Management’s Discussion and Analysis
of Financial Condition and Results of Operations

CONSOLIDATED RESULTS OF OPERATIONS (1 OF 4)

In this section, we discuss our overall results of operations and highlight items that are not included in our business 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 Domestic Wireless and Wireline.

This section and the following “Segment Results of Operations” section also highlight and describe those items of a non-recurring or non-operational nature separately to ensure consistency of presentation. In the following section, we review the performance of our two reportable segments. We exclude the effects of certain items that management does not consider in assessing segment performance, primarily because of their non-recurring or non-operational nature as discussed below and in the “Other Consolidated Results” and “Other Items” sections. We believe that this presentation will assist readers in better understanding our results of operations and trends from period to period.

Corporate, eliminations and other includes unallocated corporate expenses, intersegment eliminations recorded in consolidation, the results of other businesses such as our investments in unconsolidated businesses, lease financing, and other adjustments and gains and losses that are not allocated in assessing segment performance due to their non-recurring or 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, since these items are included in the chief operating decision maker’s assessment of segment performance. Reclassifications of prior period amounts have been made in accordance with the adoption of the accounting standard on noncontrolling interests in the consolidated financial statements and, where appropriate, to reflect comparable operating results for the spin-off of our local exchange and related business assets in Maine, New Hampshire and Vermont which was completed on March 31, 2008.


Consolidated Revenues

(dollars in millions)

Years Ended December 31,

2009

 

2008

 

% Change

 

2008

 

2007

 

% Change

 

Domestic Wireless

                                   

Service revenue

$

53,497

 

$

42,635

 

 

25.5

 

$

42,635

 

$

38,016

 

 

12.2

 

Equipment and other

 

8,634

 

 

6,697

 

 

28.9

 

 

6,697

 

 

5,866

 

 

14.2

 

Total

 

62,131

 

 

49,332

 

 

25.9

 

 

49,332

 

 

43,882

 

 

12.4

 

Wireline

                                   

Mass Markets

 

19,755

 

 

19,799

 

 

(0.2

)

 

19,799

 

 

19,570

 

 

1.2

 

Global Enterprise

 

14,988

 

 

15,779

 

 

(5.0

)

 

15,779

 

 

15,710

 

 

0.4

 

Global Wholesale

 

9,637

 

 

10,360

 

 

(7.0

)

 

10,360

 

 

10,750

 

 

(3.6

)

Other

 

1,700

 

 

2,276

 

 

(25.3

)

 

2,276

 

 

3,099

 

 

(26.6

)

Total

 

46,080

 

 

48,214

 

 

(4.4

)

 

48,214

 

 

49,129

 

 

(1.9

)

Corporate, eliminations and other

 

(403

)

 

(192

)

 

nm

 

 

(192

)

 

458

 

 

nm

 

Consolidated Revenues

$

107,808

 

$

97,354

 

 

10.7

 

$

97,354

 

$

93,469

 

 

4.2

 

nm - not meaningful

2009 Compared to 2008

Consolidated revenues in 2009 increased by $10,454 million, or 10.7%, compared to the similar period in 2008, primarily due to the inclusion of the operating results of Alltel in our Wireless segment and higher revenues in our growth markets. These revenue increases were partially offset by declines in revenues at our Wireline segment due to switched access line losses and decreased minutes of use (MOUs) in traditional voice products.

Domestic Wireless’s revenues in 2009 increased by $12,799 million, or 25.9%, compared to the similar period in 2008, primarily due to the inclusion of the operating results of Alltel and continued growth in service revenue. Service revenue in 2009 increased $10,862 million, compared to the similar period in 2008 primarily as a result of the 13.2 million net new customers, after conforming adjustments, which we acquired in connection with the acquisition of Alltel on January 9, 2009, as well as a 5.9 million, or 8.2%, increase in total customers from sources other than acquisitions. Total data revenue was $16,014 million and accounted for 29.9% of service revenue in 2009, compared to $10,651 million and 25.0%, respectively, during the similar period in 2008 because of increased use of Mobile Broadband, e-mail, and messaging.

Domestic Wireless’s equipment and other revenue in 2009 increased by $1,937 million, or 28.9%, compared to the similar period in 2008, primarily due to an increase in gross customer additions as well as an increase in the number of units sold to existing customers upgrading their wireless devices. Other revenues increased primarily due to the inclusion of the operating results of Alltel and an increase in our cost recovery rate.

Wireline’s revenues in 2009 decreased by $2,134 million, or 4.4%, compared to the similar period in 2008. Mass Markets revenues in 2009 decreased $44 million, or 0.2%, compared to the similar period in 2008, primarily due to continued decline of local exchange revenues principally as a result of switched access line losses, partially offset by a continued growth in FiOS services. Global Enterprise revenues in 2009 decreased by $791 million, or 5.0%, compared to the similar period in 2008, primarily due to lower long distance and traditional circuit-based data revenues, and lower customer premise equipment combined with the negative effects of movements in foreign exchange rates versus the U.S. dollar. This decrease was offset partially by an increase in IP and security solutions revenues. Global Wholesale revenues in 2009 decreased $723 million, or 7.0%, compared to the similar period in 2008, due to decreased MOUs in traditional voice products and continued rate compression due to competition in the marketplace.

2008 Compared to 2007

Consolidated revenues in 2008 increased by $3,885 million, or 4.2%, compared to 2007. This increase was primarily the result of continued strong growth at Domestic Wireless.

Domestic Wireless’s revenues in 2008 increased by $5,450 million, or 12.4%, compared to 2007 due to continued strong growth in service revenue. Service revenues during 2008 increased $4,619 million, or 12.2%, compared to 2007 primarily due to an increase in data revenue and a 6.3 million or 9.7% increase in total customers. Total data revenue was $10,651 million and accounted for 25.0% of service revenue in 2008, compared to $7,386 million and 19.4%, respectively, in 2007, as a result of an increased number of customers using our data services, as well as increased usage of our messaging services and non-messaging services, such as Mobile Broadband, e-mail, data transport and newer location-based data services such as VZ Navigator.

Equipment and other revenue in 2008 increased by $831 million, or 14.2%, compared to 2007, primarily as a result of an increase in the number of upgrades for data devices combined with higher average equipment revenue per device for phones, partially offset by lower average equipment revenue per device for data devices sold through our direct channel.

Wireline’s revenues in 2008 decreased by $915 million, or 1.9%, compared to 2007, primarily driven by declines in Other and Global Wholesale revenues partially offset by increases in Mass Markets and Global Enterprise revenues.

Global Wholesale revenues during 2008 decreased by $390 million, or 3.6%, compared to 2007, due to declines in switched access revenues in traditional voice products and local wholesale revenues, decreased MOUs in traditional voice products and continued rate compression in the marketplace. This decrease was partially offset by an increase in special access revenues. Mass Markets revenues during 2008 increased $229 million, or 1.2%, compared to 2007, primarily due to continued growth in FiOS services, partially offset by a continued decline of local exchange revenues principally as a result of switched access line losses. Global Enterprise revenues increased $69 million, or 0.4%, during 2008 compared to 2007, primarily due to an increase in IP and security solutions revenues partially offset by lower long distance and traditional circuit-based data revenues, combined with the negative effects of movements in foreign exchange rates versus the U.S. dollar. Other revenue in 2008 decreased $823 million, or 26.6%, compared to the similar period in 2007, primarily due to the discontinuation of non-strategic product lines and reduced business volumes, including former MCI mass markets customer losses.