Verizon Communications Inc. (Verizon, or the Company) is a holding company that, acting through its
subsidiaries, is one of the worlds leading providers of communications, information and entertainment products and services to consumers, businesses and governmental agencies. With a presence around the world, we offer 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. Formerly known as Bell Atlantic Corporation (Bell Atlantic), we were
incorporated in 1983 under the laws of the State of Delaware. We began doing business as Verizon on June 30, 2000 following our merger with GTE Corporation. We have a highly diverse workforce of approximately 160,900 employees.
Our principal executive offices are located at 1095 Avenue of the Americas, New York, New York 10036 (telephone number
212-395-1000).
We have two reportable segments,
Wireless and Wireline, which we operate and manage as strategic business segments and organize by products and services.
|
|
|
Wireless
|
|
Wireless communications products and services include wireless voice and data services and equipment sales, which are provided to consumer, business and
government customers across the United States.
|
|
|
Wireline
|
|
Wirelines voice, data and video communications products and enhanced services include broadband video and data, corporate networking solutions, data center
and cloud services, security and managed network services and local and long distance voice services. We provide these products and services to consumers in the United States, as well as to carriers, businesses and government customers both in the
United States and around the world.
|
Additional discussion of our reportable segments is included in the 2016 Verizon Annual Report to
Shareowners under the headings Managements Discussion and Analysis of Financial Condition and Results of Operations - Overview and - Segment Results of Operations and in Note 12 to the consolidated financial statements of Verizon
Communications Inc. and Subsidiaries, which are incorporated by reference into this report.
Background
Our Wireless segment, doing business as Verizon Wireless, provides wireless communications services and products across one of the most extensive wireless networks in the United States (U.S.). Verizon
Wireless is the largest wireless service provider in the United States as measured by retail connections and revenue. At December 31, 2016, Verizon Wireless had 114.2 million retail connections and 2016 revenues of approximately
$89.2 billion, representing approximately 71% of Verizons aggregate revenues.
Cellco Partnership (Cellco), which
originally held the wireless assets of Bell Atlantic, began operating as Verizon Wireless in April 2000 with both Vodafone Group Plc (Vodafone) and Bell Atlantic as partners, following Vodafones contribution of its U.S. wireless
assets into Cellco. On September 2, 2013, Verizon entered into a stock purchase agreement with Vodafone and Vodafone 4 Limited, pursuant to which Verizon agreed to acquire all of Vodafones indirect 45% interest in Verizon Wireless for
aggregate consideration of approximately $130 billion (the Wireless Transaction). We completed the Wireless Transaction on February 21, 2014 and, as a result, we acquired 100% ownership of Verizon Wireless. The consideration paid was
primarily comprised of cash and Verizon common stock.
We have the largest fourth-generation (4G) Long-Term Evolution (LTE)
technology and third-generation (3G) Evolution - Data Optimized
(EV-DO)
networks of any U.S. wireless service provider. Our 4G LTE network is available to over 98% of the U.S. population in more than 500
markets covering approximately 314 million people, including those in areas served by our LTE in Rural America partners. Under this program, we are working with wireless carriers in rural areas to collaboratively build and operate a 4G LTE
network using each carriers network assets and our core 4G LTE equipment and 700 MHz C Block and Advanced Wireless Services (AWS) spectrum.
We are adding capacity and density to our 4G LTE network. We are committed to developing and deploying fifth-generation (5G) wireless technology and are working with key partners to ensure the aggressive
pace of innovation, standards development and appropriate requirements for this next generation of wireless technology. Based on the outcome of our ongoing
pre-commercial
trials, we intend to be the first
company to deploy a 5G fixed wireless broadband network in the United States. We expect to launch a fixed commercial wireless service supported by this network in 2018.
3
Wireless Service and Product Offerings
Our wireless services are available to our customers receiving service under the Verizon Wireless brand. In addition, customers can obtain
wireless products and services that operate on our network from resellers that purchase network access from us on a wholesale basis.
Wireless Services
We offer our wireless services on a postpaid and prepaid basis. Retail
(non-wholesale)
postpaid
accounts primarily represent retail customers with Verizon Wireless that are directly served and managed by Verizon Wireless and use its branded services. A single account may include monthly wireless services for a variety of connected devices. A
postpaid retail connection represents an individual line of service for a wireless device for which a customer is billed in advance a monthly access charge in return for a monthly network service allowance, and usage beyond the allowance is billed
in arrears. Approximately 95% of our total retail connections were postpaid retail connections as of December 31, 2016. Our prepaid service enables individuals to obtain wireless services without credit verification by paying for all services
in advance.
We offer various postpaid account service plans, including shared data plans, single connection plans and other
plans tailored to the needs of our customers. Our shared data plans typically feature domestic unlimited voice minutes, unlimited domestic and international text, video and picture messaging, and a single data allowance that can be shared among the
wireless devices on a customers account. These allowances will vary from time to time as part of promotional offers or in response to market circumstances. On February 12, 2017, we announced an introductory plan, our new Verizon Unlimited
plan, available to our consumer and small business customers, which offers among other things, unlimited domestic voice, data and texting. Both our shared data plans and the Verizon Unlimited plan include our HD (High Definition) Voice, Video
Calling and Mobile Hotspot services on compatible devices. HD Voice is a suite of services enabled by Voice over LTE (VoLTE), which delivers calls over our 4G LTE network, and our Video Calling service combines an HD Voice call with real-time video.
Our Mobile Hotspot service enables a customer to activate a personal
Wi-Fi
hotspot via their smartphone that can provide Internet access to multiple
Wi-Fi
enabled
devices. We also offer various voice and shared data plans for small and large businesses.
Our simplified shared data plan,
the new Verizon Plan, offers customers various sizes of data packages that can be shared among up to 10 devices on a consumer account or 25 devices on a business account. The plan features Carryover Data, which allows customers to carry over unused
data to the next month, and Safety Mode, which enables customers to avoid data overage fees by allowing them to continue using data at a reduced data speed after using their data allowance. Certain plans, with higher account access amounts also
include calling to and voice, text and data roaming in Mexico and Canada. Customers who wish to participate in this new plan can do so by purchasing a device from Verizon either under our device payment program or at full retail, or by using their
own compatible device.
Customers on our fixed-term service plans have historically paid higher access fees for their wireless
service in exchange for the ability to purchase their wireless devices at subsidized prices. We have largely discontinued this form of device subsidy. Under the Verizon device payment program, our eligible wireless customers purchase wireless
devices under a device payment plan agreement. Customers that activate service on devices purchased under the device payment program or on a compatible device that they already own pay lower access fees (unsubsidized service pricing) as compared to
those under our fixed-term service plans. Generally, customers entering into device payment plan agreements on or after June 1, 2015 are required to repay all amounts due under their device payment plan agreement before being eligible to
upgrade their device. However, certain devices are subject to promotions that allow customers to upgrade to a new device after paying down a specified percentage of the balance on their device payment plan and trading in their device in good working
condition.
We also offer prepaid single connection service plans that feature domestic unlimited voice minutes and unlimited
domestic and international text. On compatible devices, certain of our prepaid plans also feature video and picture messaging, Carryover Data and
Always-On
Data, which allows a customer to stay online at
reduced data speeds after using their data allowance. HD Voice, Video Calling and Mobile Hotspot service are available on compatible devices. Customers can manage their prepaid services on the device using their My Verizon Mobile application or
logging in to the My Verizon website.
We offer our customers a wide variety of wireless services
accessible on a broad range of devices. Access to the Internet is available on all smartphones and nearly all basic phones. We also offer service that enables our customers to access the Internet wirelessly at broadband speeds on notebook computers
and tablets that either have embedded 4G LTE or 3G
EV-DO
modules or that are used in conjunction with separate devices that enable access to this service, such as USB modems, Jetpacks
TM
and other dedicated devices that provide a mobile
Wi-Fi
connection.
Our customers can access multimedia offerings, provided by Verizon and by
third parties, consisting of applications providing music, video, gaming, news and other content. Our business-focused offerings, which are designed to increase productivity, include solutions that enable customers to access the Internet, their
corporate intranets and
e-mail
across our diverse portfolio of wireless devices. Our location-based services provide our customers with directions to their destination and enable our business customers to
locate, monitor and communicate with their mobile field workers. Our global data services allow our customers to access data services and the Internet on all smartphones and many tablets and basic phones from hundreds of international destinations
that we sell. A majority of the wireless devices used by our customers can run applications and services offered by Google (a subsidiary of Alphabet Inc.) via Google Play or Apple Inc. (Apple) via iTunes.
Our customers can also make and receive calls on their home phone handsets using our wireless network through our Home Phone Connect
service or Verizon 4G LTE Broadband Router with Voice service. We also offer LTE Internet (Installed), a high-speed Internet service that provides customers with Internet connections in their homes using our 4G LTE network.
4
We provide network access and, in some cases, enhanced value-added services to support
wireless connections for the Internet of Things (IoT). Our IoT services offer
end-to-end
solutions for various IoT vertical markets, such as:
|
|
|
Fleet management and telematics We provide
in-vehicle
solutions that enable vehicle navigation, GPS
tracking, engine diagnostic monitoring and maintenance alerts;
|
|
|
|
Energy We offer solutions targeted to providing the energy sector with greater visibility into energy usage and the ability to remotely
monitor devices used to track energy usage;
|
|
|
|
Agricultural technology We provide solutions that give farmers critical data they need to improve yields and save costs; and
|
|
|
|
Smart Communities Our solutions enable localities to collect data from IoT and connected machine technologies with the goal of improving
public safety, managing traffic, reducing pollution, identifying revenue generation opportunities, making efficient use of limited resources and attracting businesses, residents and workers.
|
We also work with various companies that purchase network access from us to connect their Open Development certified devices, bundled
together with their own solutions, which they sell to
end-users.
Wireless Devices
We offer several categories of wireless devices, including smartphones and basic phones, tablets and other Internet
access devices.
Smartphones and Basic Phones
. All of the smartphones we offer are enabled to utilize our 4G LTE and 3G
EV-DO
high-speed data services. These devices run on various operating platforms, primarily Apple iOS and Google Android. The basic phones we offer are 3G
EV-DO-enabled
and have HTML-browsing capability.
Tablets and Other Internet
Devices.
We offer tablets from multiple manufacturers, all of which can access the Internet via our 4G LTE network or a
Wi-Fi
connection. The tablets run primarily on the Apple iOS and Google Android
operating systems. In addition, we offer dedicated devices, which we refer to as Jetpacks that provide a mobile
Wi-Fi
4G LTE and/or 3G
EV-DO
connection and are capable
of connecting multiple
Wi-Fi
enabled devices to the Internet at one time. Our customers can also access the Internet wirelessly at broadband speeds on their computers via data cards, USB modems or through the
use of certain laptop computers and netbooks enabled to access our wireless network.
We purchase a substantial majority of
our wireless devices and accessories from Apple, Samsung, Motorola Mobility, Google, LG Electronics and HTC.
A key component
of all wireless devices is the chipset, which contains the intelligence of the device. The LTE chipsets used in our 4G
LTE-enabled
devices are manufactured by various companies, each using its own
4G LTE chipset technology. To support Code Division Multiple Access (CDMA)-1XRTT and
EV-DO
technologies (with and without 4G LTE), most of our wireless device suppliers currently rely on Qualcomm Incorporated
for the manufacture and supply of chipsets. In addition, there are a number of other components common to wireless devices provided by various electronic component manufacturers that we do not deal with directly.
Network
We have
the largest 4G LTE and 3G
EV-DO
networks of any service provider in the United States, with licensed and operational coverage in all of the 100 most populous U.S. metropolitan areas. As of December 31,
2016, our 4G LTE network covered approximately 314 million people in the United States, including those in areas served by our LTE in Rural America partners. We currently have 21 LTE in Rural America partners that provide 4G LTE coverage to an
area covering approximately three million people.
The reliability of our wireless network is a key factor for our continued
success, and we strive to provide our customers with the highest network reliability for their wireless services. We believe that steady and consistent network and platform investments provide the foundation for innovative products and services
that will fuel profitable growth. The depth and breadth of our network provides our fundamental strength and is the basis for our competitive advantage.
We design and deploy our network in an efficient manner that we believe maximizes the number of successful data sessions, including video, permitting the completion of large file downloads and uploads
while delivering on our advertised throughput speeds, and maximizes the number of calls that are connected on the first attempt and completed without being dropped. We plan to continue to upgrade our network, primarily to increase its capacity
and density, by utilizing small cell technology,
in-building
solutions and distributed antennae systems in addition to deploying existing AWS spectrum. We are also exploring strategic opportunities to increase
our network capacity and efficiency through selective acquisitions of spectrum licenses.
Our network includes various
elements of redundancy designed to enhance the reliability of our service. To mitigate the impact of power disruptions on our operations, we have battery backup at every switch and every macrocell in our network. We also utilize backup generators at
a majority of our macrocells and at every switch location. In addition, we have a fleet of portable backup generators that can be deployed, if needed. We further enhance reliability by using a fully redundant Multiprotocol Label Switching backbone
network in critical locations.
5
In addition to our own network coverage, we have roaming agreements with a number of
wireless service providers to enable our customers to receive wireless service in nearly all other areas in the United States where wireless service is available. We also offer a variety of international wireless voice and data services to our
customers through roaming arrangements with wireless service providers outside of the United States. Certain of our roaming agreements can be terminated at will by either party upon several months notice; however, we do not believe that the
termination of any of these
at-will
agreements would have a material adverse effect on our business.
Technology
Our primary
network technology platforms are 4G LTE and 3G CDMA. 4G LTE provides higher data throughput performance for data services at a lower cost compared to that offered by 3G technologies.
In 2014, we commercially launched our mobile VoLTE service. HD Calling, enabled by VoLTE, is now being used, in addition to CDMA
technology, to provide voice calling services to our customers.
We are committed to developing and deploying 5G wireless
technology. We are densifying our 4G LTE network to add capacity and
pre-position
us for 5G technology. We launched the Verizon 5G Technology Forum with key industry partners to develop 5G requirements and
standards and conduct testing to accelerate the introduction of 5G technologies. We believe that 5G technology will provide higher throughput than the current 4G LTE technology, lower latency and the ability to handle more network traffic as the
number of Internet-connected devices grows. Based on the outcome of our ongoing
pre-commercial
trials, we intend to be the first company to deploy a 5G fixed wireless broadband network in the United States. We
expect to launch a fixed commercial wireless service supported by this network in 2018.
Spectrum
The spectrum licenses we hold can be used for mobile wireless voice and data communications services. We have licenses to provide these
wireless services on portions of the 800 MHz band, also known as cellular spectrum, the 1800-1900 MHz band, also known as Personal Communication Services (PCS) spectrum, portions of the 700 MHz upper C band and AWS spectrum in the 1700 and 2100 MHz
bands, in areas that, collectively, cover nearly all of the population of the United States.
In January 2015, the Federal
Communications Commission (FCC) completed an auction of 65 MHz of spectrum in the
AWS-3
band. We participated in that auction and were the high bidder on 181 spectrum licenses, for which we paid cash of
approximately $10.4 billion. The FCC granted us these spectrum licenses in April 2015.
We anticipate we will need
additional spectrum to meet future demand. This increasing demand is driven by growth in customer connections and the increased usage of wireless broadband services, that use more bandwidth and require ever faster rates of speed. Additional spectrum
may also allow us to offer new products enabled by advances in technology, including emerging 5G and IoT services. We can meet our future spectrum needs by acquiring licenses or leasing spectrum from other licensees, or by acquiring new
spectrum licenses from the FCC, if and when future FCC spectrum auctions occur. In March 2016, the FCC commenced a voluntary incentive auction of television broadcast spectrum in the 600 MHz frequency range. The auction has finished the
reverse and forward clock phases. Any results will be disclosed by the FCC after the completion of the assignment phase and after the FCC announces the close of the auction by public notice.
Since we and competing wireless service providers have experienced spectrum shortages in certain markets and may have spectrum surpluses
in others, from time to time we have exchanged spectrum licenses with other service providers through secondary market swap transactions. We expect to continue to pursue similar opportunities to trade spectrum licenses in order to meet certain of
our capacity and expansion needs in the future. In other cases, we have entered into intra-market spectrum swaps designed to increase the amount of contiguous spectrum within frequency bands in a specific market. Contiguous spectrum improves network
performance and efficiency. These swaps as well as any spectrum purchases are subject to obtaining governmental approvals for the transfer of spectrum licenses in each instance.
Additional information regarding spectrum license transactions is included in the 2016 Verizon Annual Report to Shareowners in
Note 2 to the consolidated financial statements of Verizon Communications Inc. and Subsidiaries, which is incorporated by reference into this report.
Network Equipment and
Build-out
Nokia and Ericsson are currently our primary network vendors for our LTE network deployments for macro sites as well as small cells. Our
primary CDMA cell site equipment infrastructure vendors are Nokia, which provides more than half of our CDMA cell site equipment, and Ericsson, which provides nearly all of our remaining cell site equipment. We also rely on Nokia and Ericsson for
our switching equipment.
As we continue to build and upgrade our existing network, we must complete a variety of steps,
including securing rights to a large number of sites as well as obtaining zoning and other governmental approvals and fiber facilities for both our macro and small cells. As we densify our network, we follow a similar process for small cells,
in-building
systems and antennas and related radio equipment that comprise distributed antenna systems. We utilize tower site management firms, such as Crown Castle International Corp. and American Tower Corporation
(American Tower), as lessors or managers of a portion of our existing tower sites.
During March 2015, we completed a
transaction with American Tower pursuant to which American Tower acquired the exclusive rights to lease and operate approximately 11,300 of our wireless towers for an upfront payment of $5.0 billion. Under the terms of the lease agreements,
American
6
Tower has exclusive rights to lease and operate towers over an average term of approximately 28 years. As the leases expire, American Tower has fixed-price purchase options to acquire these
towers based on their anticipated fair market values at the end of the lease terms. As part of this transaction, we also sold 162 towers for $0.1 billion. We have subleased capacity on the towers from American Tower for a minimum of 10 years at
current market rates, with options to renew.
Marketing and Distribution
Our marketing strategy is focused on offering solutions tailored to the needs of our various customer market groups; promoting our brand;
leveraging our extensive distribution network; and jointly marketing our products and services to large business and government customers with Verizons Wireline business units through the Wireless Business Group, a sales and marketing
organization that encompasses all of Verizon Wireless solutions for medium and large business and government customers. Our marketing plan includes a coordinated program of television, print, radio, outdoor signage, Internet and
point-of-sale
media promotions designed to present our corporate message consistently across all of our markets. We use a combination of direct, indirect and alternative
distribution channels in order to increase customer growth while reducing customer acquisition costs.
Company-operated stores
are a core component of our distribution strategy. We have Verizon Destination Stores in various major metropolitan areas, which focus on the mobile lifestyle and highlight the many ways consumers can use wireless technology in their daily lives.
These stores are part of a broader initiative that includes the redesign of our retail stores nationwide into Smart Stores, which showcase the same mobile lifestyle zones on a smaller scale. In addition, our direct channel includes our
business-to-business
sales operations and systems organization and is focused on supporting the wireless communications needs of consumers and local, regional and national
business customers. In addition, we have a telemarketing sales force dedicated to handling incoming calls from customers, and we offer fully-automated,
end-to-end
web-based
sales of wireless devices, accessories and service plans.
Our indirect channel
includes agents that sell our postpaid and prepaid wireless products and services at retail locations throughout the United States, as well as through the Internet. The majority of these agents sell both our postpaid and prepaid products and
services, and do so under exclusive selling arrangements with us. We also have relationships with high-profile national retailers, such as Best Buy,
Wal-Mart
and Target, to sell our postpaid and prepaid
wireless products and services. Stores such as Dollar General and various drugstore chains sell our prepaid products and services.
Competition
We operate
in a highly competitive industry. We compete against other national wireless service providers, including AT&T Inc., Sprint Corporation and
T-Mobile
USA, Inc., as well as various regional wireless service
providers. We also compete for retail activations with resellers that buy bulk wholesale service from facilities-based wireless service providers for resale, including resellers that buy from us. Competition is intense as a result of continuing
increases in wireless market penetration levels, network investment by our competitors, the development and deployment of new technologies, the introduction of new products and services, new market entrants, the availability of additional spectrum,
both licensed and unlicensed, and regulatory changes. Competition may also increase as smaller, stand-alone wireless service providers merge or transfer licenses to larger, better capitalized wireless service providers.
The wireless industry also faces competition from other communications and technology companies seeking to increase their brand
recognition and capture customer revenue with respect to the provision of wireless products and services, in addition to
non-traditional
offerings in mobile data. For example, Microsoft, Google, Apple and
others are offering alternative means for making wireless voice calls that, in certain cases, can be used in lieu of the wireless providers voice service, as well as alternative means of accessing video content.
We believe that the following are the most important competitive factors in our industry:
|
|
|
Network reliability, capacity and coverage.
We believe that a wireless network that consistently provides high-quality and reliable service
is a key differentiator in the U.S. market and driver of customer satisfaction. Lower prices, improved service quality and new wireless service offerings, which in many cases include video content, have led to increased customer usage of wireless
services, which, in turn, puts pressure on network capacity. In order to compete effectively, wireless service providers must keep pace with network capacity needs and offer highly reliable national coverage through their networks. We believe that
our investments in our 4G LTE network to increase network capacity will enable us to meet consumer demand.
|
|
|
|
Pricing.
Service and equipment pricing play an important role in the wireless competitive landscape. As the demand for wireless services
continues to grow, we and other wireless service providers are offering service plans at competitive prices that include unlimited voice minutes and text messages and a specific amount of data access in varying megabyte or gigabyte sizes or, in some
cases, on an unlimited basis subject to certain restrictions. These allowances will vary from time to time as part of promotional offers or in response to market circumstances. We and many other wireless service providers also allow customers on
certain plans to carry over unused data allowances to the next billing period, or to stay online at a reduced data speed after using all of a data allowance for a billing period. In addition, some wireless service providers have bundled wireless
service offerings with other products while others offer promotional pricing and incentives targeted specifically to customers of Verizon Wireless.
|
We and other wireless service providers, as well as equipment manufacturers, offer device payment options that distinguish
service pricing from equipment pricing and blur the traditional boundary between prepaid and postpaid plans. These payment options include device payment plans,
7
which provide customers with the ability to pay for their device over a period of time, and device leasing arrangements. Historically, wireless service providers offered customers wireless plans
whereby, in exchange for the customer entering into a fixed-term service agreement, the wireless service provider significantly, and in some cases fully, subsidized the customers device purchase. Wireless providers recovered those subsidies
through higher service fees as compared to those paid by customers on device payment plans. We and many other wireless providers have limited or discontinued this form of device subsidy.
|
|
|
Customer service.
We believe that high-quality customer service is a key factor in retaining customers and attracting new customers,
including those of other wireless providers. Our customer service, retention and satisfaction programs are based on providing customers with convenient and
easy-to-use
products and services and focusing on their needs in order to promote long-term relationships and minimize churn. Our competitors also recognize the importance of customer service and are also focused on improving in this area.
As part of our
efforts to transform and simplify the customer experience, we launched a new My Verizon app, which allows customers to manage their price plan, data usage, account and billing from their device. As part of our efforts to promote long-term
relationships with our customers, we offer Verizon Smart Rewards, which is a program that offers a wide variety of rewards to customers in exchange for points they earn in connection with their account-related interactions with Verizon Wireless. The
program offers customers discounts and savings on merchandise from well-known brands, as well as discounts and other offers at local shopping and dining venues.
|
|
|
|
Product and service development.
As wireless technologies develop and wireless broadband networks proliferate, continued customer and revenue
growth will be increasingly dependent on the development of new and enhanced data products and services. We continue to pursue the development and rapid deployment of new and innovative wireless products and services both independently and in
collaboration with application and content providers. We also collaborate with various device manufacturers in the development of distinctive smartphones and other wireless devices that can access the growing array of data applications and content
available over the Internet. We continue to focus on increasing the penetration of smartphones, tablets and other connected devices throughout our customer base.
|
|
|
|
Sales and distribution.
The key to achieving sales success in the wireless industry is the reach and quality of sales channels and
distribution points. We believe that attaining the optimal combination of varying distribution channels is important to achieving industry-leading profitability, as measured by operating income. We endeavor to increase sales through our
company-operated stores, outside sales teams and telemarketing,
web-based
sales and fulfillment capabilities, our extensive indirect distribution network of retail outlets and prepaid replenishment locations,
and through manufacturers of laptops and netbooks with embedded 4G LTE and 3G modules that can access the Internet on our network at broadband speeds. In addition, we sell network access to both traditional resellers, which resell network services
to their
end-users,
and to various companies to enable wireless communications for their IoT devices or services.
|
|
|
|
Capital resources.
In order to expand the capacity and coverage of their networks and introduce new products and services, wireless service
providers require significant capital resources. We generate significant cash flow from operations, as do some of our competitors.
|
Our success will depend on our ability to anticipate and respond to various factors affecting the wireless industry, including the factors described above, as well as new technologies, new business
models, changes in customer preferences, regulatory changes, demographic trends, economic conditions and pricing strategies of competitors.
Background
Our Wireline segment provides voice, data and video communications products and enhanced services. We provide these products and services to consumers in the United States, as well as to carriers,
businesses and government customers both in the United States and around the world. In 2016, Wireline revenues were $31.3 billion, representing approximately 25% of Verizons aggregate revenues.
Strategic Transactions
On February 5, 2015, we entered into a definitive agreement with Frontier Communications Corporation (Frontier) pursuant to which Verizon sold 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
(approximately $7.3 billion net of income taxes), subject to certain adjustments and including the assumption of $0.6 billion of indebtedness from Verizon by Frontier. The transaction, which included the acquisition by Frontier of the
equity interests of Verizons incumbent local exchange carriers (ILECs) in California, Florida and Texas, did not involve any assets or liabilities of Verizon Wireless. The transaction closed on April 1, 2016.
The transaction resulted in Frontier acquiring approximately 3.3 million voice connections, 1.6 million Fios Internet
subscribers, 1.2 million Fios video subscribers and the related ILEC businesses from Verizon. Approximately 9,300 Verizon employees who served customers in California, Florida and Texas continued employment with Frontier. The operating results
of these businesses are excluded from our Wireline segment for all periods presented to reflect comparable segment operating results consistent with the information regularly reviewed by our chief operating decision maker.
8
On February 20, 2016, we entered into a purchase agreement to acquire XO Holdings
wireline business, which owns and operates one of the largest fiber-based IP and Ethernet networks, for approximately $1.8 billion, subject to adjustment. We completed the acquisition on February 1, 2017. Separately, we entered into an
agreement to lease certain wireless spectrum from a wholly-owned subsidiary of XO Holdings that holds its wireless spectrum. Verizon has an option, exercisable under certain circumstances, to buy that subsidiary.
We are reinventing our network architecture around a common fiber platform that will support both our wireless and wireline technologies.
We expect that this new One Fiber architecture will improve our 4G LTE coverage, speed the deployment of 5G, deliver high-speed Fios broadband to homes and businesses and create new opportunities in the small and medium business market.
In April 2016, we announced our One Fiber strategy for the city of Boston. We launched One Fiber for consumer and business services to customers in Boston late in 2016.
On December 6, 2016, we entered into a definitive agreement with Equinix, Inc. pursuant to which Verizon will sell 24 customer-facing data center sites in the United States and Latin America for
approximately $3.6 billion, subject to certain adjustments. The sale does not affect Verizons data center services delivered from 27 sites in Europe, Asia-Pacific and Canada, or its managed hosting and cloud offerings. The transaction is
subject to customary regulatory approvals and closing conditions, and is expected to close during the first half of 2017.
Wireline Service
and Product Offerings
We organize our service and product offerings by the primary customers targeted by these offerings
mass markets, global enterprise and global wholesale.
Mass Markets
Mass Markets operations provide broadband Internet and video services (including high-speed Internet, Fios Internet and Fios video
services), and local exchange (basic service and
end-user
access) and long distance (including regional toll) voice services to residential and small business subscribers. In 2016, Mass Markets revenues were
$14.4 billion, representing approximately 46% of Wirelines aggregate revenues.
Internet services.
We offer
Fios Internet and high-speed Internet services with varying throughput speeds. We believe that as consumers connect more devices and stream more video, they will require increased broadband speeds. With our Fios Quantum broadband service and certain
other data services, our customers can achieve symmetrical upload and download speeds of up to 500 Mbps, and we recently launched our Instant Internet service, which allows customers in certain markets to achieve symmetrical upload and download
speeds of 750 Mbps and higher. As more data storage and, in some cases, processing is moved to the cloud, we believe that customers will place an increasing value on upstream performance that matches what they already receive for downloads.
Video services.
We offer video service over our fiber-optic network. As of December 31, 2016, Fios video services
were available to approximately 14 million homes across 9 states, as well as the District of Columbia. We have several offerings available to our Fios TV customers, including:
|
|
|
Fios Quantum TV,
which provides customers the ability to record up to 12 shows at once and control live TV from any room in their home;
|
|
|
|
Fios Custom TV,
which provides customers local versions of the Fox, CBS, NBCU, and ABC broadcast stations and other similar local content and
offers customers the option of purchasing an Essentials plan that includes a base set of lifestyle, entertainment, pop culture and content for children and national news networks, or a Sports and More plan that includes national and regional sports
networks as well as
non-sports
national networks. Customers can add more sets of categorized channels to their Custom TV package for an additional monthly fee; and
|
|
|
|
Fios on Demand,
which gives Fios customers the ability to watch content virtually anytime and anywhere, on any compatible device. Customers
who subscribe to Fios Internet and video service also have the ability to upload their photos, music and videos to their personal Fios on Demand Library, which gives them access to this content via various data-capable devices. With the Fios Mobile
App, programming, such as ESPN, TNT, Nickelodeon, HBO and TBS, can be streamed to a customers tablet or other mobile device.
|
We continue to partner with major corporations to offer further interoperability with various products such as video game consoles, smart televisions and tablets. This technology further expands our
initiative to provide customers with the ability to watch content anytime and anywhere on any data-capable device.
Voice
services.
We offer voice services that include local exchange, regional and long distance calling and voice messaging services, as well as Voice over Internet protocol (VoIP) services, which use the Internet or private broadband networks to
transmit voice communications.
Global Enterprise
Global Enterprise offers strategic services and other core communications services to medium and large business
customers, including multinational corporations, as well as state and federal government customers. Global Enterprise markets these services through Verizon Enterprise Solutions. In 2016, Global Enterprise revenues were $11.6 billion,
representing approximately 37% of Wirelines aggregate revenues.
Verizon Enterprise Solutions offers an array of
advanced information and communication technology services, including Global Internet Protocol (IP) network, cloud and IT solutions, and business communications, IoT, data, security and mobility services.
|
|
|
Network products and solutions
These products and solutions primarily include our Private IP, Public Internet, Ethernet and optical
networking services. Our Private IP service enables customers around the world to communicate over a virtual private network using a variety of access methods, including Ethernet and Verizon Wireless 4G LTE. Our Public Internet services provide
Internet connectivity through a variety of low and high-speed options. Our Ethernet portfolio includes access services that allow customers to connect network environments around the world and enable applications and technologies to work seamlessly
and with little disruption, as well as local and long distance layer 2 services that include Metro local area network (LAN), long distance switched and dedicated architectures. Optical networking services include technologies that help customers
handle bandwidth demands and control their costs.
|
9
|
|
|
IT solutions and cloud services
Our IT solutions and cloud services are built to help our enterprise customers drive innovation and
business growth. We offer IT infrastructure services that include colocation and managed hosting in data centers around the globe. Our cloud services include computing, storage, backup, recovery and application platforms our customers rely on to run
their business operations.
|
|
|
|
Business communications services
Business communications services primarily include IP communications services, which simplify network
management and drive operational efficiencies by enabling the convergence of voice and data traffic on the same access connection; dedicated Internet access, which provides enterprise customers with high-bandwidth dedicated access to Verizons
global network; unified communications and collaboration capabilities, which enable customers to communicate in real-time through VoIP and IP conferencing, and emergency communication services, which allow customers to respond effectively to
emergencies while maintaining business continuity.
|
|
|
|
Security services
We offer a suite of data security services to help companies secure their networks, data, applications and
infrastructure from security threats while building customer trust and confidence.
|
|
|
|
Core services
Core services include core voice and data services, which consist of a comprehensive portfolio of global solutions
utilizing traditional telecommunications technology, such as conferencing and contact center solutions, and private line and data access networks. Core services also include providing customer premise equipment, and installation, maintenance and
site services. We are continuing to transition customers out of copper-based legacy voice and data services to fiber services, including IP and Ethernet.
|
Global Wholesale
Global Wholesale provides communications services,
including data, voice, local dial tone and broadband services, primarily to local, long distance, wireless and other carriers that use our facilities to provide services to their customers. In 2016, Global Wholesale revenues were $5.0 billion,
representing approximately 16% of Wirelines aggregate revenues. A portion of Global Wholesale revenues are generated by a few large telecommunications companies, most of which compete directly with us.
Global Wholesale provides the following services, which it jointly markets with Verizons other business units through Verizon
Enterprise Solutions:
|
|
|
Data services.
We offer a robust portfolio of data services with varying speeds and options to enhance our wholesale customers networks
and provide connections to their
end-users
and subscribers. Our data services include high-speed digital data offerings, such as Ethernet and Wavelength services, as well as core data circuits, such as DS1s
and DS3s. In addition, we receive revenue from data services that is generated from carriers that buy dedicated local exchange capacity to support their private networks.
|
Data services also include certain value-added business services, which leverage many of the same offerings available in
the Global Enterprise portfolio, including:
|
|
|
Managed services
, which offer wholesale customers security, remote access, web applications and the opportunity to outsource the management
of their networks to Verizon;
|
|
|
|
Mobility offerings
, which enable
wholesale customers to enhance their portfolio to triple-play or quad-play capability by leveraging
wireless devices and services offered through Verizon Wireless that can be packaged and resold under their own carrier brand; and
|
|
|
|
Security services
, which provide wholesale customers integrated solutions to help their enterprise
end-users
secure their networks and data.
|
|
|
|
Voice services.
We provide switched access services that allow carriers to complete their
end-user
calls that originate or terminate within our territory. In addition, we provide originating and terminating voice services throughout the United States and globally utilizing our time-division multiplexing (TDM) and VoIP networks.
|
|
|
|
Local services.
We offer an array of local dial tone and broadband services to competitive local exchange carriers, some of which are offered
to comply with telecommunications regulations. In addition, we offer services such as colocation, resale and unbundled network elements in compliance with applicable regulations.
|
Network
Verizon
operates a large and advanced telecommunications network in the United States and around the world to provide services and solutions to its customers.
|
|
|
Fios.
Our
fiber-to-the-home
network through which we provide our Fios residential broadband service has passed over 16.9 million
premises in the United States as of December 31, 2016. Residential broadband service has seen significant growth in bandwidth demand over the past several years, and we believe that demand will continue to grow. The continued emergence of new
video services, new data applications and the proliferation of IP devices in the home will continue to drive new network requirements for increased data speeds and throughput. We believe that the Passive Optical Network (PON) technology underpinning
Fios makes us well positioned to meet these demands in a cost effective and efficient manner. Our PON technology provides the flexibility to adapt our network to deliver increased data speeds and new services without major overhauls or replacements
to the fiber-optic infrastructure.
|
10
While deployed initially as a consumer broadband network, the PON
infrastructure is also finding more widespread application in the enterprise sector, especially as businesses increasingly migrate to Ethernet-based access services.
|
|
|
Global IP
. Verizon owns and operates one of the largest global fiber networks in the world, providing connectivity to business customers in
more than 150 countries. Our global IP network includes long haul, metro and submarine assets that span over 800,000 route miles and enable and support far reaching international operations.
|
Global business is rapidly evolving to an
everything-as-a-service
model in which business customers seek cloud-based, converged enterprise solutions delivered securely via managed and professional services. With the continued
deployment of packet optical transport strategy, Verizon is creating a single, high-capacity global network platform that combines optical transport with advanced packet switching technology. The result is a global IP network that can offer powerful
solutions to these service demands.
We believe that our continued focus on enhancing our domestic and global fiber-based
networks, and achieving cost efficient solutions through new technology deployments, will help Verizon advance its position as a provider of choice to residential and enterprise customers.
Competition
The wireline telecommunications industry is highly
competitive. We expect competition to intensify further with traditional,
non-traditional
and emerging players seeking increased market share. Current and potential competitors include cable companies,
wireless service providers, domestic and foreign telecommunications providers, satellite television companies, Internet service providers and other companies that offer network services and managed enterprise solutions.
In addition, companies with a global presence increasingly compete with our wireline businesses. A relatively small number of
telecommunications and integrated service providers with global operations serve customers in the global enterprise and, to a lesser extent, the global wholesale markets. We compete with these providers for large contracts to provide integrated
services to global enterprises. Many of these companies have strong market presence, brand recognition and existing customer relationships, all of which contribute to intensifying competition that may affect our future revenue growth.
We believe the following are the most important competitive factors and trends in the wireline industry:
|
|
|
Bandwidth (speed) and network reliability:
Consumers and small business customers are seeking to leverage high-speed connections for
entertainment, communications and productivity. As online and online-enabled activities increase, so will bandwidth requirements, both downstream and upstream. To succeed, we and other network-based providers must ensure that our networks can meet
these increasing bandwidth requirements.
In addition, network reliability and security are increasingly important competitive factors in the global enterprise market. We continue to invest in our network to be able to meet growing bandwidth
demand and provide the most reliable and secure network.
|
|
|
|
Pricing:
Cable operators, telecommunications companies and integrated service providers use pricing to capture market share from incumbents.
Pricing is also a significant factor as
non-traditional
modes of providing communication services emerge and new entrants compete for customers. For example, VoIP and portal-based calling is free or nearly
free to customers and is often supported by advertising revenues.
|
|
|
|
Customer service:
Customers expect industry-leading service from their service providers. As technologies and services evolve, the ability to
excel in this area is important for customer acquisition and retention. In Mass Markets, we compete in this area through our service representatives and online support. In Global Enterprise, we provide our customers with ready access to their system
and performance information, and we conduct proactive testing of our network to identify issues before they affect customers. In the Global Wholesale business, we believe service improvement can be achieved through continued system automation
initiatives.
|
|
|
|
Product differentiation:
As a result of pricing pressures, providers need to differentiate their products and services. Customers are
shifting their focus from access to applications and are seeking ways to leverage their broadband and video connections. Converged features, such as integrated wireless and wireline functionality, are becoming similarly important, driven by both
customer demand and technological advancement.
|
|
|
|
Innovation:
The delivery of new and innovative products and services has been accelerating. To compete effectively, providers need to
continuously review, improve and refine their product portfolio and develop and rapidly deploy new products and services tailored to the needs of the customer.
|
11
In the Mass Markets business, cable operators are significant competitors. Cable operators
have increased the size and capacity of their networks in order to offer digital products and services. We continue to market competitive bundled offerings that include high-speed Internet access, digital television and voice services. Several major
cable operators also offer bundles with wireless services through strategic relationships.
We expect customer migration from
traditional voice services to wireless services to continue as a growing number of customers place greater value on mobility and wireless companies position their service as a landline alternative. We also face increasing competition from cable
companies and other providers of VoIP services as well as Internet portal providers. In addition, customers have more choices for obtaining video content from various online services and that content can be accessed on a TV, computer, tablet or
mobile phone.
In the global enterprise market, the customers need to reduce technical complexity coupled with the
growth opportunity created by technology convergence is driving the expansion of the competitive landscape. Major competitors include system integrators, carriers and hardware and software providers. Some of the biggest companies in IT services are
making strategic acquisitions, divesting
non-strategic
assets or forging new alliances to be better positioned for a rebound in technology spending. Many new alliances and acquisitions have focused on emerging
fields such as cloud computing, software delivery, communication applications and other computing tasks via the network, rather than on
in-house
machines. Carriers have also utilized acquisitions to make
significant inroads into enterprise outsourcing markets that have long been dominated by the major IT outsourcers.
Global
Wholesale competes with traditional carriers for long-haul, voice and IP services. In addition, mobile video and data needs are driving a greater need for wireless backhaul. Network providers, cable companies and niche players are competitors for
this new revenue opportunity.
We also compete with competitive local exchange carriers (CLECs). Our telephone operations
generally have been required to sell their services to CLECs at significant discounts from the prices our telephone operations charge their retail customers.
|
New Product Development and Strategic Initiatives
|
Technology developments, interconnected markets, shifting consumer needs and converging industry
ecosystems are creating innovative opportunities for Verizon. We are transforming around the capabilities of our high-performing networks, with a goal of future growth based on delivering what customers want and need in the new digital world.
Our three tier strategy is to lead at the network connectivity level in the markets we serve, develop new business models through global platforms in digital media and IoT and deliver solutions to key industry segments for incremental monetization.
To execute this strategy, we have created an organization devoted to the development of new products and the cultivation of new businesses. This organization is focused on leveraging all of our assets to create innovative products and services that
can provide our customers with integrated solutions that address their needs. Several strategic initiatives have been undertaken by this organization in the areas of digital media, interactive entertainment and IoT and telematics products and
services.
As a market leader in offering differentiated solutions to our connected customers across their devices at home, at
work and on the go, Verizon will continue to focus on strategic partnerships as an important pillar of our future strategy. Strategic partnerships are aimed at complementing and augmenting our strengths, expanding our addressable market,
accelerating our pace of innovation, enabling faster delivery of solutions such as media and IoT to the marketplace and, where possible, lowering our market and execution risk. Strong partnerships are expected to further our efforts to offer
comprehensive solutions for our customers. We look to formulate strategic partnerships and alliances with a global orientation, which we believe will benefit us in terms of technology sourcing, content acquisition, consumer insights and application
ecosystems.
We believe these investments will assist us in bringing innovative next generation products and services to
market and uncovering new sources of revenue, increasing revenue from existing projects and leveraging our strengths across the company.
Digital Media and Interactive Entertainment
Verizon has been investing in emerging technology that taps into the market shift to digital content and advertising. We have been investing in video assets and capabilities with a goal of building a
global platform and developing new business models for reaching the digital video customer. We believe the growth in video consumption using mobile devices provides us with an opportunity for revenue growth. Through various acquisitions and
investments and the launch of video streaming products and services, we are expanding the ways in which we can deliver content to our customers, including the following:
|
|
|
In June 2015, we completed our acquisition of AOL Inc. (AOL), a leader in digital content and advertising. AOLs business model aligns with our
approach, and we believe that its combination of owned and operated content properties plus a digital advertising platform enhances our ability to further develop future revenue streams. During 2015, we also acquired Millennial Media, an advertising
technology business.
|
|
|
|
In July 2016, we entered into a stock purchase agreement (the Purchase Agreement) with Yahoo! Inc. (Yahoo). Pursuant to the Purchase Agreement, upon
the terms and subject to the conditions thereof, we agreed to acquire the stock of one or more subsidiaries of Yahoo holding all of Yahoos operating business, for approximately $4.83 billion in cash, subject to certain adjustments (the
Transaction). On February 20, 2017, we entered into an amendment to the Purchase Agreement, pursuant to which, among other things, the Transaction purchase price will be reduced by $350 million to approximately $4.48 billion in cash,
subject to certain adjustments. The Transaction is expected to provide us with a valuable portfolio of online properties and mobile applications, including market leading content in sports, finance, news and email services, which have attracted over
one billion monthly active consumer views. The Transaction is expected to also expand our analytics and ad tech capabilities and enhance our competitive position and value proposition to advertisers. Additional discussion of the Transaction is
included in the 2016 Verizon Annual Report to Shareowners in Note 2 to the consolidated financial statements of Verizon Communications Inc. and Subsidiaries, which is incorporated by reference into this report.
|
12
|
|
|
In 2015, we launched go90, a mobile-first social entertainment platform that provides the opportunity for
ad-supported
mobile video streaming as well as subscription-based services. Digital content available on the go90 platform includes live events, popular web and television content and original content. In
2016, we introduced StreamPass, which offers streaming of live sports through go90 free of data charges to Verizon Wireless customers on certain data plans. We also introduced FreeBee Data, a sponsored data service that enables content providers to
provide our customers with access to some or all of the providers mobile content or to sponsor specific consumer actions on a
per-click
basis, free of data charges to the customer.
|
|
|
|
We have made investments in converging technologies and services involving content delivery networks (CDNs), video streaming and related consumer
hardware to leverage new content models. Our wireless network enables us to move towards a unified video strategy that positions us to take advantage of this growth opportunity. We began using Multimedia Broadcast Multicast Service technology to
develop our LTE Multicast service, which we use to deliver live events in go90. This service has the potential to enhance our network efficiency and provide our customers with access to live streaming video content with virtually no buffering,
regardless of the number of devices using the service. We also believe it is important to have rights to deliver content over a wireless network that do not require an authentication back to a subscription agreement. For example, our NFL agreement
allows our customers to access certain games live on our 4G LTE network without authenticating back to any subscription.
|
|
|
|
We continue to invest in Verizon Digital Media Services, which offers a scalable platform for delivering content, including live broadcasts, video
on demand, games, software and websites, to our customers on their devices at any time. As the digital platform reshapes the delivery of media and entertainment content, there is an increasing need for a stable, high-quality video delivery platform.
We are focused on providing a simple
end-to-end
global platform for the delivery of media to customers, which we believe will be superior to that offered by the existing
and highly fragmented media delivery ecosystem. This platform is targeted at media and entertainment companies and other businesses focused on delivering their digital products and services through the Internet. We also expect, through this
platform, to further integrate our Fios and wireless offerings.
|
|
|
|
During 2016, we established Verizon Hearst Media Partners, LLC, a content joint venture with Hearst Entertainment & Syndication (Hearst),
to build new multiplatform digital video channels targeted to the mobile millennial audience. In partnership with Hearst, we have also invested in two media companies, AwesomenessTV Holdings, LLC and Complex Media, Inc. & CM Partners, LLC, which
are leaders in producing content targeted at key demographics, in order to further diversify our content and distribution businesses within our digital media portfolio.
|
Internet of Things and Telematics
The adoption of IoT technology continues
to grow as companies across a wide range of industries are leveraging IoT technologies to increase efficiency, gain better customer insights, facilitate compliance with regulations and build new business models. Although IoT growth is expanding
broadly, adoption is particularly strong in the telematics and transportation industries, as well as the fields of smart communities, healthcare, utilities and energy management. We are building our growth capabilities in the IoT market by
developing business models that monetize usage on our network at the connectivity, platform and solution layers. For example, we have developed IoT solutions that address key market needs for electric and other utilities, farms and other purveyors
of food and agriculture, drug companies and others with complex supply chains. In addition, our IoT customers can turn the data that our solutions provide into actionable opportunities to develop new services and create revenue growth.
Our strategy to simplify IoT technology and accelerate its adoption also includes ThingSpace, an IoT platform. ThingSpace is designed to
help developers create, test, manage and market
IoT-based
solutions aimed at major vertical markets, such as energy, health care and connected cities. ThingSpace comes with a portal that includes immediate
access to dedicated application programming interfaces and partner development kits. In October 2016, we acquired Sensity Systems, Inc., a leading provider of IoT solutions for smart communities, in order to add a leading comprehensive suite of
smart city solutions.
Through Verizon Telematics, we provide connectivity and telematics services and applications to
manufacturers such as
Mercedes-Benz
and help businesses manage large vehicle fleets more efficiently. Our suite of real-time vehicle communications services and applications connects automobiles with content
services and call centers. Our platform enables factory and aftermarket-installed automotive safety and security features as well as location-based services and vehicle diagnostics. We provide usage-based data services to new vehicles in the
United States, China and Europe. Our Verizon Telematics solution provides commercial fleet managers throughout North America with real-time access to data that yields operational efficiencies, increased vehicle reliability and improved driver
safety. We also provide this service to over 23,000 vehicles operated by Verizon.
In 2015, we introduced hum, an aftermarket
vehicle technology and subscription service. This subscription-based service provides consumers with diagnostic technology in their vehicles, access to live assistance and roadside assistance with GPS accuracy when needed. Our hum service also
offers the ability to connect with a certified mechanic to diagnose potential problems and offer solutions.
In 2016, we
acquired Fleetmatics Group PLC, a global provider of fleet and mobile workforce management solutions, and Telogis, Inc., a global, cloud-based mobile enterprise management software company. We expect these acquisitions to advance our fleet
telematics solutions, expand our distribution relationships and position our telematics business as a leading provider of fleet and mobile workforce management solutions globally.
13
|
Patents, Trademarks and Licenses
|
We own or have licenses to various patents, copyrights, trademarks, domain names and other intellectual
property rights necessary to conduct our business. We actively pursue the filing and registration of patents, copyrights, domain names, trademarks and service marks to protect our intellectual property rights within the United States and abroad. We
also actively grant licenses, in exchange for appropriate fees or other consideration and subject to appropriate safeguards and restrictions, to other companies that enable them to utilize certain of our intellectual property rights and proprietary
technology as part of their products and services. Such licenses enable the licensees to take advantage of the results of Verizons research and development efforts. While these licenses result in valuable consideration being paid to us, we do
not believe that the loss of such consideration, or the expiration of any of our intellectual property rights, would have a material effect on our results of operations.
We periodically receive offers from third parties to purchase or obtain licenses for patents and other intellectual property rights in exchange for royalties or other payments. We also periodically
receive notices alleging that our products or services infringe on third-party patents or other intellectual property rights. These claims, whether against us directly or against third-party suppliers of products or services that we, in turn, sell
to our customers, if successful, could require us to pay damages or royalties, or cease offering the relevant products or services.
|
Acquisitions and Divestitures
|
Information about our acquisitions and divestitures is included in the 2016 Verizon Annual Report to
Shareowners under the heading Managements Discussion and Analysis of Financial Condition and Results of Operations - Acquisitions and Divestitures, which is incorporated by reference into this report.
|
Regulatory and Competitive Trends
|
Regulatory and Competitive Landscape
Verizon operates in a regulated and highly competitive market. Current and potential competitors include other voice and data service providers such as other wireless companies, traditional telephone
companies, cable companies, Internet service providers, software and application providers, and other
non-traditional
companies. Many of these companies have strong market presence, brand recognition and
existing customer relationships, all of which contribute to intensifying competition that may affect our future revenue growth. Some of our competitors also are subject to fewer regulatory constraints than Verizon. For many services offered by
Verizon, the FCC is our primary regulator. The FCC has jurisdiction over interstate telecommunications services and other matters under the Communications Act of 1934, as amended (Communications Act or Act). Other Verizon services are subject to
state and local regulation.
Federal Regulation
Wireless Services
The FCC regulates several aspects of our wireless
operations. Generally, the FCC has jurisdiction over the construction, operation, acquisition and transfer of wireless communications systems. All wireless services require use of radio frequency spectrum, the assignment and distribution of which is
subject to FCC oversight. Verizon anticipates that it will need additional spectrum to meet future demand. We can meet our needs for licensed spectrum by purchasing licenses or leasing spectrum from others, or by participating in a competitive
bidding process to acquire new spectrum from the FCC. Those processes are subject to certain reviews, approvals and potential conditions.
Today, Verizon holds FCC spectrum licenses that allow it to provide a wide range of mobile and fixed communications services, including both voice and data services. FCC spectrum licenses typically have a
term of 10 years, at which time they are subject to renewal. While the FCC has routinely renewed all of Verizons wireless licenses, challenges could be raised in the future. If a wireless license was revoked or not renewed, Verizon would not
be permitted to provide services on the spectrum covered by that license. Some of our licenses require us to comply with
so-called
open access FCC regulations, which generally require licensees of
particular spectrum to allow customers to use devices and applications of their choice, subject to certain technical limitations. The FCC has also imposed certain specific mandates on wireless carriers, including construction and geographic coverage
requirements, technical operating standards, provision of enhanced 911 services, roaming obligations and requirements for wireless tower and antenna facilities.
Broadband
Verizon offers many different broadband services. Traditionally,
the FCC recognized that broadband Internet access services as information services subject to a light touch regulatory approach rather than to the traditional, utilities-style regulations. In 2015, the FCC reversed course and
declared that broadband Internet access services are telecommunications services subject to common carriage regulation under Title II of the Communications Act. This decision created uncertainty concerning the level of regulation that
will apply to broadband services. It created a risk that such regulation would limit the ways that broadband Internet access service providers structure their business arrangements and manage their networks and could spur additional restrictions,
including rate regulation, that could adversely affect broadband investment and innovation. The FCCs decision was affirmed by the United States Court of Appeals, but may be subject to further challenge in the courts. In addition, Congress
and the FCC are likely to continue to debate the proper scope of such regulations. Regardless of regulation, Verizon remains committed to the open Internet which provides consumers with competitive choices and unblocked access to lawful websites and
content when, where, and how they want, and our commitment to our customers can be found on our website at http://responsibility.verizon.com/broadband-commitment.
14
Wireline Voice
Verizon offers many different wireline voice services, including traditional telephone service and other services that rely on technologies such as VoIP. For regulatory purposes, legacy telephone services
are generally considered to be common carrier services. Common carrier services are subject to heightened regulatory oversight with respect to rates, terms and conditions and other aspects of the services. The FCC has not decided the
regulatory classification of VoIP but has said VoIP service providers must comply with certain rules, such as 911 capabilities and law enforcement assistance requirements.
Video
Verizon offers a multichannel video service that is regulated like
traditional cable service. The FCC has a body of rules that apply to cable operators, and these rules also generally apply to Verizon. In areas where Verizon offers its facilities-based multichannel video services, Verizon has typically been
required to obtain a franchise from local authorities.
Privacy and Data Security
We are subject to federal, state and international laws and regulations relating to privacy and data security that impact all parts of our
business, including voice, wireless, broadband and the development and roll out of new products, such as those in the IoT space. At the federal level, much of our business is subject to the FCCs privacy and data security requirements. In
November 2016, the FCC released new privacy and data security rules that will apply to all telecommunications services, including our fixed and mobile voice and broadband services. Other parts of our business are subject to the privacy and data
security oversight of other federal regulators, including the Federal Trade Commission. Generally, attention to privacy and data security requirements is increasing at both the state and federal level. In addition, a new data protection regulation
will go into effect in Europe in May 2018 that includes significant penalties for
non-compliance.
Public Safety and Cybersecurity
The FCC has played a role in addressing public safety concerns by regulating emergency communications services and mandating widespread availability of both media (broadcast/cable) and wireless emergency
alerting services. In response to recent cyber attacks, however, the FCC or other regulators may attempt to increase regulation of the cybersecurity practices of providers.
Intercarrier Compensation and Network Access
The FCC regulates some of the
rates that carriers pay each other for the exchange of voice traffic (particularly traditional wireline traffic) over different networks and other aspects of interconnection for some voice services. The FCC also regulates some of the rates and terms
and conditions for certain wireline business data services and other services and network facilities. Verizon is both a seller and a buyer of these services, and both makes and receives interconnection payments. The FCC has focused in
recent years on whether changes in the rates, terms and conditions for both the exchange of traffic and for business data services may be appropriate.
State Regulation and Local Regulation
Wireless Services
The Act generally preempts regulation by state and local governments of the entry of, or the rates charged by, wireless carriers. The Act
does not prohibit states from regulating the other terms and conditions of wireless service. For example, some states attempt to regulate wireless customer billing matters and impose reporting requirements. Several states also have laws
or regulations that address safety issues (e.g., use of wireless handsets while driving) and taxation matters. In addition, wireless tower and antenna facilities are often subject to state and local zoning and land use regulation, and securing
approvals for new or modified facilities is often a lengthy and expensive process.
Wireline Services
State public utility commissions regulate Verizons telephone operations with respect to certain telecommunications intrastate
matters. Verizon operates as an incumbent local exchange carrier in nine states and the District of Columbia. These incumbent operations are subject to various levels of pricing flexibility and other state oversight and requirements.
Verizon also has other wireline operations that are more lightly regulated. In addition, as a video services operator in many states, Verizon has been required to obtain a cable franchise from local government entities, or in some cases a state-wide
franchise, and comply with certain
one-time
and ongoing obligations, as a result.
15
Reserves have been established to cover environmental matters relating to discontinued businesses and past
telecommunications activities. These reserves include funds to address contamination at the site of a former Sylvania facility in Hicksville, NY, which had processed nuclear fuel rods in the 1950s and 1960s. In September 2005, the Army
Corps of Engineers (ACE) accepted the site into its Formerly Utilized Sites Remedial Action Program. As a result, the ACE has taken primary responsibility for addressing the contamination at the site. An adjustment to the reserves may be
made after a cost allocation is conducted with respect to the past and future expenses of all of the parties. Adjustments to the environmental reserve may also be made based upon the actual conditions found at other sites requiring remediation.
See Part III, Item 10. Directors, Executive Officers and Corporate Governance of this Annual
Report on Form
10-K
for information about our executive officers.
As of December 31, 2016, Verizon and its subsidiaries had approximately 160,900 employees. Unions
represent approximately 23% of our employees.
|
Information on Our Internet Website
|
We make available, free of charge on our website, our annual reports on Form
10-K
and Form SD, quarterly reports on Form
10-Q,
current reports on Form
8-K,
and all amendments to those reports at
http://www.verizon.com/about/investors.
16
|
Cautionary Statement Concerning Forward-Looking Statements
|
In this report we have made forward-looking statements. These statements are based on our estimates and
assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the
words anticipates, believes, estimates, hopes or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
The following important factors, along with those discussed elsewhere in this report and in
other filings with the Securities and Exchange Commission (SEC), could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements:
|
|
|
adverse conditions in the U.S. and international economies;
|
|
|
|
the effects of competition in the markets in which we operate;
|
|
|
|
material changes in technology or technology substitution;
|
|
|
|
disruption of our key suppliers provisioning of products or services;
|
|
|
|
changes in the regulatory environment in which we operate, including any increase in restrictions on our ability to operate our networks;
|
|
|
|
breaches of network or information technology security, natural disasters, terrorist attacks or acts of war or significant litigation and any
resulting financial impact not covered by insurance;
|
|
|
|
our high level of indebtedness;
|
|
|
|
an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations or adverse conditions in the credit
markets affecting the cost, including interest rates, and/or availability of further financing;
|
|
|
|
material adverse changes in labor matters, including labor negotiations, and any resulting financial and/or operational impact;
|
|
|
|
significant increases in benefit plan costs or lower investment returns on plan assets;
|
|
|
|
changes in tax laws or treaties, or in their interpretation;
|
|
|
|
changes in accounting assumptions that regulatory agencies, including the SEC, may require or that result from changes in the accounting rules or
their application, which could result in an impact on earnings;
|
|
|
|
the inability to implement our business strategies; and
|
|
|
|
the inability to realize the expected benefits of strategic transactions.
|
17
The following discussion of Risk Factors identifies the most significant factors that may
adversely affect our business, operations, financial condition or future performance. This information should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Result of Operations and the
consolidated financial statements and related notes. The following discussion of risks is not all-inclusive but is designed to highlight what we believe are important factors to consider when evaluating our business and expectations. These factors
could cause our future results to differ materially from our historical results and from expectations reflected in forward-looking statements.
Adverse conditions in the U.S. and international economies could impact our results of operations.
Unfavorable economic conditions, such as a recession or economic slowdown in the United States or elsewhere, could negatively affect the affordability of and demand for some of our products and services.
In difficult economic conditions, consumers may seek to reduce discretionary spending by forgoing purchases of our products, electing to use fewer higher margin services or obtaining lower-cost products and services offered by other companies.
Similarly, under these conditions, the business customers that we serve may delay purchasing decisions, delay full implementation of service offerings or reduce their use of services. In addition, adverse economic conditions may lead to an increased
number of our consumer and business customers that are unable to pay for services. If these events were to occur, it could have a material adverse effect on our results of operations.
We face significant competition that may reduce our profits.
We
face significant competition in our industry. The rapid development of new technologies, services and products has eliminated many of the traditional distinctions among wireless, cable, Internet, local and long distance communication services and
brought new competitors to our markets, including other telephone companies, cable companies, wireless service providers, satellite providers, application and device providers and providers of VoIP services. While these changes have enabled us to
offer new types of products and services, they have also allowed other providers to broaden the scope of their own competitive offerings. In addition, wireless service providers are significantly altering the financial relationships with their
customers through commercial offers that vary service and device pricing, promotions, incentives and levels of service provided in some cases specifically targeting Verizon Wireless customers. Our ability to compete effectively will depend
on, among other things, our network quality, capacity and coverage, the pricing of our products and services, the quality of our customer service, our development of new and enhanced products and services, the reach and quality of our sales and
distribution channels and our capital resources. It will also depend on how successfully we anticipate and respond to various factors affecting our industry, including new technologies and business models, changes in consumer preferences and demand
for existing services, demographic trends and economic conditions. If we are not able to respond successfully to these competitive challenges, we could experience reduced profits.
If we are not able to adapt to changes and disruptions in technology and address changing consumer demand on a timely basis, we may
experience a decline in the demand for our services, be unable to implement our business strategy and experience reduced profits.
Our industry is rapidly changing as new technologies are developed that offer consumers an array of choices for their communications needs and allow new entrants into the markets we serve. In order to
grow and remain competitive, we will need to adapt to future changes in technology, enhance our existing offerings and introduce new offerings to address our customers changing demands. If we are unable to meet future challenges from competing
technologies on a timely basis or at an acceptable cost, we could lose customers to our competitors. We may not be able to accurately predict technological trends or the success of new services in the market. In addition, there could be legal or
regulatory restraints on our introduction of new services. If our services fail to gain acceptance in the marketplace, or if costs associated with the implementation and introduction of these services materially increase, our ability to retain and
attract customers could be adversely affected.
In addition to introducing new technologies and offerings, we must phase out
outdated and unprofitable technologies and services. If we are unable to do so on a cost-effective basis, we could experience reduced profits. In addition, there could be legal or regulatory restraints on our ability to phase out current services.
We depend on key suppliers and vendors to provide equipment that we need to operate our business.
We depend on various key suppliers and vendors to provide us, directly or through other suppliers, with equipment and services, such as
switch and network equipment, smartphones and other wireless devices, that we need in order to operate our business and provide products to our customers. For example, our smartphone and other device suppliers often rely on one vendor for the
manufacture and supply of critical components, such as chipsets, used in their devices. If these suppliers or vendors fail to provide equipment or service on a timely basis or fail to meet our performance expectations, we may be unable to provide
products and services as and when requested by our customers. We also may be unable to continue to maintain or upgrade our networks. Because of the cost and time lag that can be associated with transitioning from one supplier to another, our
business could be substantially disrupted if we were required to, or chose to, replace the products or services of one or more major suppliers with products or services from another source, especially if the replacement became necessary on short
notice. Any such disruption could increase our costs, decrease our operating efficiencies and have a material adverse effect on our business, results of operations and financial condition.
The suppliers and vendors on which we rely may also be subject to litigation with respect to technology on which we depend, including
litigation involving claims of patent infringement. Such claims are frequently made in the communications industry. We are unable to predict whether our business will be affected by any such litigation. We expect our dependence on key suppliers to
continue as we develop and introduce more advanced generations of technology.
18
Changes in the regulatory framework under which we operate could adversely affect our
business prospects or results of operations.
Our domestic operations are subject to regulation by the FCC and other
federal, state and local agencies, and our international operations are regulated by various foreign governments and international bodies. These regulatory regimes frequently restrict or impose conditions on our ability to operate in designated
areas and provide specified products or services. We are frequently required to maintain licenses for our operations and conduct our operations in accordance with prescribed standards. We are often involved in regulatory and other governmental
proceedings or inquiries related to the application of these requirements. It is impossible to predict with any certainty the outcome of pending federal and state regulatory proceedings relating to our operations, or the reviews by federal or state
courts of regulatory rulings. Without relief, existing laws and regulations may inhibit our ability to expand our business and introduce new products and services. Similarly, we cannot guarantee that we will be successful in obtaining the licenses
needed to carry out our business plan or in maintaining our existing licenses. For example, the FCC grants wireless licenses for terms generally lasting 10 years, subject to renewal. The loss of, or a material limitation on, certain of our licenses
could have a material adverse effect on our business, results of operations and financial condition.
New laws or regulations
or changes to the existing regulatory framework at the federal, state and local, or international level could restrict the ways in which we manage our wireline and wireless networks, impose additional costs, impair revenue opportunities and
potentially impede our ability to provide services in a manner that would be attractive to us and our customers. For example, we are subject to federal, state and international laws related to privacy and data protection. A new data protection
regulation will go into effect in Europe in May 2018 that includes significant penalties for
non-compliance.
In addition, in its order imposing
so-called
network
neutrality regulations, the FCC reversed course in 2015 on the longstanding light touch approach and reclassified broadband Internet access services as telecommunications services subject to utilities-style common
carriage regulation. While the full scope and effect of this new regulatory approach is uncertain, these rules limit the ways that a broadband Internet access service provider can structure business arrangements, manage its network and open the door
to additional restrictions, including rate regulation that could adversely affect broadband investment and innovation. These rules may be subject to further challenge in the courts and the proper scope of such regulations is being debated in
Congress and the FCC, but the outcome and timing of those challenges and debates remain uncertain. As another example, we hold certain wireless licenses that require us to comply with
so-called
open
access FCC regulations, which generally require licensees of particular spectrum to allow customers to use devices and applications of their choice. Moreover, certain services could be subject to conflicting regulation by the FCC and/or
various state and local authorities, which could significantly increase the cost of implementing and introducing new services. The further regulation of broadband, wireless and our other activities and any related court decisions could restrict our
ability to compete in the marketplace and limit the return we can expect to achieve on past and future investments in our networks.
Cyber attacks impacting our networks or systems could have an adverse effect on our business.
Cyber attacks, including through the use of malware, computer viruses, dedicated denial of services attacks, credential harvesting and
other means for obtaining unauthorized access to or disrupting the operation of our networks and systems and those of our suppliers, vendors and other service providers, could have an adverse effect on our business. Cyber attacks may cause equipment
failures, loss of information, including sensitive personal information of customers or employees or valuable technical and marketing information, as well as disruptions to our or our customers operations. Cyber attacks against companies,
including Verizon, have increased in frequency, scope and potential harm in recent years. Further, the perpetrators of cyber attacks are not restricted to particular groups or persons. These attacks may be committed by company employees or external
actors operating in any geography, including jurisdictions where law enforcement measures to address such attacks are unavailable or ineffective, and may even be launched by or at the behest of nation states. While, to date, we have not been subject
to cyber attacks which, individually or in the aggregate, have been material to our operations or financial condition, the preventive actions we take to reduce the risks associated with cyber attacks, including protection of our systems and
networks, may be insufficient to repel or mitigate the effects of a major cyber attack in the future.
The inability to
operate our networks and systems or those of our suppliers, vendors and other service providers as a result of cyber attacks, even for a limited period of time, may result in significant expenses to Verizon and/or a loss of market share to other
communications providers. The costs associated with a major cyber attack on Verizon could include expensive incentives offered to existing customers and business partners to retain their business, increased expenditures on cybersecurity measures and
the use of alternate resources, lost revenues from business interruption and litigation. The potential costs associated with these attacks could exceed the insurance coverage we maintain. Further, certain of Verizons businesses, such as those
offering security solutions and infrastructure and cloud services to business customers, could be negatively affected if our ability to protect our own networks and systems is called into question as a result of a cyber attack. Moreover, our
increasing presence in the IoT industry with offerings of telematics products and services, including vehicle telematics, could also increase our exposure to potential costs and expenses and reputational harm in the event of cyber attacks impacting
these products or services. In addition, a compromise of security or a theft or other compromise of valuable information, such as financial data and sensitive or private personal information, could result in lawsuits and government claims,
investigations or proceedings. Any of these occurrences could damage our reputation, adversely impact customer and investor confidence, and could further result in a material adverse effect on Verizons results of operation or
financial condition.
Natural disasters, terrorist acts or acts of war could cause damage to our infrastructure and result in
significant disruptions to our operations.
Our business operations are subject to interruption by natural disasters,
power outages, terrorist attacks, other hostile acts and events beyond our control. Such events could cause significant damage to our infrastructure upon which our business operations rely, resulting in degradation or disruption of service to our
customers. While we maintain insurance coverage for some of these events, the potential liabilities associated with these events could exceed the insurance coverage we maintain. Our system redundancy may be ineffective or inadequate, and
our disaster recovery
19
planning may not be sufficient for all eventualities. These events could also damage the infrastructure of the suppliers that provide us with the equipment and services that we need to operate
our business and provide products to our customers. A natural disaster or other event causing significant physical damage could cause us to experience substantial losses resulting in significant recovery time and expenditures to resume operations.
In addition, these occurrences could result in lost revenues from business interruption as well as damage to our reputation.
Verizon has significant debt, which could increase further if Verizon incurs additional debt in the future and does not retire
existing debt.
As of December 31, 2016, Verizon had approximately $108.1 billion of outstanding
indebtedness, as well as approximately $8.9 billion of unused borrowing capacity under its existing credit facility. Verizons debt level and related debt service obligations could have negative consequences, including:
|
|
|
requiring Verizon to dedicate significant cash flow from operations to the payment of principal, interest and other amounts payable on its debt and
the preferred stock issued by an entity acquired in a transaction with Vodafone, which would reduce the funds Verizon has available for other purposes, such as working capital, capital expenditures and acquisitions;
|
|
|
|
making it more difficult or expensive for Verizon to obtain any necessary future financing for working capital, capital expenditures, debt service
requirements, debt refinancing, acquisitions or other purposes;
|
|
|
|
reducing Verizons flexibility in planning for or reacting to changes in its industry and market conditions;
|
|
|
|
making Verizon more vulnerable in the event of a downturn in its business; and
|
|
|
|
exposing Verizon to increased interest rate risk to the extent that its debt obligations are at variable interest rates.
|
In addition, our term loan agreements require Verizon to maintain a certain leverage ratio unless
Verizons credit ratings are at or above a certain level, which could limit Verizons ability to obtain additional financing in the future.
Adverse changes in the credit markets could increase our borrowing costs and the availability of financing.
We require a significant amount of capital to operate and grow our business. We fund our capital needs in part through borrowings in the public and private credit markets. Adverse changes in the credit
markets, including increases in interest rates, could increase our cost of borrowing and/or make it more difficult for us to obtain financing for our operations or refinance existing indebtedness. In addition, our borrowing costs can be affected by
short- and long-term debt ratings assigned by independent rating agencies, which are based, in significant part, on our performance as measured by customary credit metrics. A decrease in these ratings would likely increase our cost of borrowing
and/or make it more difficult for us to obtain financing. A severe disruption in the global financial markets could impact some of the financial institutions with which we do business, and such instability could also affect our access to financing.
Increases in costs for pension benefits and active and retiree healthcare benefits may reduce our profitability and
increase our funding commitments.
With approximately 160,900 employees and approximately 201,000 retirees as of
December 31, 2016 eligible to participate in Verizons benefit plans, the costs of pension benefits and active and retiree healthcare benefits have a significant impact on our profitability. Our costs of maintaining these plans, and the
future funding requirements for these plans, are affected by several factors, including the legislative and regulatory uncertainty regarding the potential repeal and replacement or modification of the Patient Protection and Affordable Care Act,
increases in healthcare costs, decreases in investment returns on funds held by our pension and other benefit plan trusts and changes in the discount rate and mortality assumptions used to calculate pension and other postretirement expenses. If we
are unable to limit future increases in the costs of our benefit plans, those costs could reduce our profitability and increase our funding commitments.
A significant portion of our workforce is represented by labor unions, and we could incur additional costs or experience work stoppages as a result of the renegotiation of our labor contracts.
As of December 31, 2016, approximately 23% of our workforce was represented by labor unions. While less than 1%
of the workforce of our wireless and other businesses outside of wireline are represented by unions, we cannot predict what level of success unions may have in organizing these workforces or the potentially negative impact it would have on our
costs.
We are subject to a significant amount of litigation, which could require us to pay significant damages or settlements.
We are subject to a substantial amount of litigation, including, from time to time, shareholder derivative suits,
patent infringement lawsuits, antitrust class actions, wage and hour class actions, personal injury claims and lawsuits relating to our advertising, sales, billing and collection practices. In addition, our wireless business also faces personal
injury and consumer class action lawsuits relating to alleged health effects of wireless phones or radio frequency transmitters, and class action lawsuits that challenge marketing practices and disclosures relating to alleged adverse health effects
of handheld wireless phones. We may incur significant expenses in defending these lawsuits. In addition, we may be required to pay significant awards or settlements.
20
|
Item 1B. Unresolved Staff Comments
|
None.
Our principal properties do not lend themselves to simple description by character and location. Our total
investment in plant, property and equipment was approximately $232 billion at December 31, 2016 and $220 billion at December 31, 2015, including the effect of retirements, but before deducting accumulated depreciation. Our gross
investment in plant, property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
At December 31,
|
|
2016
|
|
|
2015
|
|
Network equipment
|
|
|
78.5%
|
|
|
|
78.8%
|
|
Land, buildings and building equipment
|
|
|
12.0%
|
|
|
|
11.9%
|
|
Furniture and other
|
|
|
9.5%
|
|
|
|
9.3%
|
|
|
|
|
|
|
|
|
|
100.0%
|
|
|
|
100.0%
|
|
|
|
|
|
|
Our properties as a percentage of total properties are as
follows:
|
|
|
|
|
|
|
|
|
At December 31,
|
|
2016
|
|
|
2015
|
|
Wireline
|
|
|
51.7%
|
|
|
|
53.2%
|
|
Wireless
|
|
|
46.8%
|
|
|
|
45.4%
|
|
Other
|
|
|
1.5%
|
|
|
|
1.4%
|
|
|
|
|
|
|
|
|
|
100.0%
|
|
|
|
100.0%
|
|
|
|
|
|
|
Network equipment consists primarily of cable (aerial, buried, underground or undersea) and the related
support structures of poles and conduit, wireless plant, switching equipment, network software, transmission equipment and related facilities. Land, buildings and building equipment consists of land and land improvements, central office buildings or
any other buildings that house network equipment, and buildings that are used for administrative and other purposes. Substantially all the switching centers are located on land and in buildings we own due to their critical role in the network
and high
set-up
relocation costs. We also maintain facilities throughout the United States comprised of administrative and sales offices, customer care centers, retail sales locations, garage work
centers, switching centers, cell sites and data centers. Furniture and other consists of telephone equipment, furniture, data processing equipment, office equipment, motor vehicles, plant under construction and leasehold improvements.
|
Item 3. Legal Proceedings
|
In October 2013, the California Attorney Generals Office notified Verizon California Inc. and other
Verizon companies of potential violations of California state hazardous waste statutes primarily arising from the disposal of electronic components, batteries and aerosol cans at certain California facilities. We are cooperating with this
investigation and continue to review our operations relating to the management of hazardous waste. While penalties relating to the alleged violations could exceed $100,000, we do not expect that any penalties ultimately incurred will be material. On
April 1, 2016, we completed the sale to Frontier of our landline business operated by Verizon California Inc. and certain other Verizon landline companies. As a result of this transaction, Frontier now owns and operates Verizon California Inc.
and has assumed the liabilities of Verizon California Inc. that may arise as a result of these alleged violations.
|
Item 4. Mine Safety Disclosures
|
None.
21