Verizon Communications (VZ)

Operating Revenues

Mass Markets

Mass Markets revenue includes local exchange (basic service and end-user access), value-added services, long distance, broadband services for residential and small business accounts and TV services. Long distance also includes regional toll services. Broadband services include high speed Internet and FiOS Internet.

Mass Markets revenue during the first quarter of 2009 increased $32 million, or 0.7%, compared to the similar period in 2008. The increase was primarily driven by expansion of consumer and business FiOS services (Voice, Internet and TV), which are typically sold in bundles, partially offset by the continued decline of local exchange revenues principally as a result of switched access line losses. As we continue to increase the number of premises eligible to order FiOS services and increase penetration rates within our FiOS service areas, we have continued to increase our customer base. And our bundled pricing strategy allows us to provide competitive offerings to our customers and potential customers. Consequently, we added 252,000 net new broadband connections, including 298,000 net new FiOS Internet connections in the first quarter of 2009. In addition, we added 299,000 net new FiOS TV customers in the first quarter of 2009. As of March 31, 2009, we achieved penetration rates of 26.8% and 22.9% for FiOS Internet and FiOS TV, respectively. Partially offsetting the increase were lower local exchange revenues due to a decline in switched access lines primarily as a result of competition and technology substitution. Residential retail customers substituted traditional landline services for wireless, VoIP, broadband and cable services. At the same time, small business retail customers declined, primarily reflecting competition and a shift to both IP and high-speed circuits.

Global Enterprise

Global Enterprise offers voice, data and Internet communications services to medium and large business customers, multi-national corporations, and state and federal government customers. In addition to traditional voice and data services, Global Enterprise offers managed and advanced products and solutions through our strategic services. This encompasses our focus areas of growth, including IP services and value-added solutions that make communications more secure, reliable and efficient. Global Enterprise also provides managed network services for customers that outsource all or portions of their communications and information processing operations and data services such as Private IP, Private Line, Frame Relay and ATM services, both domestically and internationally. In addition, Global Enterprise offers professional services in more than 30 countries around the world, supporting a range of solutions including network service, managing a move to IP-based unified communications and providing application performance support.

Global Enterprise revenues during the first quarter of 2009 decreased $133 million, or 3.4% compared to the similar period in 2008. The revenue decline was due to lower long distance and traditional circuit based data revenues, combined with the negative effect of movements in foreign exchange rates versus the U.S. dollar. The decline in long distance revenue is driven by a 5% decline in MOUs compared to the similar period last year, as well as continuing competitive rate pressures. Traditional circuit based services such as frame relay, private line and asynchronous transfer mode declined compared to the similar period last year as our customer base migrated to next generation IP services. Partially offsetting these declines was an increase in IP and security solutions revenues. Global Enterprise services many customer accounts that are moving from core data products to more robust IP products. As a result of customers moving to these IP products and services, strategic services continues to be Global Enterprise’s fastest growing offerings, accounting for the majority of the 7.5% increase in total strategic services revenue compared to the similar period in 2008.

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Global Wholesale

Global Wholesale revenues are primarily earned from long distance and other carriers who use our facilities to provide services to their customers. Switched access revenues are generated from fixed and usage-based charges paid by carriers for access to our local network, interexchange wholesale traffic sold in the United States, as well as internationally destined traffic that originates in the U.S. Special access revenues are generated from carriers that buy dedicated local exchange capacity to support their private networks. Wholesale services also include local wholesale revenues from unbundled network elements and interconnection revenues from competitive local exchange carriers and wireless carriers. A portion of Global Wholesale revenues are generated by a few large telecommunication companies, many of whom compete directly with us.

Global Wholesale revenues during the first quarter of 2009 decreased $243 million, or 9.2%, compared to the similar period in 2008, primarily due to decreased MOUs, in traditional voice products, continued rate compression due to competition in the marketplace and the negative effect of movements in foreign exchange rates versus the U.S. dollar, partially offset by an increase in special access revenues.

Switched access and interexchange wholesale MOUs declined 8.7% primarily as a result of access line losses and wireless substitution due in part to global economic conditions. Wholesale lines decreased 18.5% due to the continued impact of competitors deemphasizing their local market initiatives coupled with the impact of technology substitution. Changes in foreign exchange rates resulted in a revenue decline of approximately 1.5% in the first quarter of 2009, compared to the similar period of 2008. However, special access revenue growth reflects continuing demand for high-capacity, high-speed digital services, partially offset by lower demand for older, low-speed data products and services.

Other

Other revenues include such services as local exchange and long distance services from former MCI mass market customers, operator services (including deaf relay services), pay phone, card services and supply sales, as well as dial around services including 10-10-987, 10-10-220, 1-800-COLLECT and prepaid cards. Revenues from other services during the first quarter of 2009 decreased by $115 million, or 18.4%, compared to the similar period in 2008 mainly due to the discontinuation of non-strategic product lines and reduced business volumes, including former MCI mass market customer losses.

Operating Revenues

Domestic Wireless’s total operating revenue in the third quarter of 2008 increased $1,410 million, or 12.5%, and $4,047 million, or 12.5% in the nine months ended September 30, 2008 compared to the similar periods in 2007. Service revenues increased during the third quarter of 2008 by $1,186 million, or 12.2% and $3,430 million, or 12.2% for the nine months ended September 30, 2008 compared to the similar periods in 2007. The service revenue increases were primarily due to increases in data revenues and an 11.2% increase in customers as of September 30, 2008 compared to September 30, 2007. Equipment and other revenue in the third quarter of 2008 increased $224 million, or 14.5% and $617 million, or 14.4% in the nine months ended September 30, 2008, compared to the similar periods in 2007, primarily as a result of an increase in the number of customers upgrading their wireless devices.

Total data revenue was $2,788 million and accounted for 25.5% of service revenue in the third quarter of 2008, compared to $1,956 million, and 20.1% in the similar period in 2007. Total data revenue was $7,685 million and accounted for 24.3% of service revenue for the nine months ended September 30, 2008, compared to $5,288 million and 18.8% in the similar period in 2007. Average total data service revenue per customer per month increased 28.3% in the third quarter of 2008 and 31.1% in the nine months ended September 30, 2008, compared to the similar periods in 2007, primarily driven by increased use of our messaging, Broadband Access and e-mail services, data transport charges, and newer data services such as VZ Navigator.

Average service revenue per customer per month increased 0.9% to $52.18 in the third quarter of 2008 and increased 1.2% to $51.55 in the nine months ended September 30, 2008, compared to the similar periods in 2007. Average retail service revenue per customer per month increased 0.2% to $52.29 in the third quarter of 2008 and increased 0.6% to $51.88 in the nine months ended September 30, 2008, compared to the similar periods in 2007.

Excluding acquisitions and adjustments, our Domestic Wireless segment added approximately 1.5 million net retail customers during the third quarter of 2008, compared to 1.8 million during the third quarter of 2007 and added approximately 4.4 million net retail customers during the nine months ended September 30, 2008, compared to 5.0 million during the similar period in 2007. Retail (non-wholesale) customers are customers who are directly served and managed by Verizon Wireless and who buy its branded services. Domestic Wireless added approximately 2.1 million net total customers, including acquisitions and adjustments, during the third quarter of 2008, bringing total customers as of September 30, 2008 to approximately 70.8 million, of which 97.2% were retail customers. Acquisitions and adjustments during the three months ended September 30, 2008, include approximately 650,000 net total customer additions after conforming adjustments, of which approximately 630,000 were retail net additions, acquired in the Rural Cellular transaction. Upon the consummation of the exchange agreement with AT&T, as amended, we expect to recognize a net loss of approximately 120,000 net total customers.

Domestic Wireless ended the third quarter of 2008 with approximately 68.8 million retail customers, compared to 61.8 million retail customers at the end of the third quarter of 2007, an increase of 11.3%. Average monthly retail postpaid churn, the rate at which retail postpaid customers disconnect service, increased to 1.03% in the third quarter of 2008, compared to 0.96% in the third quarter of 2007. Average monthly retail postpaid churn increased to 0.93% in the nine months ended September 30, 2008, compared to 0.90% in the nine months ended September 30, 2007.

Our Domestic Wireless customer base as of September 30, 2008 was 93.0% retail postpaid, 4.2% retail prepaid and 2.8% resellers. Total average monthly churn was 1.33% in the third quarter of 2008 and 1.21% in the nine months ended September 30, 2008, compared to 1.27% in the third quarter of 2007 and 1.22% in the nine months ended September 30, 2007.

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Operating Revenues

Domestic Wireless’s total operating revenue during the second quarter of 2008 increased by $1,275 million, or 11.8% and $2,637 million, or 12.5% in the six months ended June 30, 2008, compared to the similar periods in 2007. Service revenue during the second quarter of 2008 increased by $1,090 million, or 11.6%, and $2,244 million, or 12.2% for the six months ended June 30, 2008 compared to the similar periods in 2007. The service revenue increases were primarily due to a 10.7% increase in customers as of June 30, 2008 compared to June 30, 2007 and an increase in average service revenue per customer per month. Equipment and other revenue increased by $185 million, or 12.8% in the second quarter of 2008 and $393 million, or 14.3% in the six months ended June 30, 2008, compared to the similar periods in 2007, primarily as a result of an increase in the number of customers upgrading their wireless devices. Other revenue increased due to an increase in revenue associated with cost recovery surcharges and regulatory fees.

Our Domestic Wireless segment ended the second quarter of 2008 with approximately 66.7 million retail customers, compared to 60.1 million retail customers at the end of the second quarter of 2007, an increase of 11%. Retail (non-wholesale) customers are customers who are directly served and managed by Verizon Wireless and who buy its branded services. Domestic Wireless added approximately 1.5 million, including acquisitions, net retail customers during the second quarter of 2008, compared to 1.6 million during the second quarter of 2007 and added 2.9 million, including acquisitions, net retail customers during the six months ended June 30, 2008, compared to 3.3 million during the similar period in 2007. Nearly all of the approximately 1.5 million new net retail customers added during the second quarter of 2008 were postpaid customers. Of the approximately 2.9 million net retail customers added during the six months ended June 30, 2008, 2.7 million were postpaid customers. Average monthly retail postpaid churn, the rate at which retail postpaid customers disconnect service, decreased to 0.83% in the second quarter of 2008, compared to 0.85% in the second quarter of 2007. Average monthly retail postpaid churn increased to 0.88% in the six months ended June 30, 2008, compared to 0.87% in the six months ended June 30, 2007.

Domestic Wireless added approximately 1.5 million net total customers during the second quarter of 2008, bringing total customers as of June 30, 2008 to approximately 68.7 million, of which 97.1% were retail customers. Our Domestic Wireless customer base as of June 30, 2008 was 92.8% retail postpaid, 4.3% retail prepaid and 2.9% resellers. Total average monthly churn was 1.12% in the second quarter of 2008 and 1.16% in the six months ended June 30, 2008, compared to 1.26% in the second quarter of 2007 and 1.19% in the six months ended June 30, 2007.

Average service revenue per customer per month increased 0.9% to $51.53 in the second quarter of 2008 and increased 1.3% to $51.22 in the six months ended June 30, 2008, compared to the similar periods in 2007. Average retail service revenue per customer per month increased 0.2% to $51.93 in the second quarter of 2008 and increased 0.7% to $51.67 in the six months ended June 30, 2008, compared to the similar periods in 2007. Average retail data service revenue per customer per month increased 29.9% in the second quarter of 2008 and 31.5% in the six months ended June 30, 2008, compared to the similar periods in 2007, primarily driven by increased use of our messaging, VZAccess and e-mail services. Retail data revenue was $2,525 million and accounted for 24.6% of retail service revenue in the second quarter of 2008, compared to $1,748 million and 19.0% in the similar period in 2007. Retail data revenue was $4,834 million and accounted for 23.9% of retail service revenue for the six months ended June 30, 2008, compared to $3,296 million and 18.3% in the similar period in 2007.

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Operating Revenues

Domestic Wireless’s total revenue increased by $1,362 million, or 13.2% in the first quarter of 2008, compared to the similar period in 2007. Service revenues of $10,145 million increased by $1,154 million, or 12.8% in the first quarter of 2008 compared to the similar period in 2007, primarily due to a 10.6% increase in customers and an increase in average revenue per customer per month. Equipment and other revenue increased by $208 million, or 15.8% in the first quarter of 2008 compared to the first quarter of 2007, principally as a result of an increase in the number of customers upgrading their wireless devices. Other revenue increased due to an increase in revenues associated with cost recovery surcharges and regulatory fees.

Our Domestic Wireless segment ended the first quarter of 2008 with 65.2 million retail customers, compared to 58.5 million retail customers at the end of the first quarter of 2007, an increase of 6.7 million net new retail customers or 11.5%. Retail (non-wholesale) customers are customers who are directly served and managed by Verizon Wireless and who buy its branded services. Domestic Wireless added approximately 1.5 million net retail customers during the first quarter of 2008, compared to 1.6 million during the similar period in 2007. Of the approximately 1.5 million new net retail customers added during the first quarter of 2008, 1.3 million were postpaid customers. Average monthly retail postpaid churn, the rate at which retail postpaid customers disconnect service, was 0.93% during the first quarter of 2008, compared 0.89% during the first quarter of 2007.

Domestic Wireless added approximately 1.5 million total net customers during the first quarter of 2008, bringing total customers as of March 31, 2008 to approximately 67.2 million, of which 97.0% were retail customers. Our Domestic Wireless customer base as of March 31, 2008 was 92.7% retail postpaid, 4.3% retail prepaid and 3.0% resellers. Total average monthly churn was 1.19% in the first quarter of 2008, compared to 1.13% in the first quarter of 2007.

Average retail service revenue per customer per month increased 1.3% to $51.40 in the first quarter of 2008 compared to the similar period in 2007. Average retail data service revenue per customer per month increased 33.4% in the first quarter of 2008, compared to the first quarter of 2007, driven by increased use of our messaging, VZAccess and other data services. Retail data revenue was $2,309 million and accounted for 23.2% of retail service revenue in the first quarter of 2008, compared to $1,548 million and 17.6% of retail service revenue in the first quarter of 2007.

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Operating Revenues

Domestic Wireless’s total operating revenues of $43,882 million were $5,839 million, or 15.3% higher in 2007 compared to 2006. Service revenues of $38,016 million were $5,220 million, or 15.9% higher than 2006. The service revenue increase was primarily due to an 11.3% increase in customers as of December 31, 2007 compared to December 31, 2006, and increased average revenue per customer. Equipment and other revenue increased $619 million, or 11.8% in 2007 compared to 2006, principally as a result of increases in the number of customers upgrading their wireless devices. Other revenue also increased due to increases in cost recovery surcharges and regulatory fees.

Total customers as of December 31, 2007 were 65.7 million, of which 97% were retail customers, compared to 59.1 million, of which 96% were retail customers at December 31, 2006. Retail (non-wholesale) customers are customers who are directly served and managed by Verizon Wireless and who buy its branded services. Our Domestic Wireless customer base as of December 31, 2007 was 93% retail postpaid compared to 92.6% retail postpaid at December 31, 2006. Total average monthly churn was 1.21% in 2007 compared to 1.17% in 2006.

Our Domestic Wireless segment ended 2007 with 63.7 million retail customers, an increase of 6.9 million net new retail customers or 12.2%, compared to December 31, 2006. Average monthly retail postpaid churn, the rate at which retail postpaid customers disconnect service, was 0.91% in 2007, unchanged compared to 2006.

Average retail service revenue per customer per month increased 2.2% to $51.57 in 2007 compared to 2006. Average retail data service revenue per customer per month increased 43.9% in 2007 compared to 2006 driven by increased use of our messaging service, VZAccess, and other data services. Retail data revenues were $7,309 million and accounted for 19.7% of retail service revenue in 2007, compared to $4,445 million and 14.0% of retail service revenue in 2006.

Domestic Wireless’s total operating revenues of $38,043 million in 2006 increased $5,742 million, or 17.8% compared to 2005. Service revenues of $32,796 million were $4,665 million, or 16.6% higher than 2005. The service revenue increase was primarily due to a 15.0% increase in customers as of December 31, 2006 compared to December 31, 2005, and increased average revenue per customer. Equipment and other revenue increased $1,077 million, or 25.8% in 2006 compared to 2005 principally as a result of increases in the number and price of wireless devices sold. Other revenue also increased due to increases in regulatory fees, primarily the universal service fund and cost recovery surcharges.

Average retail service revenue per customer per month increased 0.7% to $50.44 in 2006 compared to 2005. Average retail data service revenue per customer per month increased 71.3% in 2006, compared to 2005, driven by increased use of our messaging, VZAccess and other data services. However, Domestic Wireless experienced an increase in the proportion of customers on its Family Share price plans, which put downward pressure on average service revenue per customer during 2006. Retail data revenues were $4,445 million and accounted for 14.0% of retail service revenue in 2006, compared to $2,232 million and 8.2% of retail service revenue in 2005.

Operating Revenues

Domestic
Wireless’s total operating revenues of $43,882 million were $5,839 million, or 15.3% higher in 2007 compared to 2006. Service revenues of $38,016 million were $5,220 million, or 15.9% higher than 2006. The service revenue increase was primarily
due to an 11.3% increase in customers as of December 31, 2007 compared to December 31, 2006, and increased average revenue per customer. Equipment and other revenue increased $619 million, or 11.8% in 2007 compared to 2006, principally as
a result of increases in the number of customers upgrading their wireless devices. Other revenue also increased due to increases in cost recovery surcharges and regulatory fees.

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Total customers as of December 31, 2007 were 65.7 million, of which 97% were retail customers, compared to
59.1 million, of which 96% were retail customers at December 31, 2006. Retail (non-wholesale) customers are customers who are directly served and managed by Verizon Wireless and who buy its branded services. Our Domestic Wireless
customer base as of December 31, 2007 was 93% retail postpaid compared to 92.6% retail postpaid at December 31, 2006. Total average monthly churn was 1.21% in 2007 compared to 1.17% in 2006.

Operating Revenues

Domestic Wireless’s total revenues increased by $1,420 million, or 14.4%, in the third quarter of 2007 and $4,495 million, or 16.1%, for the nine months ended September 30, 2007, compared to the similar periods in 2006. Service revenue of $9,749 million in the third quarter of 2007 increased by $1,280 million, or 15.1%, compared to the similar period in 2006, and service revenue of $28,142 million for the nine months ended September 30, 2007 increased by $4,028 million, or 16.7%, compared to the similar period in 2006. The service revenue increases were primarily due to a 12.3% increase in total customers as of September 30, 2007 compared to September 30, 2006 and increases in average service revenue per customer per month, driven primarily by wireless data revenue growth. Equipment and other revenue increased $140 million, or 10.0%, in the third quarter of 2007 and $467 million, or 12.2%, for the nine months ended September 30, 2007, compared to the similar periods in 2006, principally as a result of increases in the number of existing customers upgrading their wireless devices. Other revenue increased due to increases in revenue associated with cost recovery surcharges and regulatory fees.

Our Domestic Wireless segment ended the third quarter of 2007 with approximately 61.8 million retail customers, compared to 54.6 million retail customers at the end of the third quarter of 2006, an increase of 13.3%. Domestic Wireless added approximately 1.8 million net retail customers during the third quarter of 2007, compared to 2.0 million during the third quarter of 2006 and added 5.0 million net retail customers during the nine months ended September 30, 2007, compared to 5.5 million during the similar period in 2006. Of the approximately 1.8 million new net retail customers added during the third quarter of 2007, 1.7 million customers were postpaid customers. For the nine months ended September 30, 2007, 4.7 million of the 5.0 million new net retail customers added were postpaid customers. Average monthly retail postpaid churn, the rate at which retail postpaid customers disconnect service, was 0.96% in the third quarter of 2007 and 0.90% for the nine months ended September 30, 2007, compared to 0.95% in the third quarter of 2006 and 0.92% for the nine months ended September 30, 2006.

Domestic Wireless added approximately 1.6 million total net customers during the third quarter of 2007, bringing total customers as of September 30, 2007 to approximately 63.7 million, of which 97.1% were retail customers. The overall composition of our Domestic Wireless customer base as of September 30, 2007 was 93% retail postpaid, 4% retail prepaid and 3% resellers. Total average monthly churn was 1.27% in the third quarter of 2007 and 1.22% for the nine months ended September 30, 2007, compared to 1.24% in the third quarter of 2006 and 1.18% for the nine months ended September 30, 2006.

Average retail service revenue per customer per month increased 1.9% to $52.17 in the third quarter of 2007 and increased 2.5% to $51.59 for the nine months ended September 30, 2007, compared to the similar periods in 2006. Average retail data service revenue per retail customer per month increased 42.9% in the third quarter of 2007 and increased 47.5% for the nine months ended September 30, 2007, compared to the similar periods in 2006, driven by increased use of our messaging, VZAccess and other data services. Retail data revenues were $1,936 million and accounted for 20.3% of retail service revenue in the third quarter of 2007, compared to $1,192 million and 14.5% in the similar period in 2006. Retail data revenues were $5,232 million and accounted for 19.0% of retail service revenue for the nine months ended September 30, 2007, compared to $3,090 million and 13.2% in the similar period in 2006.

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