text:
Washington, D.C. 20549
|(Mark one)
|ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
|For the fiscal year ended December 31, 2004
|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
|For the transition period from to
Commission file number 1-8606
Verizon Communications Inc.
(Exact name of registrant as specified in its charter)
|(State of incorporation)
|(I.R.S. Employer Identification No.)
1095 Avenue of the Americas
New York, New York
(Zip Code)
|(Address of principal executive offices)
Registrants telephone number, including area code: (212) 395-2121
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $.10 par value
New York, Philadelphia, Boston,
Chicago and Pacific Stock Exchanges
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No ¨
At June 30, 2004, the aggregate market value of the registrants voting stock held by nonaffiliates was approximately $100,197,581,000.
At January 31, 2005, 2,769,964,950 shares of the registrants Common Stock were outstanding, after deducting 4,900,431 shares held in treasury.
Documents incorporated by reference:
Portions of the registrants Annual Report to Shareowners for the year ended December 31, 2004 (Parts I and II).
Portions of the registrants Proxy Statement prepared in connection with the 2005 Annual Meeting of Shareowners (Part III).
|Item No.
|Item 1.
|Item 2.
|Item 3.
|Legal Proceedings
|Item 4.
|Submission of Matters to a Vote of Security Holders
|Executive Officers of the Registrant
|Item 5.
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|Item 6.
|Selected Financial Data
|Item 7.
|Managements Discussion and Analysis of Results of Operations and Financial Condition
|Item 7A.
|Quantitative and Qualitative Disclosures About Market Risk
|Item 8.
|Financial Statements and Supplementary Data
|Item 9.
|Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|Item 9A.
|Controls and Procedures
|Item 9B.
|Other Information
|Item 10.
|Directors and Executive Officers of the Registrant
|Item 11.
|Executive Compensation
|Item 12.
|Security Ownership of Certain Beneficial Owners and Management
|Item 13.
|Certain Relationships and Related Transactions
|Item 14.
|Principal Accounting Fees and Services
|Item 15.
|Exhibits, Financial Statement Schedules
Unless otherwise indicated, all information is as of March 10, 2005
Item 1. Business
Verizon Communications Inc. is one of the worlds leading providers of communications services. Verizons domestic wireline telecommunications business provides local telephone services, including broadband, in 29 states and Washington, D.C. and nationwide long-distance and other communications products and services. The domestic wireline consumer business generally provides local, broadband and long distance services to customers. Our domestic wireline business also provides a variety of services to other telecommunications carriers as well as large and small businesses. Verizons domestic wireless business provides wireless voice and data products and services across the United States using one of the most extensive wireless networks. Information Services operates directory publishing businesses and provides electronic commerce services. Verizons international presence includes wireline and wireless communications operations and investments, primarily in the Americas and Europe. Stressing diversity and commitment to the communities in which we operate, Verizon has a highly diverse workforce of 210,000 employees.
Verizon was formerly known as Bell Atlantic Corporation, which was incorporated in 1983 under the laws of the State of Delaware. We began doing business as Verizon Communications on June 30, 2000, when Bell Atlantic Corporation merged with GTE Corporation.
Our principal executive offices are located at 1095 Avenue of the Americas, New York, New York 10036 (telephone number 212-395-2121).
We have four reportable segments, which we operate and manage as strategic business units and organize by products and services. Our segments and their principal activities consist of the following:
Domestic Telecom
|Domestic wireline communications services, principally representing our telephone operations that provide local telephone services in 29 states and Washington, D.C. These services include voice and data transport, enhanced and custom calling features, network access, directory assistance, private lines and public telephones. This segment also provides long distance services, customer premises equipment distribution, data solutions and systems integration, billing and collections, Internet access services and inventory management services.
Domestic Wireless
|Domestic wireless products and services include wireless voice and data services and equipment sales across the United States.
Information Services
|Directory publishing businesses, including print directories and SuperPages.com online search services, as well as website creation and other electronic commerce services. This segment has operations principally in the United States.
|International wireline and wireless communications operations and investments primarily in the Americas, as well as investments in Europe.
You can find additional business information under the heading Overview on pages 13 through 14 and segment financial information under the heading Segment Results of Operations on pages 19 through 25 and in Note 18 on pages 63 through 65 of the 2004 Verizon Annual Report to Shareowners, which is incorporated herein by reference.
|Domestic Telecom
Our Domestic Telecom segment, principally representing our wireline telephone operations, provided approximately 54% of 2004 total operating revenues. Our telephone operations presently serve a territory consisting of 144.7 million access line equivalents in 29 states and Washington, D.C. This segment also provides long distance and other telecommunication services. Domestic Telecom provides mainly two types of telecommunications services:
Exchange telecommunications service is the transmission of telecommunications among customers located within a local calling area within a local access and transport area (LATA). Examples of exchange telecommunications services include switched local residential and business services, local private line voice and data services and Centrex services. We also provide toll services within a LATA (intraLATA long distance) and toll services outside a LATA (interLATA long distance).
Exchange access service links a customers premises and the transmission facilities of other telecommunications carriers, generally interLATA carriers. Examples of exchange access services include switched access and special access services.
We have organized our Domestic Telecom segment into four marketing units operating across our telephone subsidiaries. The units focus on specific markets. We are not dependent on any single customer. Our telephone operations remain responsible within their respective service areas for the provision of telephone services, financial performance and regulatory matters.
The Enterprise unit markets communications and information technology and services to large businesses and to departments, agencies and offices of the executive, judicial and legislative branches of the federal, state and local governments. These services include voice switching/processing services (e.g., dedicated private lines, custom Centrex, call management and voice messaging), end-user networking (e.g.,
credit and debit card transactions and personal computer-based conferencing, including data and video), internetworking (establishing links between the geographically disparate networks of two or more companies or within the same company), network optimization (disaster avoidance and 911 service) and other communications services. The Enterprise unit also provides data transmission, Internet and network integration services, interLATA long distance services, network monitoring services and telecommunications equipment sales to medium and large businesses. Revenues in 2004 were approximately $6.4 billion, representing approximately 17% of Domestic Telecoms aggregate revenues.
The Retail unit markets communications and information services to residential customers and to small and medium-sized businesses within our territory, including our long distance services and Internet access services. Our long distance subsidiary provides national and international long distance services in all 50 states to residential and business customers, including calling cards, 800/888 services and operator services. This unit also provides operator and pay telephone services and sells customer premises equipment. Revenues in 2004 were approximately $22.3 billion, representing approximately 58% of Domestic Telecoms aggregate revenues. These revenues were derived primarily from the provision of telephone services to residential users.
The Wholesale unit markets our network operations, which principally includes our carrier access and telecom industry services. Revenues in 2004 were approximately $8.7 billion, representing approximately 22% of Domestic Telecoms aggregate revenues. Approximately 66% of total wholesale revenues were derived from interexchange carriers (switched and special access). The remaining revenues come from our telecom industry services, principally from other local exchange carriers which resell network connections to their own customers.
The Network unit is principally responsible for the construction and maintenance of our telephone operations networks. This unit is also responsible for the procurement and management of inventory and supplies for our subsidiaries and sells materials and logistic services to third-party carriers. Revenues in 2004 (after eliminations and combined with all other Domestic Telecom revenues) were approximately $1.2 billion, representing approximately 3% of Domestic Telecoms aggregate revenues.
Telecommunications Act of 1996
The Telecommunications Act of 1996 (the 1996 Act), regulatory and judicial actions and the development of new technologies, products and services have created opportunities for alternative telecommunication service providers, many of which are subject to fewer regulatory constraints. We are unable to predict definitively the impact that the ongoing changes in the telecommunications industry will ultimately have on our business, results of operations or financial condition. The financial impact will depend on several factors, including the timing, extent and success of competition in our markets, the timing and outcome of various regulatory proceedings and any appeals, and the timing, extent and success of our pursuit of new opportunities resulting from the 1996 Act and technological advances.
FCC Regulation and Interstate Rates
Our telephone operations are subject to the jurisdiction of the Federal Communications Commission (FCC) with respect to interstate services and related matters.
Access Charges and Universal Service
On May 31, 2000, the FCC adopted the Coalition for Affordable Local and Long Distance Services (CALLS) plan as a comprehensive five-year plan for regulation of interstate access charges. The CALLS plan has three main components. First, it establishes a portable interstate access universal service support of $650 million for the industry. This explicit support replaces implicit support embedded in interstate access charges. Second, the plan simplifies the patchwork of common line charges into one subscriber line charge (SLC) and provides for de-averaging of the SLC by zones and class of customers in a manner that will not undermine comparable and affordable universal service. Third, the plan sets into place a mechanism to transition to a set target of $.0055 per minute for switched access services. Once that target rate is reached, local exchange carriers are no longer required to make further annual price cap reductions to their switched access prices. The annual reductions leading to the target rate, as well as annual reductions for the subset of special access services that remain subject to price cap regulation was set at 6.5% per year.
As a result of tariff adjustments which became effective in July 2003, virtually all of our switched access lines reached the $.0055 benchmark. On June 29, 2004, the U.S. Court of Appeals for the D.C. Circuit upheld the FCCs prior approval of an increase in the SLC cap. The current cap is $6.50.
The FCC previously initiated investigations of the interstate access rates charged by Verizons local telephone companies during the 1993 to 1996 tariff years under the price cap rules that were in place prior to the adoption of the CALLS plan. On July 30, 2004, the FCC released an order resolving one of the issues in those pending investigations, and concluded that some of Verizons local telephone companies had incorrectly calculated the impact of their obligation to share a portion of their earnings above certain prescribed levels with their access customers. The amount of any refund as a result of that finding will be determined in a further phase of the proceeding. Other issues remain under investigation.
The FCC has adopted rules for special access services that provide for pricing flexibility and ultimately the removal of services from price regulation when prescribed competitive thresholds are met. Approximately 55% of special access revenues are now removed from price regulation.
In November 1999, the FCC adopted a new mechanism for providing universal service support to high-cost areas served by large local telephone companies. This funding mechanism provides additional support for local telephone services in several states served by our telephone operations. This system has been supplemented by the new FCC access charge plan described above. On October 16, 2003, in response to a previous court decision, the FCC announced a decision providing additional justification for its non-rural high-cost universal support mechanism and modifying it in part. That decision also has been appealed. The FCC also has proceedings underway to evaluate possible changes to its current rules for assessing contributions to the universal service fund. Any change in the current assessment mechanism could result in a change in the contribution that local telephone companies must make and that would have to be collected from customers.
Unbundling of Network Elements
On February 20, 2003, the FCC announced a decision adopting new rules defining the obligations of incumbent local exchange carriers to provide competing carriers with access to unbundled network elements (UNEs). The decision was the culmination of an FCC rulemaking referred to as its triennial review of its UNE rules, and also was in response to a decision by the U.S. Court of Appeals for the D.C. Circuit that had overturned the FCCs previous unbundling rules.
The text of the order and accompanying rules were released on August 21, 2003. With respect to broadband facilities, such as mass market fiber to the premises loops and packet switching, that order generally removed unbundling obligations under Section 251 of the 1996 Act. With respect to narrowband services, the order generally left unbundling obligations in place, with certain limited exceptions, and delegated to state regulatory proceedings a further review. The order also provided a new set of criteria relating to when carriers may purchase a combination of unbundled loops and transport elements known as enhanced extended loops (EELs) that increased arbitrage opportunities by making it easier for carriers to use EELs purchased at artificially low regulated UNE rates rather than competitive special access prices.
Multiple parties, including Verizon, appealed various aspects of the decision. On March 2, 2004, the U.S. Court of Appeals for the D.C. Circuit issued an order upholding the FCC in part, and overturning its order in part. The court upheld the FCC with respect to broadband facilities. On the narrowband unbundling requirements, the court reversed and vacated key aspects of the FCC decision that had required unbundled access to mass market switching and high capacity transmission facilities. The courts order vacating those aspects of the FCCs rules went into effect on June 16, 2004, and petitions by various parties to obtain a stay or U.S. Supreme Court review were denied.
On August 20, 2004, the FCC issued interim narrowband unbundling rules and a Notice of Proposed Rulemaking to establish new unbundling rules. In the interim rules order, the FCC required incumbent carriers to continue providing, for six months from the effective date of its order, unbundled mass market switching and high capacity transmission facilities on the same terms that they were available under interconnection agreements as of June 15, 2004. Verizon and other parties petitioned the U.S. Court of Appeals for the D.C. Circuit for a writ of mandamus to overturn the interim rules. At the request of the FCC, the court held the petition in abeyance while the FCC rulemaking proceeded and directed the parties to report on the status of the FCC proceedings no later than January 4, 2005. On January 4, 2005, Verizon and other parties asked the U.S. Court of Appeals for the D.C. Circuit to retain jurisdiction on the pending mandamus petition and to provide further briefing upon the release of the FCC order.
On February 4, 2005, the FCC released a decision on new unbundling rules. The FCC eliminated the requirement to unbundle mass market local switching on a nationwide basis, with the obligation to accept new orders ending as of the effective date of the order (March 11, 2005). The FCC also established a one year transition for existing UNE switching arrangements. For high capacity transmission facilities, the FCC established criteria for determining whether high capacity loops, transport or dark fiber transport must be unbundled in individual wire centers, and stated that these standards were only expected to affect a small number of wire centers. The FCC also eliminated the obligation to provide dark fiber loops and found that there is no obligation to provide UNEs exclusively for wireless or long distance service. In any instance where a particular high capacity facility no longer has to be made available as a UNE, the FCC established a similar one year transition for any existing high capacity loop or transport UNEs, and an 18 month transition for any existing dark fiber UNEs.
Separately, the FCC has taken steps to clarify its rules for broadband facilities in response to requests of various parties. Verizon petitioned the FCC to make clear that any broadband facilities that do not have to be unbundled under Section 251 of the 1996 Act also do not have to be unbundled under another provision of the 1996 Act, specifically Section 271. On October 22, 2004, the FCC granted that petition, and the FCCs decision has been appealed by various parties. In addition, the FCC has clarified that mass market fiber to the curb loops qualify for the same regulatory treatment as mass market fiber to the premises loops, that fiber loops to serve customers in multiple unit buildings also qualify for that same regulatory treatment as long as the building is predominantly residential, and that carriers that deploy new broadband network facilities are not required to equip those facilities with legacy capabilities that could render them subject to unbundling.
Intercarrier Compensation
The FCC has an ongoing rulemaking that could fundamentally restructure the regulatory regime for intercarrier compensation, including, but not limited to, access charges, compensation for Internet traffic, and reciprocal compensation for local traffic. To date, several parties and coalitions have submitted alternative proposals to the FCC for restructuring the intercarrier compensation rules, and the FCC has stated that it intends to conduct further proceedings to evaluate various alternatives.
The FCC also has pending before it issues relating to intercarrier compensation for dial-up Internet-bound traffic. The FCC previously found this traffic is not subject to reciprocal compensation under Section 251(b)(5) of the 1996 Act. Instead, the FCC established federal rates per minute for this traffic that declined from $.0015 to $.0007 over a three-year period, established caps on the total minutes of this traffic subject to compensation in a state, and required incumbent local exchange carriers to offer to both bill and pay reciprocal compensation for local traffic at
the same rate as they are required to pay on Internet-bound traffic. On May 3, 2002, the U.S. Court of Appeals for the D.C. Circuit rejected part of the FCCs rationale, but declined to vacate the order while it is on remand. As a result, pending further action by the FCC, the FCCs underlying order remains in effect. On October 8, 2004, the FCC announced that it had denied a petition to discontinue the $.0007 rate cap on this traffic, but had decided to remove the caps on the total minutes of Internet-bound traffic subject to compensation. That decision is the subject of an appeal by several parties. Disputes also remain pending in a number of forums relating to the appropriate compensation for Internet-bound traffic during previous periods under the terms of our interconnection agreements with other carriers.
The FCC also is considering multiple petitions asking it to declare whether, and under what circumstances, services that employ Internet protocol are subject to access charges under current law, or asking it to forbear from any requirement to pay access charges on some such services. On March 10, 2004, the FCC initiated a rulemaking proceeding to address the regulation of services that use Internet protocol, including voice services. The FCC also concluded in response to one such petition that one providers peer-to-peer Internet protocol service that does not use the public switched network is an interstate information service and is not subject to access charges. During April 2004, the FCC issued an order in connection with another such petition that stated that the petitioning companys service that utilizes Internet protocol for only one intermediate part of a calls transmission is a telecommunications service subject to access charges. The FCC also has a statutory deadline of March 22, 2005 to address a third petition asking it to forbear from applying access charges to voice over Internet protocol services that are terminated on switched local exchange networks.
Broadband Services
The FCC has several ongoing rulemakings considering the regulatory treatment of broadband services. Among the questions at issue are whether to require local telephone companies like Verizon to offer such services as a common carrier or whether such services may be offered under a less regulated private carriage arrangement, under what circumstances high speed Internet access services should be classified as largely deregulated information services, and whether to declare broadband services offered by local telephone companies as non-dominant and what the effect should be of any such classification.
State Regulation of Rates and Services
State public utility commissions regulate our telephone operations with respect to intrastate rates and services and other matters. In many jurisdictions the telephone operations have been able to replace rate of return regulation with price regulation plans.
Verizon California Inc.
Verizon Californias operations in Arizona are subject to rate of return regulation.
Verizon Californias operations in California have operated under the New Regulatory Framework (NRF) since 1990. The NRF allows for a gradual transition to less regulation on a service-by-service basis. The NRF is reviewed every three years and currently has the following features:
Earnings Ceiling: The ceiling is suspended.
Price Cap Index: By setting inflation equal to productivity, the California Public Utilities Commission (CPUC) has suspended the price cap index. Limited exogenous changes are allowed. Generally, exogenous changes are changes unique to or specifically targeted to a company that are beyond its control (in this case, changes are permitted only for matters mandated by the CPUC or changes in total intrastate cost recovery resulting from changes between federal and state jurisdictions).
Price Flexibility: Services fall into three categories.
Category I services cannot be changed without CPUC approval.
Category II services are partially competitive and can be adjusted within a ceiling/floor range. The current price (effectively the ceiling) cannot be increased without a formal application.
Category III services are considered competitive and can be increased or decreased on short notice.
New Services: New services can be classified as Category II or III. If introduced as Category III, Verizon California must demonstrate insignificant market power.
The CPUC will review NRF features during 2005 2006.
Verizon Californias operations in Nevada are subject to rate of return regulation.
Verizon Delaware Inc.
Since 1994, Verizon Delaware has been regulated under the alternative regulation provisions of the Delaware Telecommunications Technology Investment Act of 1993 (Delaware Telecommunications Act). On September 9, 2003, the Delaware Public Service Commission approved a stipulation permitting Verizon Delaware to continue to be regulated under the Delaware Telecommunications Act through September 2006. The Delaware Telecommunications Act provides the following:
The prices of Basic Telephone Services (e.g., dial-tone and local usage) will remain regulated and cannot change in any one year by more than the Gross Domestic Product Price Index (GDP-PI) less 3%.
The prices of Discretionary Services (e.g., Identa Ring(SM) and Call Waiting) cannot increase more than 15% per year per service.
The prices of Competitive Services (e.g., voice messaging and message toll service) are not subject to tariff or regulation.
Verizon Delaware will develop a technology deployment plan with a commitment to invest a minimum of $250 million in Delawares telecommunications network during the first five years of the plan.
Verizon Florida Inc.
Florida statutes govern the price cap plan. Beginning January 1, 2001, Verizon Florida was able to raise basic local rates on 30 days notice once in any 12-month period not to exceed the GDP-PI less 1%. Verizon Florida may increase rates for non-basic services but increases for any category cannot exceed 6% in any 12-month period unless another company is providing service in a given exchange, at which time Verizon Florida can increase its price up to 20% in a 12-month period. Earnings are not regulated. Legislation was passed in 2003 that allows Verizon Florida to offset a reduction in intrastate access rates with an increase in basic local exchange revenues upon Florida Public Service Commission (FPSC) approval. The offset must be revenue neutral and take place over two to four years. In evaluating the petition, the FPSC is to consider whether granting the petition will remove current support for basic local telecommunications services preventing the creation of a more attractive competitive local exchange market for the benefit of residential consumers and enhanced market entry. When Verizon Floridas rates are reduced to parity as defined by the statute, Verizon Floridas basic services become subject to the same regulatory treatment as its non-basic services.
Verizon Hawaii Inc.
Verizon Hawaiis telephone operations are subject to rate of return regulation.
Verizon Maryland Inc.
In 1996, the Public Service Commission of Maryland approved a price cap plan for regulating the intrastate services provided by Verizon Maryland. Under the plan, services are divided into six categories: Access; Basic-Residential; Basic-Business; Discretionary; Competitive; and Miscellaneous. Rates for Access, Basic-Residential, Basic-Business and Discretionary Services can be increased or decreased annually under a formula that is based upon changes in the GDP-PI minus a productivity offset based upon changes in the rate of inflation as reflected in the Consumer Price Index. Rates for Competitive Services may be increased without regulatory limits. Regulation of profits is eliminated. The Public Service Commission of Maryland is currently reviewing the incentive regulation plan. Verizon Maryland has sought to eliminate the price cap formula and to move all business services into the competitive category.
Verizon New England Inc.
In June 2001, the Maine Public Utilities Commission (MPUC) ordered the continuation of an Alternative Form of Regulation (AFOR) for Verizon Maine for a second five-year term.
The Maine Public Advocate appealed the MPUCs 2001 AFOR decision to the Maine Supreme Judicial Court, claiming that any extension to the AFOR must be preceded by an investigation of Verizon Maines costs and earnings utilizing traditional rate of return principles. On February 28, 2003, the court ruled that while state law requires that telephone rates under an AFOR are no higher than under rate of return regulation, the MPUC has broad discretion in making such a determination that would not necessarily require a full rate of return inquiry. However, the court vacated and remanded the decision to the MPUC for its failure to expressly make such a determination, or in the alternative that if such a showing cannot be made, that it nonetheless remains in the best interest of ratepayers to proceed with an AFOR. No change in any of Verizon Maines rates was required by the courts decision while the remand proceeding was pending.
In March 2003, the MPUC opened a proceeding to address the Maine Supreme Judicial Courts remand of the 2001 AFOR decision. In an order issued on July 11, 2003, the MPUC ruled that it would keep in place the $1.78 increase in Verizon New Englands monthly basic exchange rates pending completion of the remand and maintain certain elements (pricing flexibility, Service Quality Index) of the proposed AFOR on an interim basis until a final decision on the remand. On September 25, 2003, the PUC issued an order reinstating the AFOR and that order was appealed. On January 26, 2005, the Maine Supreme Judicial Court vacated the MPUC order and remanded the case for further investigation.
The court held that the MPUC did not sufficiently comply with the statutory requirement that it ensure that local rates under an AFOR will not be higher than under traditional rate of return.
In April 2001, Verizon New England filed with the Massachusetts Department of Telecommunications and Energy (DTE) a proposed alternative regulatory plan to replace the price regulation plan that was to expire in August 2001. On May 8, 2002, the DTE issued its decision in Phase I of the case in which it found that Verizon New England had demonstrated the existence of sufficient competition for most of its retail business services and granted Verizon New England pricing flexibility on the services. Price increases are not constrained. Price decreases are subject to price floor requirements. In addition, the DTE ruled that Verizon New England should reduce state switched access prices to interstate levels on a revenue neutral basis by increases in residence dial-tone rates. With respect to residence services, the DTE tentatively concluded that Verizon New England should have pricing flexibility for non-basic services but that increases in basic services should be limited. The DTE directed Verizon New England to file proposals consistent with its findings.
In May 2003, the DTE issued a final ruling approving with minor modifications Verizon New Englands compliance filing implementing the DTEs alternative regulatory plan. The plan gives Verizon New England pricing flexibility for most retail business services and residence non-basic services, including second dial-tone lines. The DTE also approved rate reductions for state switched access prices to interstate levels with offsetting revenue-neutral increases in residence dial-tone rates. Those rate changes became effective on June 1, 2003.
New Hampshire
Verizon New Englands operations in New Hampshire are currently subject to rate of return regulation. On January 16, 2004, the New Hampshire Public Utilities Commission (NHPUC) concluded a comprehensive proceeding examining the appropriate cost of capital for Verizon. In its order, the NHPUC set the average weighted cost of capital for Verizon at 8.2%. At present, the newly determined cost of capital has no effect on Verizons retail revenues. The NHPUC directed Verizon to file revised UNE rates reflecting this new cost determination by March 16, 2004. Verizons current UNE rates were approved in 2001 relying upon an average weighted cost of capital of 10.46%. Verizon filed an appeal of the NHPUC decision in federal district court in New Hampshire. The NHPUCs order to file new UNE rates was stayed by stipulation during the appeal. A decision by the court is pending. On July 9, 2004, the NHPUC issued an order finding the existing Directory Licensing Agreement between Verizon New England and its affiliated Yellow Pages company to be unreasonable as it did not include a directory revenue sharing provision. As a result, the NHPUC directed that Verizon impute $23.3 million for purposes of intrastate ratemaking in New Hampshire. On October 19, 2004, the NHPUC issued an order denying Verizons Motion for Reconsideration of the decision. At present, the NHPUC ruling regarding imputation has no effect on Verizons retail rates. Verizon has filed an appeal with the New Hampshire Supreme Court.
Rhode Island
Pursuant to a directive of the Rhode Island Public Utilities Commission (RIPUC), Verizon Rhode Island filed in July 2002 a proposal for a new alternative regulation plan to replace the existing price cap plan that was to expire in December 2002. Following the close of evidentiary hearings in the case, Verizon Rhode Island and the Rhode Island Division of Public Utilities and Carriers (Division) filed a stipulation on December 6, 2002 resolving all issues in the case. The principal components of the stipulated plan are:
No index or price cap formula;
Pricing flexibility for all business services, subject to a long-run incremental cost (LRIC)-based price floor;
The company may increase residential basic exchange rates by $1 per year in years one and two. An additional $1 increase in year three will be subject to RIPUC and Division review;
The company may pass through exogenous changes, subject to a $2.5 million annual cap, but must absorb the first $1 million in exogenous changes in the year in which approval is sought;
The company will continue its voluntary funding of a discount program for Internet access for schools and libraries at up to $2 million per year until the earlier of December 31, 2004, or the implementation of an alternative funding mechanism (e.g., legislation);
The current retail service quality plan is maintained with certain modifications; and
The term of the plan is three years.
After further hearing and briefing, the RIPUC approved the stipulation at an open meeting on January 10, 2003, with two modifications. First, the RIPUC imposed limits on price increases for all other non-basic residential services as follows:
For services priced at $5 or less, rates may increase 15% per year
For services priced at $5.01 to $10, rates may increase 10% per year
For services priced over $10, rates may increase 5% per year
Second, the company is required to file quarterly reports showing for each wire center in the state the number of access lines served by the company and the number and type of access lines served by competitors. On March 31, 2003, the RIPUC issued an order adopting the modified stipulation approved on January 10, 2003.
In 2000, the Vermont Public Service Board approved a five-year incentive regulation plan that will provide Verizon New England with increased flexibility to introduce and price new products and services. The plan also removes most restrictions on Verizon New Englands earnings from Vermont operations during the life of the plan and contains no productivity adjustment. The plan limits Verizon New Englands ability to raise prices on existing products and services, and requires revenue reductions of $16.5 million at the outset of the plan, $6.5 million during the first year of the plan and approximately $6.0 million over the subsequent years of the plan. The plan also requires some service quality improvements subject to financial penalty. In May 2004, the Vermont Public Service Board opened a proceeding to consider the form of regulation for Verizon following the expiration of the current plan. The Vermont Public Service Board is expected to make a decision by July 2005.
Verizon New Jersey Inc.
The 1992 New Jersey Telecommunications Act classifies telecommunications services as competitive or protected. Protected telephone services include basic residence, touch-tone, access services other than those otherwise deemed competitive by the New Jersey Board of Public Utilities (NJBPU), business local service for customers with four lines or less, and the ordering, installation and restoration of these services. Verizon New Jersey provides protected telephone services and other services, including vertical services (Rate-Regulated Services), under a Plan for Alternative Form of Regulation, which became effective on July 1, 2002, pursuant to a decision announced by the NJBPU on June 19, 2002 and issued August 19, 2003. The new plan eliminates earnings regulation, eliminates earnings sharing provisions, streamlines the process to introduce new services and strengthens commitments to service quality, lifeline service and schools and public libraries. A petition for reconsideration of the plan was filed by an opposing party. Additionally, a Verizon New Jersey petition to lower the competitive threshold for business local service to customers with less than two lines is pending before the NJBPU, with a ruling expected on or before March 31, 2005.
Verizon New York Inc.
New York
The New York State Public Service Commission (NYSPSC) adopted an incentive plan to regulate the services of Verizon New York, effective March 1, 2002. The plan expired in 2004, except that the service quality provisions of the plan will expire in 2005. The plan establishes state-wide service quality standards, with the potential for customer credits if Verizon fails to meet those standards. Verizon New York will complete its transition to generally accepted accounting principles for preparing financial statements for regulatory purposes in March 2005. Verizon New Yorks rates are proposed by the company based on several factors, including the competitiveness of the service and the companys underlying costs, and are subject to approval by the NYSPSC.
In December 2004, the Connecticut Department of Public Utility Control adopted an incentive regulation plan proposed by Verizon New York, which eliminates regulation of earnings and provides other deregulatory benefits for Verizon New Yorks operations in Connecticut.
Verizon North Inc.
Verizon Norths telephone operations in Illinois are subject to rate of return regulation. Optional toll plans, Integrated Services Digital Network (ISDN), frame relay, payphones, CentraNet, and other data services are considered deregulated and have total pricing flexibility.
Verizon Norths telephone operations in Indiana became subject to an alternative regulatory plan during 2004. Among other matters, earnings are not subject to regulation, tariff filings are streamlined, 3 tiers of services are subject to differing levels of pricing regulation and can be shifted between tiers, regulation of certain accounting standards and financings are eliminated and depreciation rates are not subject to approval. The plan has a three and one-half year term.
Since the Michigan Telecommunications Act was passed in 1991, a form of regulation that focuses on services, prices and costs has replaced rate of return regulation. Earnings are not regulated. All rates for regulated services must meet a cost floor. Verizon North may increase local rates annually up to 1% less than the Consumer Price Index. Any rate increases above that amount must be approved by the Michigan Public Service Commission (MPSC) as just and reasonable. The MPSC may only approve rate increases based upon one or more of the following 5
factors: total service LRIC; comparison to other provider rates; whether a new function, feature or capability is offered; increase in costs to provide local service; and whether further investment is economically justified. The MPSC has no jurisdiction over numerous unregulated services. Other services have substantial pricing flexibility.
Verizon Norths telephone operations in Ohio are subject to rate of return regulation.
On July 26, 2001, the Pennsylvania Public Utility Commission (PPUC) rejected, in part, and accepted, in part, a proposed price cap plan filed by Verizon North. The PPUC accepted, with some modification, that part of the plan that provided for the deregulation of the pricing of competitive services; elimination of earnings sharing; adoption of a productivity factor based on inflation; a provision to adjust rates for exogenous events; and a price cap of rates of protected services. The PPUC rejected that part of Verizon Norths plan that provided for improvement of Verizon Norths network infrastructure. The PPUC subsequently approved a revised infrastructure plan for Verizon North that requires, inter alia, universal broadband deployment by 2015.
On November 30, 2004, a statute reauthorizing alternative regulation in Pennsylvania (Act 183) was enacted into law. Act 183:
Authorizes Verizon North to file an amended network modernization plan requiring it to deploy a universal broadband network, defined at 1.544 megabits per second, not later than 2015, and the plan cannot be subsequently changed without Verizon Norths consent;
Permits annual price increases up to, but not exceeding, the GDP-PI minus .5% (for 100 broadband deployment by 2015) or 0% (by 2013).
Allows nonprotected services to be declared competitive through a one-days notice filing with the PPUC.
Reduces PPUC reporting and other regulatory oversight requirements.
Requires Verizon North to contribute up to 20% of the first year effect of GDP-PI price increases to funds designed to promote broadband in schools and broadband education and demand aggregation generally.
Verizon North entered a price cap plan in 1995. The plan does not regulate earnings and price cap index increases can be accumulated and deferred up to three years. The maximum increase for any single basic rate element is 10% or the increase in the GDP-PI, whichever is greater. Overall basic local service increases are limited to GDP-PI less 2%. Intrastate access service mirrors interstate rates. There are no restrictions on other services as long as they cover LRICs. Rate changes are effective on one days notice after customer notice and new services take effect after ten days. The statute requires that no earlier than six years, and no more frequently than every three years thereafter, the Public Service Commission of Wisconsin may by rule increase or decrease the GDP-PI productivity factor in any twelve-month period to reflect any statewide changes in the productivity experience of the telecommunications industry. The latest productivity factor review is complete and the factor was not changed.
Verizon Northwest Inc.
Verizon Northwests California operations are subject to rate of return regulation.
Verizon Northwests Idaho operations are subject to rate of return regulation.
Verizon Northwests Oregon operations are subject to rate of return regulation. Pricing flexibility is permitted in competitive zones and Verizon Northwest currently has Digital Channel Service, ISDN, PBX trunks (telephone switching equipment on customer premises), DID trunks (trunks from the customer premises switches to the central office) and single line business service offerings in these zones. Billing and collection and CentraNet are in a competitive class and are flexibly priced.
Verizon Northwests Washington operations are subject to rate of return regulation. IntraLATA toll and billing and collection are flexibly priced.
Verizon Pennsylvania Inc.
The PPUC regulates Verizon Pennsylvania under an Alternative Regulation Plan approved in 1994. The plan provides for a pure price cap plan with no sharing of earnings with customers and replaces rate base, rate of return regulation. Competitive services, including toll, directory advertising, billing services, Centrex service, paging, speed calling, repeat calling, and HiCap (high capacity private line) and business services provided to larger customers are price deregulated. All non-competitive services are price regulated.
The plan:
Permits annual price increases up to, but not exceeding, the GDP-PI minus 2.93%;
Requires annual price decreases when the GDP-PI falls below 2.93%;
Caps prices for protected services, including residential and business basic exchange services, special access and switched access, through 1999; and
Permits revenue-neutral rate restructuring for noncompetitive services.
The PPUCs order approving the Bell AtlanticGTE merger extended the cap on residential and business basic exchange services through 2003.
The plan also requires deployment of a universal broadband network. On September 17, 2003, the PPUC approved a revised plan that requires Verizon Pennsylvania to deploy a universal broadband network, defined at 1.544 megabits per second, in the following phases: 50% by 2004; 60% by 2006; 70% by 2008; 80% by 2010, 90% by 2012 and 100% by 2015. Verizon Pennsylvania is also required to make broadband services at 45 megabits per second available on a commercially reasonable time frame to 50% of exchanges by 2004 and 100% by 2015.
In December 2003, the statute authorizing alternative regulation in Pennsylvania expired. In January 2004, the PPUC issued a policy statement that the expiration of the statute had no effect upon current incentive regulation plans.
As described in Verizon Norths Pennsylvania operations above, on November 30, 2004, a new statute reauthorizing alternative regulation in Pennsylvania, Act 183, was enacted into law. The provisions of Act 183 also apply to Verizon Pennsylvania.
Verizon South Inc.
North Carolina
Verizon Souths operations in North Carolina have been under a price cap plan since 1996 that was subject to review in 2002 2003. Earnings are not regulated and local rates can be increased by GDP-PI less 2%. Rate increases are effective on fourteen days notice. Verizon South has complete flexibility to increase rates for billing and collection, Centrex, and enhanced digital switch service. The current price cap plan is under review.
South Carolina
Verizon Souths South Carolina price cap plan started during 2000. Under the statute, existing rates are deemed just and reasonable on the date of notification. Residential and single-line business local service rates are capped for two years from the date of election. After two years, these rates may be adjusted annually pursuant to an inflation-based index. Rates for other services are flexibly priced. Price decreases are effective in seven days. Price increases and new services prices are effective in fourteen days.
On December 21, 2000, the Virginia State Corporation Commission (VSCC) approved a price cap plan for Verizon South that was substantially similar to Verizon Virginias plan. In January 2005, the VSCC approved modifications to the plan described below.
Verizon Southwest
The Texas Public Utilities Commission regulates Verizon Southwest under a price cap plan with no cap on earnings pursuant to the Public Utility Regulatory Act (PURA). The plan places services into four categories:
Basic services These include basic local residential charges such as service connection, mandatory expanded calling plans and residential call waiting. Price increases prior to September 1, 2005 are only allowed to adjust for changes in FCC separations that
affect net income by at least 10% and for rate group reclassifications due to access line growth. After September 1, 2005, price increases require approval. Full packaging (an integrated offering of some or all of our products and services) is allowed.
Non-basic services This category only includes switched access, which is price-capped until September 1, 2005. Decreases can be made to the LRIC. The statute contains no expiration provision.
Price-capped non-basic services These services include basic local business charges such as service connection and BRI-ISDN (Basic Rate Interface Integrated Services Digital Network). These services are price-capped until September 1, 2005. Decreases can be made to the LRIC. Full packaging is allowed.
Non-basic services without caps This category represents all other regulated services, including intraLATA toll, custom calling features (except residential call waiting), special access, operator services, PBX and ISDN services. These services have unlimited upward pricing flexibility. Decreases can be made to the LRIC (with imputation) or the prices in effect on September 1, 1999, whichever is less. Full packaging is allowed.
Verizon Virginia Inc.
Effective in 1995, the VSCC approved an alternative regulatory plan that regulates Verizon Virginias noncompetitive services on a price cap basis and does not regulate Verizon Virginias competitive services. The plan does not regulate profits. In June 2001, the VSCC modified the plan and extended the moratorium on rate increases for basic local telephone service until 2004. In January 2005, the VSCC again modified the plan, permitting additional pricing flexibility for noncompetitive services and eliminating various regulatory requirements. The plans effective date is February 1, 2005 and it has no expiration date.
Verizon Washington, DC Inc.
On September 9, 2004, the District of Columbia Public Service Commission (DCPSC) approved an amended price cap plan for local retail services provided by Verizon Washington, DC. Key provisions of the 2004 plan include:
A three-year term;
No earnings restrictions, service penalties or revenue sharing;
Four service categories: basic residential, basic business, discretionary and competitive;
A cap on residential dial-tone line rates until 2006;
Annual pricing flexibility for all other basic residential services, with the increase in total revenues from these services limited to the annual inflation rate (as measured by the change in GDP-PI) and increases for any individual service in the category limited to 10%;
Classification of all business services as competitive with complete pricing flexibility except for basic business dial-tone lines and message units, E911, local directory service and Connect Request;
Pricing flexibility on discretionary services, with a 15% annual limit on any rate increase; and
Flexibility to bundle or package existing services.
Verizon West Virginia Inc.
On October 3, 2001, the West Virginia Public Service Commission (WVPSC) approved Verizon West Virginias new Incentive Regulation Plan (IRP). The IRP continues, until December 31, 2005, the flexible price regulation of competitive services, caps on basic rates, infrastructure commitments and unlimited earnings freedom that have been in place since 1988. In addition, long distance, wide area telephone service and national directory assistance will be rate-deregulated, and Verizon West Virginia may petition for the rate deregulation of any other service, except basic residential service, at any time.
Current and potential competitors in telecommunication services include long distance companies, other local telephone companies, cable companies, wireless service providers, foreign telecommunications providers, electric utilities, Internet service providers and other companies that offer network services. Many of these companies have a strong market presence, brand recognition and existing customer relationships, all of which contribute to intensifying competition and may affect our future revenue growth.
Local Exchange Services
The ability to offer local exchange services historically has been subject to regulation by state regulatory commissions. Applications from competitors to provide and resell local exchange services have been approved in every jurisdiction in our service territory. The 1996 Act has significantly increased the level of competition in our local exchange markets.
One of the purposes of the 1996 Act was to ensure, and accelerate, the emergence of competition in local exchange markets. Toward this end, the 1996 Act requires most existing local exchange carriers (incumbent local exchange carriers, or ILECs), including our telephone operations, to permit potential competitors (CLECs) to:
Purchase service from the ILEC for resale to CLEC customers;
Purchase UNEs from the ILEC; and/or
Interconnect the CLECs network with the ILECs network.
As a result, competition in our local exchange markets continues to increase. Our telephone operations generally have been required to sell their services to CLECs at discounts of approximately 51% from the prices our telephone operations charge their retail customers. The scope of these obligations going forward will be affected by the new unbundling rules described above, and the rates we charge local exchange competitors for access to UNEs remain under near-continual review and revision by state regulators and often result in reductions in those rates. See State Regulation of Rates and Services.
Long Distance Services
We offer intraLATA and interLATA long distance services. IntraLATA toll calls originate and terminate within the same LATA, but generally cover a greater distance than a local call. State regulatory commissions rather than federal authorities generally regulate these services. Federal regulators have jurisdiction over interstate toll services. All of our state regulatory commissions (except in Washington, D.C., where intraLATA toll service is not provided) permit other carriers to offer intraLATA toll services within the state. InterLATA toll calls terminate outside the LATA of origination. We now offer long distance services throughout the United States, capping a seven-year effort. Our authority in Alaska is limited to interstate and international services. A number of our major competitors in the long distance business have strong brand recognition and existing customer relationships.
Alternative Access Services
A substantial portion of our telephone operations revenues from business and government customers is derived from a relatively small number of large, multiple-line subscribers.
We face competition from alternative communications systems, constructed by large end-users, interexchange carriers and alternative access vendors, which are capable of originating and/or terminating calls without the use of our plant. The FCCs orders requiring us to offer collocated interconnection for special and switched access services have enhanced the ability of such alternative access providers to compete with us.
Other potential sources of competition include cable television systems, shared tenant services and other noncarrier systems which are capable of bypassing our telephone operations local plant, either partially or completely, through substitution of special access for switched access or through concentration of telecommunications traffic on fewer of our telephone operations lines, and through substitution of UNEs for special access services.
Voice over Internet Protocol Services
Our wireline telecommunications services also face increasing competition from companies which provide Voice over Internet Protocol (VoIP) services. These services use the Internet or private broadband networks to transmit voice communications. VoIP services are available from a wide range of companies including cable companies, long-distance companies, national VoIP providers and regional service providers.
Wireless Services
Wireless services also constitute a significant source of competition to our wireline telecommunications services, especially as wireless carriers (including Verizon Wireless) expand and improve their network coverage and continue to lower their prices to end-users. As a result, more end-users are substituting wireless services for basic wireline service. Wireless telephone services can also be used for data transmission.
Public Telephone Services
The growth of wireless communications has significantly decreased usage of public telephones, as more customers are substituting wireless services for public telephone services. In addition, we face competition from other providers of public telephone services.
Operator Services
Our operator services product line faces competition from alternative operator services providers and Internet service providers.
|Domestic Wireless
Our Domestic Wireless segment provides wireless voice and data services and equipment sales in the United States, principally through Verizon Wireless.
Verizon Wireless is the most profitable wireless communications provider in the U.S., in terms of operating income. Verizon Wireless has the second largest customer base of any U.S. wireless provider, with 43.8 million wireless subscribers as of December 31, 2004, and provides wireless voice and data services across the United States. Approximately 269 million people reside in areas of the U.S. in which we have FCC licenses to offer our services and approximately 243 million people reside in areas covered by our service. This coverage includes approximately 90% of the population in our licensed areas and 49 of the 50 and 97 of the 100 most populated U.S. metropolitan areas.
Wireless licenses are granted by the FCC for an initial 10-year term and are renewable for successive 10-year terms. To date, all Verizon Wireless and predecessor company wireless licenses have been successfully renewed.
The wireless joint venture was formed in April 2000 in connection with the combination of the U.S. wireless operations and interests of Verizon and Vodafone Group Plc (Vodafone). The wireless joint venture operates as Verizon Wireless. Verizon owns a controlling 55% interest in Verizon Wireless and Vodafone owns the remaining 45%.
Recent Acquisitions
On October 29, 2004, we acquired a 10 MHz personal communications services license from NextWave Telecom Inc. (NextWave) covering the New York metropolitan area for $930 million in cash. The license, which covers New York City and northern and central New Jersey, as well as Westchester and Rockland counties in New York, provides additional capacity for voice and data services.
In May 2003, we acquired 50 wireless licenses and related network assets from Northcoast Communications LLC for $762 million in cash. The licenses provide Verizon Wireless with additional growth capacity over large portions of the East Coast and Midwest. Total population served by the licenses is approximately 47 million.
There is substantial competition in the wireless telecommunications industry. We expect competition to intensify as a result of the higher penetration levels that currently exist in the industry, ongoing industry consolidation, local number portability, the development and deployment of new technologies, the introduction of new products and services, the availability of additional spectrum, both licensed and unlicensed, and regulatory changes. Other wireless providers, including other cellular and personal communications services operators and resellers, serve each of the markets in which we operate. We currently provide service to 49 of the top 50 markets in the U.S., and each of these 49 markets has an average of four other competing wireless providers. Competition also may increase if smaller, stand-alone wireless providers transfer licenses to larger, better capitalized and more experienced wireless providers. In addition, resellers that buy bulk wholesale service from carriers for resale, provide another category of differentiated competitors in the marketplace.
We compete primarily against four other major wireless service providers: Cingular Wireless LLC, Nextel Communications, Inc., Sprint Corporation and T-Mobile USA, Inc. In addition, in many markets we also compete with regional carriers, such as ALLTEL Corporation and US Cellular Corporation. On December 15, 2004, Sprint and Nextel announced an agreement for a merger between their companies. Based on reported information, the two entities, if fully combined as of December 31, 2004, would have been the third largest U.S. wireless service provider in terms of customers. The acquisition is subject to shareholder and regulatory approvals. Sprint and Nextel have announced that they expect the transaction to close in the second half of 2005.
We believe that the following are the most important competitive factors in our industry:
Network quality, capacity and coverage: In recent years, competition in our industry has led to lower prices and to the popularity of pricing plans that do not charge for roaming which, in turn, has led to increased minutes of use per customer. As a result, the ability to keep pace with network capacity needs and offer high quality national coverage through the companys network is important. We have an extensive national network, and we continue to look for expansion opportunities through the build-out of existing licenses, acquisitions and/or spectrum leasing. We own licenses that cover much of the country but we will need to spend significant amounts to expand our capacity and extend our coverage area. Most of our competitors also have build-out needs, which they are seeking to mitigate through acquisitions or through affiliate and/or roaming agreements with other wireless providers.
Customer service: Quality customer service is essential to ensure that existing customers do not terminate service and to obtain new customers. With local number portability, customers may find it easier to switch their service to an alternate carrier, since they can take their telephone number with them to that carrier. We believe that our quality customer service will be a key to retaining our customers and to attracting customers who want to switch from other carriers. We are very focused on continually enhancing our customer service. Our competitors also recognize the importance of customer service and are also focusing on improving the customer experience.
Pricing: Service and equipment pricing is an important area in which wireless carriers compete. We seek to compete in this area by offering our customers services and equipment that they will regard as the best available value for their money.
Product 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 products and services. We are committed to continue enhancing our ability to envision, evaluate and rapidly deploy new and innovative handsets and customer solutions.
Distribution: Key to achieving sales success in the wireless industry is the reach and quality of sales channels and distribution points. We believe that the optimal mix of direct, indirect and wholesale distribution channels is an important ingredient in achieving industry-leading sales. A goal of our distribution strategy is to increase sales through our company-operated stores and our outside sales team, as well as through telemarketing and web-based sales and fulfillment capabilities. Supplementing this is an extensive indirect distribution network of full-service retail outlets and prepaid replenishment locations, as well as various resellers who buy our service on a wholesale basis.
Capital resources: In order to expand the capacity and coverage of their networks and introduce new products and services, wireless providers require significant capital resources. We generate significant cash flow from operations. Some of our competitors also have significant cash flow.
As a result of competition, we may encounter further market pressures to:
respond to particular short-term, market-specific situations, for example, promotional service pricing or equipment discounts;
introduce new service offerings at lower prices or restructure our service packages to offer more value;
increase advertising spending; or
increase our capital investment to ensure we retain our market leadership in service quality.
Such market pressures could cause us to experience lower revenues, margins and average revenue per user, as well as increased capital spending to ensure proper capacity levels.
Our success will depend on our ability to anticipate and respond to various factors affecting the industry, including the factors described above, as well as new technologies, changes in customer preferences, regulatory changes, demographic trends, economic conditions, and pricing strategies of competitors.
|Information Services
Information Services is a world leader in print and online directory publishing and a content provider for electronic communications products and services. A leader in linking buyers and sellers, we produce Verizon SuperPages print yellow and white pages directories, as well as the Internets No. 1 online directory, SuperPages.com. We pursue growth by offering customers comprehensive advertising solutions that include bundled print and electronic commerce offerings.
Information Services provides sales, publishing and other related services for approximately 1,650 directory titles in 46 states, Washington, D.C., 5 countries and a Commonwealth outside the United States. This includes almost 1,200 Verizon directory titles with a circulation of approximately 119 million copies in the US and 9 million copies internationally.
In 2003, we completed the sale of our directory businesses in Europe, which consisted of publishing operations in Austria, the Czech Republic, Gibraltar, Hungary, Poland and Slovakia.
In 2004, Verizon sold Verizon Information Services Canada Inc. directory operations to an affiliate of Bain Capital, a private investment firm, for $1.6 billion. The sale closed in the fourth quarter 2004, generating an after tax-gain of $516 million.
Our directory publishing business competes within the yellow pages industry with six major U.S.-based directory publishers (SBC Communications Inc., BellSouth Corporation, R.H. Donnelley Corporation, Yellow Book USA, Dex Media, Inc. and Trans Western Publishing) and encounters competition in nearly all of our domestic print markets. We also compete against alternative advertising media, including radio, network and cable television, newspapers, magazines, Internet, direct mail and others for a share of the total U.S. advertising media market. Our SuperPages.com competitors include national directory and local Internet search engines including Yahoo and Google.
Our International segment includes investments in international wireline and wireless communications operations primarily in the Americas and Europe. Our consolidated international investments as of December 31, 2004 included Verizon Dominicana, C. por A. (Verizon Dominicana) in the Dominican Republic, Telecomunicaciones de Puerto Rico, Inc. (TELPRI) in Puerto Rico and Micronesian Telecommunications Corporation in the Northern Mariana Islands. As of December 31, 2004, our International segment managed approximately 5 million access lines and provided wireless services to approximately 27 million customers.
In December 2004 we sold our 20.5% interest in TELUS Corporation. TELUS is a full-service telecommunications provider of telecommunications products and services including data, voice and wireless services across Canada.
Dominican Republic
We own 100% of Verizon Dominicana, the principal telecommunications provider in the Dominican Republic. Verizon Dominicana provides local, wireless, national and international long distance and Internet access services throughout the Dominican Republic. At December 31, 2004, Verizon Dominicana served approximately 793,000 access lines and 1.3 million wireless customers.
Puerto Rico
As of December 31, 2004, we owned a 52% interest in TELPRI, which owns Puerto Rico Telephone Company (PRTC), Puerto Ricos principal wireline company. Verizon Wireless Puerto Rico (VWPR), a division of PRTC, is Puerto Ricos second largest wireless company. At December 31, 2004, PRTC served 1.2 million access lines and VWPR provided wireless services to approximately 387,000 customers.
We own a 28.5% interest in Compañia Anónima Nacional Teléfonos de Venezuela (CANTV), Venezuelas largest full-service telecommunications provider. CANTV offers local services, national and international long distance, Internet access and wireless services in Venezuela as well as public telephone, private network, data transmission, directory and other value-added services. At December 31, 2004, CANTV served approximately 3.1 million access lines and 3.1 million wireless customers.
Europe and Asia
We own a 23.1% interest in Vodafone Omnitel N.V. (Vodafone Omnitel), an Italian digital cellular telecommunications company. It is the second largest wireless provider in Italy. Vodafone Omnitel served 22.2 million subscribers at December 31, 2004.
Gibraltar NYNEX Communications Limited, operating as Gibtelecom, is a full-service provider of wireline, wireless, and Internet access services to the country of Gibraltar. We currently own a 50% interest in the company. Our sole partner in the company is the Government of Gibraltar.
In December 2004 we sold our 24.5% interest in EuroTel Bratislava, a.s. (EuroTel Bratislava). EuroTel Bratislava is a leading provider of mobile telecommunication services and managed data network services in Slovakia.
In January 2005, we sold our 23.1% interest in P.T. Excelcomindo Pratama, a nationwide provider of GSM services in Indonesia. In 2004, we also sold our 36.7% interest of P.T. Citra Sari Makmur, a provider of data, voice and video communications in Indonesia.
Northern Mariana Islands
We are the sole shareholder of Micronesian Telecommunications Corporation (MTC), a full-service telecommunications provider. At December 31, 2004, MTC served approximately 32,000 access lines and 23,000 wireless customers on the islands of Saipan, Tinian and Rota. In November 2001 an agreement was signed to sell MTC, which is pending due to regulatory approvals.
Our International segment formerly included several Asian properties in which our investment was 20% or less. In 2004, we sold all of our investments in this category including our investments in Japan the Tu-Ka companies and Taiwan the Taiwan Cellular Corporation.
International Regulatory and Competitive Trends
For several years, the telecommunications industry has been experiencing dynamic changes as national and international regulatory reforms embrace competition.
In the Dominican Republic, Verizon Dominicana faces both wireline and wireless competitors, although it remains the principal service provider in all telecommunication segments. The Dominican Republics regulatory environment is generally favorable and pricing is set at market rates.
In Puerto Rico, TELPRI operates in a highly competitive telecommunications market. All wireline services, including local, long distance, Internet access and data, face competition from various providers including a facilities-based local carrier, interexchange carriers, resellers, cable providers, and Internet service providers. PRTC remains the leading wireline service provider in Puerto Rico and continues to protect its leading position. In the wireless market, VWPR competes against five other wireless carriers and is second in wireless market share operating under the Verizon Wireless brand. With respect to regulatory matters, PRTC continues to operate in a very challenging environment. In 2001 and 2002 the Puerto Rico Telecommunications Regulatory Board (TRB) issued orders, which called for cash refunds and substantial reductions in access rates for intra-island long distance service. In November 2003, PRTC reached an agreement with the TRB to implement the reduction in access rates and replace the cash refund portion of the order with an expansion of local exchange areas, rate adjustments to reflect these changes, certain local rate credits and the elimination of touchtone charges.
In Venezuela, CANTVs wireless operations have faced competition since inception. In late 2000, the government opened the basic telephone market for local, national and international long distance service to competition and issued new guidelines governing interconnection and the use of wireless spectrum. CANTV, however, is still subject to comprehensive rate regulation, especially with respect to residential services, that limits the companys ability to raise prices to keep pace with changes in foreign exchange rates and inflation. CANTV remains Venezuelas leading provider of switched, fixed local and domestic and international long distance services and is one of the countrys top providers of wireless services. In November 2004, the company announced its plan to acquire Digitel, the third largest wireless operator in Venezuela with 1.3 million subscribers for $450 million. When completed, CANTV will be the largest wireless provider with approximately 55 percent of the Venezuelan wireless market. Completion of the transaction is subject to the execution of a definitive agreement, as well as regulatory and government approvals.
In Italy, Vodafone Omnitel operates in an increasingly competitive and highly penetrated market. It responds with continued investment in loyalty programs and retail stores, coupled with a strong focus on business and high value customers. Vodafone Omnitel was awarded a license for third-generation mobile spectrum in 2000, which was subsequently extended from a 15-year life to a 20-year life in November 2001. During 2004, Vodafone Omnitel launched the commercial operations of its third-generation network.
|Recent Developments
MCI Acquisition
On February 14, 2005, Verizon announced that it had agreed to acquire MCI for a combination of Verizon common shares and cash (including MCI dividends). At the closing of the acquisition, Verizon will also assume MCIs net debt (total debt less cash on hand). This consideration is subject to adjustment at closing and may be decreased based on MCIs bankruptcy claims-related experience and international tax liabilities. The boards of directors of Verizon and MCI have approved the agreement. In addition to MCI shareowner approval, the acquisition requires regulatory approvals, which the companies are targeting to obtain in about one year. At least one other company has expressed an interest in acquiring MCI.
Spectrum Purchases
On February 24, 2005, we signed an agreement with MetroPCS, Inc. to purchase 10 MHz of personal communications services spectrum covering the San Francisco area for a purchase price of $230 million. The transaction is subject to the approval of the FCC and the U.S. Department of Justice, and is expected to close in the second quarter of 2005.
On February 15, 2005, the FCCs auction of broadband personal communications services licenses ended and Verizon Wireless, together with affiliate Vista PCS, LLC, was the highest bidder for 63 licenses totaling approximately $697 million.
On November 4, 2004, we announced the signing of a definitive agreement with NextWave to purchase all of NextWaves remaining personal communications services spectrum licenses in 23 markets for $3,000 million through the purchase of stock of NextWave following the completion of its bankruptcy reorganization, when it will own no assets other than the licenses. The 10 MHz and 20 MHz licenses, in the 1.9 GHz personal communications services frequency range, cover a population of 73 million people and will be used to expand Verizon Wirelesss network capacity in 22 key existing markets, including New York, Boston, Washington, D.C. and Los Angeles, as well as to expand into Tulsa, Oklahoma. The transaction has been approved by the U.S. Department of Justice, the U.S. Bankruptcy Court and the FCC. The transaction is expected to close in April 2005.
On July 1, 2004 we announced an agreement to purchase Qwest Wireless, LLCs spectrum licenses and wireless network assets for $418 million covering several existing and new markets. This transaction closed on March 4, 2005.
Sales of Businesses and Investments
Telephone Access Lines
In October 2004, Verizon announced that it had suspended discussions with potential buyers related to its upstate New York access lines, pending an evaluation of its strategic options. However, we are continuing to consider plans for a reduction in the size of our access line business, including through a spin-off mechanism or otherwise, so that we may pursue our strategy of placing greater focus on the higher growth businesses of broadband and wireless.
During the second quarter of 2004, we entered into an agreement to sell our wireline-related businesses in Hawaii, which operates 707,000 switched access lines, for $1,650 million in cash, less debt. The closing of the transaction, expected in the first half of 2005, is contingent on state regulatory approval; the FCC and the U.S. Department of Justice have provided the necessary approvals.
Environmental Matters
During 2003, under a government-approved plan, remediation of the site of a former facility in Hicksville, New York that processed nuclear fuel rods in the 1950s and 1960s commenced. Remediation beyond original expectations proved to be necessary and a reassessment of the anticipated remediation costs was conducted. In addition, a reassessment of costs related to remediation efforts at several other former facilities was undertaken. As a result, an additional environmental remediation expense of $240 million was recorded in 2003.
New York Recovery Funding
In August 2002, President Bush signed the Supplemental Appropriations bill that included $5.5 billion in New York recovery funding. Of that amount, approximately $750 million has been allocated to cover utility restoration and infrastructure rebuilding as a result of the September 11th terrorist attacks. These funds will be distributed through the Lower Manhattan Development Corporation following an application and audit process. As of September 30, 2004, we have applied for reimbursement of approximately $266 million. We received an advance of $11 million in December 2003 and an additional advance of $77 million in June 2004. We are awaiting the results of an audit relating to the total amount that we have applied for reimbursement, including funds already received. On December 22, 2004, we applied for reimbursement of an additional $136 million of category 2 losses. Category 2 funding is for permanent restoration and infrastructure improvement. Our application is pending.
As of December 31, 2004, Verizon and its subsidiaries had approximately 210,000 employees. Unions represent approximately 48% of our employees.
|Information on Our Internet Website
We make available, free of charge on our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Our website address is www.verizon.com. This information is included in Investor Information on our website.
|Cautionary Statement Concerning Forward-Looking Statements
In this Annual Report on Form 10-K 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 Annual Report, could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements:
materially adverse changes in economic and industry conditions and labor matters, including workforce levels and labor negotiations, and any resulting financial and/or operational impact, in the markets served by us or by companies in which we have substantial investments;
material changes in available technology;
technology substitution;
an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations;
the final results of federal and state regulatory proceedings concerning our provision of retail and wholesale services and judicial review of those results;
a significant change in the timing of, or the imposition of any government conditions to, the closing of our transaction with MCI, Inc., actual and contingent liabilities and the extent and timing or our ability to obtain revenue enhancements and cost savings following the transaction;
the effects of competition in our markets;
the timing, scope and financial impacts of our deployment of fiber-to-the-premises broadband technology;
the ability of Verizon Wireless to continue to obtain sufficient spectrum resources; and
changes in our 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.
Our principal properties do not lend themselves to simple description by character and location. Our total investment in plant, property and equipment was approximately $186 billion at December 31, 2004 and $181 billion at December 31, 2003, 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:
Network equipment
Land, buildings and building equipment
Furniture and other equipment
Our properties are divided among our operating segments at December 31, as follows:
Domestic Telecom
Domestic Wireless
Information Services
Corporate and Other
Network equipment consists primarily of aerial cable, underground cable, conduit and wiring, wireless plant, telephone poles, switching equipment, transmission equipment and related facilities. Land, buildings and building equipment consists of land and land improvements and central office buildings. Furniture and other equipment consists of public telephone instruments and telephone equipment (including PBXs), furniture, office equipment, motor vehicles and other work equipment. Other property consists primarily of plant under construction, capital
leases, capitalized computer software costs and leasehold improvements. A portion of our property is subject to the liens of their respective mortgages securing funded debt.
The customers of our telephone operations are served by electronic switching systems that provide a wide variety of services. At December 31, 2004, substantially all of the access lines were served by digital capability.
|Capital Expenditures
We continue to make significant capital expenditures to meet the demand for telecommunications services and to further improve such services. Capital spending for Domestic Telecom was $7,118 million in 2004, $6,820 million in 2003 and $8,004 million in 2002. Capital spending for Domestic Wireless was $5,633 million in 2004, $4,590 million in 2003 and $4,414 million in 2002. Capital spending for Information Services, International and Corporate and Other businesses was $508 million in 2004, $464 million in 2003 and $634 million in 2002. Capital spending for those years includes capitalized software and excludes additions under capital leases. Capital spending, including capitalized software, is expected to increase by approximately 10 percent in 2005.
Not Applicable.
|Executive Officers of the Registrant
Set forth below is information with respect to our executive officers.
|Held Since
Ivan G. Seidenberg
|Chairman and Chief Executive Officer
Lawrence T. Babbio, Jr.
|Vice Chairman and President
William P. Barr
|Executive Vice President and General Counsel
Thomas A. Bartlett
|Senior Vice President and Treasurer
David H. Benson
|Senior Vice President and Controller
John W. Diercksen
|Executive Vice President Strategy, Development and Planning
Marc C. Reed
|Executive Vice President Human Resources
Dennis F. Strigl
|Executive Vice President and President and CEO Verizon Wireless
Thomas J. Tauke
|Executive Vice President Public Affairs, Policy and Communications
Doreen A. Toben
|Executive Vice President and Chief Financial Officer
Prior to serving as an executive officer, each of the above officers have held high level managerial positions with the company or one of its subsidiaries for at least five years.
Officers are not elected for a fixed term of office but are removable at the discretion of the Board of Directors.
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The principal market for trading in the common stock of Verizon is the New York Stock Exchange. The common stock is also listed in the United States on the Boston, Chicago, Pacific and Philadelphia stock exchanges. As of December 31, 2004, there were 1,000,801 shareowners of record.
High and low stock prices, as reported on the New York Stock Exchange composite tape of transactions, and dividend data are as follows:
|Market Price
|Cash Dividend
|First Quarter
|Second Quarter
|Third Quarter
|Fourth Quarter
|First Quarter
|Second Quarter
|Third Quarter
|Fourth Quarter
The following table provides information about Verizons common stock repurchases during the fourth quarter of 2004.
|Total Number of
Shares Purchased
|Average Price
Paid per Share
|Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs (1)
Maximum Number of Shares
that May Yet Be Purchased
Under the Plans or Programs (2)
October 2004
November 2004
December 2004
On January 22, 2004, Verizons Board of Directors authorized a common stock repurchase program.
The program authorizes total repurchases of up to 80 million common shares and expires no later than the close of business on February 28, 2006. Under the plan, Verizon has the option to repurchase shares for the corporation over time, with the amount and timing of repurchases depending on market conditions and corporate needs.
Information required by this item is included in the 2004 Verizon Annual Report to Shareowners under the heading Selected Financial Data on page 13, which is incorporated herein by reference.
Item 7. Managements Discussion and Analysis of Results of Operations and Financial Condition
Information required by this item is included in the 2004 Verizon Annual Report to Shareowners under the heading Managements Discussion and Analysis of Results of Operations and Financial Condition on pages 13 through 35, which is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information required by this item is included in the 2004 Verizon Annual Report to Shareowners under the heading Market Risk on pages 30 through 31, which is incorporated herein by reference.
Information required by this item is included in the 2004 Verizon Annual Report to Shareowners on pages 36 through 71, which is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Our chief executive officer and chief financial officer have evaluated the effectiveness of the registrants disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934), as of the end of the period covered by this annual report, that ensure that information relating to the registrant which is required to be disclosed in this report is recorded, processed, summarized and reported, within required time periods. Based on this evaluation, which disclosed no significant deficiencies or material weaknesses, they have concluded that the registrants disclosure controls and procedures were adequate and effective to ensure that material information relating to the registrant and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this annual report was being prepared. There were no significant changes in the registrants internal control over financial reporting during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
Managements report on internal control over financial reporting and the attestation report of Verizons independent registered accounting firm is included in the 2004 Verizon Annual Report to Shareowners on pages 36 through 37 and is incorporated herein by reference.
Item 10. Directors and Executive Officers of the Registrant
For information with respect to our executive officers, see Executive Officers of the Registrant at the end of Part I of this Report. For other information required by this item see the Proxy Statement for our 2005 Annual Meeting of Shareholders filed pursuant to Regulation 14A, which is incorporated herein by reference.
For information with respect to executive compensation, see the Proxy Statement for our 2005 Annual Meeting of Shareholders filed pursuant to Regulation 14A, which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
For information with respect to the security ownership of the Directors and Executive Officers and related stockholder matters, see the Proxy Statement for our 2005 Annual Meeting of Shareholders filed pursuant to Regulation 14A, which is incorporated herein by reference. In addition, see the following table for other equity compensation plan information:
|Plan category
Number of securities to be
and rights
Weighted average exercise price of
outstanding options, warrants and
|Number of securities
remaining available for
future issuance under equity
compensation plans
Equity compensation plans approved by security holders
|$ 48.87
Equity compensation plans not approved by security holders
Indicates the number of securities available for issuance under the Verizon Communications 2000 Broad-Based Incentive Plan, which provides for awards of nonqualified stock options, restricted stock, restricted stock units and other equity-based hypothetical stock units to employees of Verizon and its subsidiaries.
For information with respect to certain relationships and related transactions, see the Proxy Statement for our 2005 Annual Meeting of Shareholders filed pursuant to Regulation 14A, which is incorporated herein by reference.
For information with respect to principal accounting fees and services, see the Proxy Statement for our 2005 Annual Meeting of Shareholders filed pursuant to Regulation 14A, which is incorporated herein by reference.
Documents filed as part of this report:
|Report of Management on Internal Control Over Financial Reporting
|Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
|Report of Independent Registered Public Accounting Firm on Financial Statements
|Financial Statements covered by Report of Independent Registered Public Accounting Firm:
|Consolidated Statements of Income
|Consolidated Balance Sheets
|Consolidated Statements of Cash Flows
|Consolidated Statements of Changes in Shareowners Investment
Notes to Consolidated Financial Statements
* Incorporated herein by reference to the appropriate portions of the registrants annual report to shareowners for the fiscal year ended December 31, 2004. (See Part II.)
|Financial Statement Schedule
|II Valuation and Qualifying Accounts
|Exhibit Number
Restated Certificate of Incorporation of Verizon Communications Inc. (Verizon) (Exhibit 3a to Form 10-K for the year ended December 31, 2000).
Bylaws of Verizon, as amended and restated (Exhibit 3b to Form 10-K for the year ended December 31, 2003).
No instrument which defines the rights of holders of long-term debt of Verizon and its consolidated subsidiaries is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, Verizon hereby agrees to furnish a copy of any such instrument to the SEC upon request.
Description of Verizon Deferred Compensation Plan for Non-Employee Directors (Exhibit 10a to Form 10-K for the year ended December 31, 2000).*
10a(i) Description of Amendment to Plan filed herewith.
Bell Atlantic Deferred Compensation Plan for Outside Directors, as amended and restated (Exhibit 10a to Form 10-K for the year ended December 31, 1998).*
Deferred Compensation Plan for Non-Employee Members of the Board of Directors of GTE, as amended (Exhibit 10-1 to GTEs Form 10-K for the year ended December 31, 1997 and Exhibit 10.1 to GTEs Form 10-K for the year ended December 31, 1998, File No. 1-2755).*
GTEs Directors Deferred Stock Unit Plan (Exhibit 10-8 to GTEs Form 10-K for the year ended December 31, 1997, File No. 1-2755).*
Description of Plan for Non-Employee Directors Travel Accident Insurance (Exhibit 10c to Form 10-K for the year ended December 31, 1999).*
Bell Atlantic Directors Charitable Giving Program, as amended (Exhibit 10p to Form SE dated March 29, 1990 and Exhibit 10p to Form SE dated March 29, 1993).*
GTEs Charitable Awards Program (Exhibit 10-10 to GTEs Form 10-K for the year ended December 31, 1992, File No. 1-2755).*
NYNEX Directors Charitable Award Program (Exhibit 10i to Form 10-K for the year ended December 31, 2000).*
Verizon Communications 2000 Broad-Based Incentive Plan (Exhibit 10h to Form 10-Q for the period ended September 30, 2000).*
Verizon Communications Inc. Long-Term Incentive Plan (Appendix B to Verizons 2001 Proxy Statement filed March 12, 2001).*
GTEs Long-Term Incentive Plan, as amended (Exhibit B to GTEs 1997 Proxy Statement and Exhibit 10.5 to GTEs 1998 Form 10-K for the year ended December 31, 1998, File No. 1-2755); Description of Amendments (Exhibit 10l to Form 10-K for the year ended December 31, 2000).*
NYNEX 1990 Stock Option Plan, as amended (Exhibit No. 2 to NYNEXs Proxy Statement dated March 20, 1995, File No. 1-8608); Description of Amendments (Exhibit 10m to Form 10-K for the year ended December 31, 2000).*
NYNEX 1995 Stock Option Plan, as amended (Exhibit No. 1 to NYNEXs Proxy Statement dated March 20, 1995, File No. 1-8608); Description of Amendments (Exhibit 10n to Form 10-K for the year ended December 31, 2000).*
Verizon Communications Inc. Short-Term Incentive Plan (Appendix C to Verizons 2001 Proxy Statement filed March 12, 2001).*
Verizon Communications Inc. Income Deferral Plan (Exhibit 10f to Form 10-Q for the period ended June 30, 2002).*
10o(i) Description of Amendment to Plan filed herewith.
Verizon Communications Inc. Excess Pension Plan filed herewith.
10p(i) Description of Amendment to Plan filed herewith.
GTEs Executive Salary Deferral Plan, as amended (Exhibit 10.10 to GTEs Form 10-K for the year ended December 31, 1998, File No. 1-2755).*
Bell Atlantic Senior Management Long-Term Disability and Survivor Protection Plan, as amended (Exhibit 10h to Form SE filed on March 27, 1986 and Exhibit 10b(ii) to Form 10-K for the year ended December 31, 1997).*
Description of Bell Atlantic Senior Management Estate Management Plan (Exhibit 10rr to Form 10-K for year ended December 31, 1997).*
GTEs Executive Retired Life Insurance Plan, as amended (Exhibits 10-6, 10-6 and 10-6 to GTEs Form 10-K for the years ended December 31, 1991, 1992 and 1993, respectively, File No. 1-2755).*
NYNEX Supplemental Life Insurance Plan (Exhibit No. 10 iii 21 to NYNEXs Form 10-Q for the period ended June 30, 1996, File No. 1-8608).*
Description of Verizon Executive Deferral Plan filed herewith.*
Description of salary increase for Ivan G. Seidenberg filed herewith.*
Employment Agreement between Verizon and Lawrence T. Babbio (Exhibit 10a to Form 10-Q for the period ended September 30, 2000).*
Employment Agreement between Verizon and Marc C. Reed (Exhibit 10a to Form 10-Q for the period ended June 30, 2004).*
Employment Agreement between Verizon and William P. Barr (Exhibit 10z to Form 10-Q for the period ended March 31, 2003).*
Employment Agreement between Verizon and David H. Benson (Exhibit 10b to Form 10-Q for the period ended June 30, 2002).*
Employment Agreement between Verizon and Doreen A. Toben (Exhibit 10d to Form 10-Q for the period ended June 30, 2002).*
Description of the Split-Dollar Insurance Arrangements (Exhibit 10g to Form 10-Q for the period ended June 30, 2002).*
10dd(i) Description of Changes to Arrangements filed herewith.
Employment Agreement between Verizon Wireless and Dennis F. Strigl (Exhibit 10f to Form 10-Q for the period ended September 30, 2000).*
Employment Agreement between Verizon and Thomas J. Tauke (Exhibit 10b to Form 10-Q for the period ended June 30, 2004).*
Form of Employment Agreement between Verizon and Band 1 Senior Management Employee filed herewith.*
NYNEX Deferred Compensation Plan for Non-Employee Directors (Exhibit 10gg to NYNEXs Registration Statement No. 2-87850, File No. 1-8608).*
10hh(i) Amendment to NYNEX Corporation Deferred Compensation Plan for Non-Employee Directors (Exhibit 10iii 5a to NYNEXs Quarterly Report on Form 10-Q for the period ended June 30, 1996, File No. 1-8608).
U.S. Wireless Agreement, dated September 21, 1999, among Bell Atlantic and Vodafone Airtouch plc, including the forms of Amended and Restated Partnership Agreement and the Investment Agreement (Exhibit 10 to Form 10-Q for the period ended September 30, 1999).
Computation of Ratio of Earnings to Fixed Charges filed herewith.
Portions of Verizons Annual Report to Shareowners for the fiscal year ended December 31, 2004. Only the information incorporated by reference into this Form 10-K is included in the exhibit.
List of principal subsidiaries of Verizon filed herewith.
Consent of Ernst & Young LLP filed herewith.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Indicates management contract or compensatory plan or arrangement.
Schedule II Valuation and Qualifying Accounts
Verizon Communications Inc. and Subsidiaries
For the Years Ended December 31, 2004, 2003 and 2002
|(dollars in millions)
|Balance at
Beginning of
|Charged To
|Charged to
Other Accounts
Note (a)
Note (b)
|Balance at End
of Period
Allowance for Uncollectible
Accounts Receivable:
Year 2004
|$ 980
Year 2003
Year 2002
Valuation Allowance for Deferred Tax Assets:
Year 2004
Year 2003
Year 2002
Discontinued Businesses:
Year 2004
|$ 15
Year 2003
Year 2002
Merger-Related Costs:
Year 2004
Year 2003
Year 2002
Allowance for Uncollectible Accounts Receivable includes (1) amounts previously written off which were credited directly to this account when recovered, and (2) accruals charged to accounts payable for anticipated uncollectible charges on purchases of accounts receivable from others which were billed by us. Also includes amounts transferred from other accounts.
Amounts written off as uncollectible or transferred to other accounts or utilized.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Verizon Communications Inc.
Date: March 14, 2005
/s/ David H. Benson
David H. Benson
Senior Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ Ivan G. Seidenberg
Chairman and
Chief Executive Officer
|March 14, 2005
Ivan G. Seidenberg
Principal Financial Officer:
/s/ Doreen A. Toben
Executive Vice President and
Chief Financial Officer
|March 14, 2005
Doreen A. Toben
Principal Accounting Officer:
/s/ David H. Benson
|Senior Vice President and
|March 14, 2005
David H. Benson
Signatures Continued
/s/ Ivan G. Seidenberg
|March 14, 2005
Ivan G. Seidenberg
/s/ James R. Barker
|March 14, 2005
James R. Barker
/s/ Richard L. Carrión
|March 14, 2005
Richard L. Carrión
/s/ Robert W. Lane
|March 14, 2005
Robert W. Lane
/s/ Sandra O. Moose
|March 14, 2005
Sandra O. Moose
/s/ Joseph Neubauer
|March 14, 2005
Joseph Neubauer
/s/ Thomas H. OBrien
|March 14, 2005
Thomas H. OBrien
/s/ Hugh B. Price
|March 14, 2005
Hugh B. Price
/s/ Walter V. Shipley
|March 14, 2005
Walter V. Shipley
/s/ John R. Stafford
|March 14, 2005
John R. Stafford
/s/ Robert D. Storey
|March 14, 2005
Robert D. Storey