management’s discussion and analysis
of financial condition and results of operations

Consolidated Results of Operations (1 of 3)

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.

Corporate, eliminations and other during 2010 included a one-time non-cash adjustment of $0.2 billion primarily to adjust wireless data revenues. This adjustment was recorded to properly defer previously recognized wireless data revenues that were earned and recognized in future periods. The adjustment was not material to the consolidated financial statements (see ’Other Items”). In addition, the results of operations related to the divestitures we completed in 2010 (see ’Acquisitions and Divestitures”) included in Corporate, eliminations and other are as follows:

(dollars in millions)

Years Ended December 31,

 

2011

 

 

2010

 

 

2009

 

Impact of Divested Operations

 

 

 

 

 

 

 

 

 

Operating revenues

$

 

$

2,407

 

$

5,297

 

Cost of services and sales

 

 

 

574

 

 

1,288

 

Selling, general and administrative expense

 

 

 

665

 

 

1,356

 

Depreciation and amortization expense

 

 

 

413

 

 

884

 

Consolidated Revenues

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

Increase/(Decrease)

Years Ended December 31,

 

2011

 

 

2010

 

 

2009

 

2011 vs. 2010

 

2010 vs. 2009

Verizon Wireless

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service revenue

$

59,157

 

$

55,629

 

$

52,046

 

$

3,528

 

6.3

 

%

 

$

3,583

 

6.9

 

%

Equipment and other

 

10,997

 

 

7,778

 

 

8,279

 

 

3,219

 

41.4

 

 

 

 

(501

)

(6.1

)

 

Total

 

70,154

 

 

63,407

 

 

60,325

 

 

6,747

 

10.6

 

 

 

 

3,082

 

5.1

 

 

Wireline

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mass Markets

 

16,337

 

 

16,256

 

 

16,115

 

 

81

 

0.5

 

 

 

 

141

 

0.9

 

 

Global Enterprise

 

15,622

 

 

15,316

 

 

15,289

 

 

306

 

2.0

 

 

 

 

27

 

0.2

 

 

Global Wholesale

 

7,973

 

 

8,746

 

 

9,533

 

 

(773

)

(8.8

)

 

 

 

(787

)

(8.3

)

 

Other

 

750

 

 

909

 

 

1,514

 

 

(159

)

(17.5

)

 

 

 

(605

)

(40.0

)

 

Total

 

40,682

 

 

41,227

 

 

42,451

 

 

(545

)

(1.3

)

 

 

 

(1,224

)

(2.9

)

 

Corporate, eliminations and other

 

39

 

 

1,931

 

 

5,032

 

 

(1,892

)

(98.0

)

 

 

 

(3,101

)

(61.6

)

 

Consolidated Revenues

$

110,875

 

$

106,565

 

$

107,808

 

$

4,310

 

4.0

 

 

 

$

(1,243

)

(1.2

)

 

2011 Compared to 2010

The increase in consolidated revenues during 2011 compared to 2010 was primarily due to higher revenues at Verizon Wireless, the expansion of FiOS services and increased revenues from strategic services at our Wireline segment. In addition, the increase during 2011 was partially offset by the impact of divested operations.

The increase in Verizon Wireless’ revenues during 2011 compared to 2010 was primarily due to growth in both service and equipment revenue. Service revenue increased during 2011 compared to 2010 primarily due to an increase in total connections since January 1, 2011, as well as continued growth in our data revenue, partially offset by a decline in voice revenue.

Total wireless data revenue was $23.6 billion and accounted for 40.0% of service revenue during 2011 compared to $19.6 billion and 35.1% during 2010. Total data revenue continues to increase as a result of the increased penetration of data offerings, in particular for smartphone data service plans which provide our customers with access to web and e-mail via their wireless device. We have also experienced growth in data revenues for internet data devices such as tablets, USB modems and Jetpacks which also require service plans allowing access to data services. Voice revenue decreased as a result of continued declines in retail postpaid voice ARPU due to the ongoing impact of our retail customers seeking to optimize the value of our voice minute bundles, partially offset by an increase in the number of customers.

Equipment and other revenue increased during 2011 compared to 2010 due to an increase in the sales volume for smartphones to new and upgrading customers. Partially offsetting these increases was a decrease in the sales volume for basic phones in both periods.

The decrease in Wireline’s revenues during 2011 compared to 2010 was primarily driven by declines in Global Wholesale and Other Global Enterprise revenues. The decrease in Global Wholesale revenues was primarily due to a $0.4 billion decline in international voice revenues as a result of decreased minutes of use (MOUs) in traditional voice products as a result of increases in voice termination pricing on certain international routes. Other Global Enterprise revenues declined primarily due to lower customer premise equipment revenues, reflecting our focus on improving margins by de-emphasizing sales of equipment that are not a part of an overall enterprise solutions bundle, as well as customers migrating to next generation IP services. Other Wireline revenue also decreased primarily as a result of former MCI mass market customer losses. These revenue declines were partially offset by continued revenue growth in Global Enterprise strategic services, in part due to the inclusion of the revenues of Terremark, and in Mass Markets, primarily due to the expansion of FiOS services (Voice, Internet and Video), partially offset by the decline of local exchange revenues.

2010 Compared to 2009

The decrease in Consolidated revenues during 2010 compared to 2009 was primarily due to the impact of divested operations and declines in revenues at our Wireline segment resulting from switched access line losses and decreased MOUs in traditional voice products, partially offset by higher revenues in our growth markets.

The increase in Verizon Wireless’ revenues during 2010 compared to 2009 was primarily due to growth in service revenue. Service revenue increased during 2010 compared to 2009 primarily due to an increase in total customers since January 1, 2010, as well as continued growth in our data ARPU, partially offset by a decline in voice ARPU.

Total wireless data revenue was $19.6 billion and accounted for 35.1% of service revenue during 2010, compared to $15.6 billion and 29.9% during 2009. Total data revenue increased as a result of the increased penetration of data offerings, in particular for web and e-mail services resulting in part from increased sales of smartphone and other data-capable devices. Voice revenue decreased as a result of continued declines in our voice ARPU, partially offset by an increase in the number of customers.

Equipment and other revenue decreased during 2010 compared to 2009 due to a decrease in the number of equipment units sold, which resulted from a decrease in customer gross additions.

The decrease in Wireline’s revenues during 2010 compared to 2009 was primarily due to lower Global Wholesale and Other revenue, partially offset by an increase in Mass Markets revenue. The decrease in Global Wholesale revenues during 2010 compared to 2009 was primarily due to decreased MOUs in traditional voice products, increases in voice termination pricing on certain international routes, which negatively impacted volume, and continued rate compression due to competition in the marketplace. The decrease in Other revenue during 2010 compared to 2009 was primarily due to reduced business volumes, including former MCI mass market customer losses. The increase in Mass Markets revenue during 2010 compared to 2009 was primarily driven by the expansion of FiOS services (Voice, Internet and Video), partially offset by the decline of local exchange revenues principally as a result of a decline in switched access lines. Global Enterprise revenues during 2010 compared to 2009 were essentially unchanged as higher customer premise equipment and strategic networking revenues were offset by lower local services and traditional circuit-based revenues.