not individually significant are included in all segment results as these items are included in the chief operating decision maker's assessment of segment performance. We believe that this presentation assists users of our financial statements in better understanding our results of operations and trends from period to period.
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