News Release

Verizon Wireless and FiOS Growth Fuels Continued Strong Cash Flow at Verizon in 3Q

Gains Reported in Customers and Revenues for Wireless, Fiber-Optic Services

October 25, 2009

Peter Thonis
peter.thonis@verizon.com
212-395-2355

Bob Varettoni
robert.a.varettoni@verizon.com
908-559-6388

NEW YORK, NY — 3Q 2009 HIGHLIGHTS

Consolidated Earnings

  • 41 cents in EPS and 60 cents in adjusted EPS (non-GAAP), compared with 3Q 2008 EPS of 59 cents and 66 cents, respectively.
  • $23.1 billion in cash flow from operations through the first nine months of 2009, up $3.2 billion, or 16.0 percent.

Wireless

  • 89.0 million total customers, up 25.7 percent; 86.3 million retail customers, up 25.4 percent; 1.2 million net customer additions, excluding acquisitions and adjustments.
  • 24.4 percent increase in total revenues compared with 3Q 2008; continued low retail postpaid churn, 1.13 percent; data revenues up 48.1 percent; 28.3 percent operating income margin and 46.1 percent EBITDA margin on service revenues (non-GAAP).

Wireline

  • 198,000 net new FiOS Internet customers and 191,000 net new FiOS TV customers, with increased sales penetration for both services; 3.3 million total FiOS Internet customers and 2.7 million total FiOS TV customers.
  • 12.6 percent increase in consumer ARPU.

Verizon Communications Inc. (NYSE:VZ) generated strong and improved cash flow in the third quarter 2009, with continued revenue and customer growth in wireless and broadband markets.

Verizon today reported diluted earnings per share (EPS) of 41 cents in the third quarter, compared with 59 cents per share in the third quarter 2008. On an adjusted basis (non-GAAP), Verizon posted EPS of 60 cents in the third quarter 2009, compared with 66 cents in the third quarter 2008.

Verizon’s total operating revenues grew 10.2 percent to $27.3 billion, compared with the third quarter 2008. This includes revenues from Alltel Corporation, which Verizon acquired in January 2009. On a pro forma basis (consolidating the operating results of Verizon and the former Alltel as though the acquisition had occurred on Jan. 1, 2008), operating revenue growth was 0.6 percent.

Cash flow from operations totaled $23.1 billion for the first nine months of 2009, up 16.0 percent, or $3.2 billion, over the same period last year. Free cash flow (cash flow from operations minus capital expenditures) totaled $10.7 billion, up $3.3 billion over the same period last year. Verizon paid shareowners $3.9 billion in dividends during the first three quarters of 2009, and its Board of Directors approved a 3.3 percent quarterly dividend increase last month.

Long-Term Shareowner Value
“Verizon continues to generate strong cash flow, which we have used in building the foundation for sustainable, long-term shareowner value,” said Verizon Chairman and CEO Ivan Seidenberg. “Even through the worst of the recession, we have continued to raise our dividend and to add new customers, expand markets and grow revenues based on the power and innovation of Verizon’s wireless, broadband and global networks.”

He added, “The Verizon network is now an engine for next-generation communications services that will create new short- and long-term opportunities for us. As the U.S. economic and employment picture improves, and as we accelerate reductions in our own cost structure, we are well-positioned to quickly and significantly improve our growth profile.”

Seidenberg also noted that a simplified organizational structure announced earlier this month will enable Verizon to achieve improved levels of productivity. The realignment has combined two former Wireline business groups, Verizon Telecom and Verizon Business, into one organization.

Wireless Delivers Industry-Leading Profitability, Strong Customer Growth
Verizon Wireless continued to lead the industry with the highest profit margins. In the third quarter 2009:

  • Wireless retail (non-wholesale) gross customer additions were up 15.0 percent over the prior year. On a pro forma basis, retail gross customer additions decreased by 8.3 percent.
  • Verizon Wireless had 89.0 million customers at the end of the quarter, an increase of 25.7 percent year over year, and 6.3 percent on a pro forma basis. Verizon Wireless is the largest wireless company in the U.S. in terms of total customers and revenues.
  • The company also has the most retail customers of any U.S. wireless provider and continued to grow its high-quality base, adding 1.0 million net retail customers in the quarter, excluding acquisitions and adjustments, for a total of 86.3 million retail customers.
  • Total churn and retail postpaid churn were 1.49 percent and 1.13 percent, respectively.
  • Revenues totaled $15.8 billion, up 24.4 percent year over year and up 4.9 percent on a pro forma basis. Service revenues were $13.5 billion, up 23.7 percent year over year and up 6.1 percent on a pro forma basis as demand continued to grow for data services. Data revenue grew to $4.1 billion, up 48.1 percent and up 28.9 percent on a pro forma basis.
  • Total service ARPU (average monthly service revenue per user) decreased 2.2 percent year over year and 0.8 percent on a pro forma basis to $51.04. Total data ARPU increased to $15.59, up 17.2 percent year over year and 20.7 percent on a pro forma basis.
  • Wireless operating income margin, adjusted for merger integration and acquisition costs, was 28.3 percent, up 1.0 percentage point year over year and up 1.4 percentage points pro forma. Adjusted on the same basis, EBITDA (earnings before interest, taxes, depreciation and amortization) margin on service revenues (non-GAAP) was 46.1 percent, an increase of 1.9 percentage points year over year and 1.3 percentage points on a pro forma basis.

Continued Growth in Consumer Broadband and Video
In addition to strong Wireless results, Verizon posted another quarter of gains in the number of customers using fiber-optic-based FiOS Internet and FiOS TV services. In consumer markets served by Verizon’s wireline network, increased revenues from broadband and video services helped produce overall revenue growth, as well as ARPU growth. In the third quarter:

  • Verizon added 198,000 net new FiOS Internet customers. The company served 3.3 million FiOS Internet customers by the end of the quarter, a 49.2 percent year-over-year increase.
  • FiOS Internet penetration (customers as a percentage of potential customers) increased to 28.5 percent by the end of the third quarter, with the product available for sale to 11.5 million premises. This compares with a 24.2 percent penetration at the end of the third quarter 2008.
  • Verizon also added 191,000 net new FiOS TV customers. The company served 2.7 million FiOS TV customers by the end of the quarter, a 67.7 percent year-over-year increase.
  • FiOS TV penetration increased to 24.9 percent by the end of the third quarter, with the product available for sale to 10.9 million premises. This compares with a 19.7 percent penetration at the end of the third quarter 2008.
  • Consumer broadband and video revenues in wireline mass markets (which include consumer and small-business customers) represented growth of 30.7 percent compared with the third quarter 2008. This increase contributed to 1.2 percent revenue growth in consumer markets served by Verizon’s wireline network.
  • Revenue growth from broadband and video services boosted consumer ARPU to $75.04 in the third quarter 2009, a 12.6 percent year-over-year increase. FiOS ARPU is more than $137, driven primarily by “triple-play” bundles of voice, Internet and TV services.
  • Worldwide sales of strategic business services -- such as IP (Internet protocol), managed services, Ethernet and security solutions -- generated $1.6 billion in revenue in the quarter, up 1.0 percent from the third quarter 2008.

Details of Earnings Adjustments
Adjusted earnings in the third quarter 2009 excluded 19 cents per share in special items: 13 cents for severance, pension and benefit charges in connection with pension settlements related to previously announced force reductions; 4 cents for merger integration and acquisition costs primarily in connection with the Alltel transaction; and 2 cents for costs related to the pending spinoff of non-strategic Wireline access lines. Third-quarter 2008 adjusted earnings excluded 7 cents per share in special items: 6 cents for severance, pension and benefit charges; and 1 cent for merger integration costs in connection with Verizon’s acquisition of MCI in 2006.

Additional Highlights

Wireless

  • At the end of the third quarter 2009, retail customers (postpaid and prepaid) represented nearly 97 percent of the company’s customer base.
  • Verizon Wireless continued to lead the industry in cost efficiency. Monthly cash expense per customer (non-GAAP) decreased in the third quarter 2009 to $27.52, from $28.42 in the comparable period in 2008 on a pro forma basis.
  • In the third quarter, data revenues grew to 30.5 percent of all service revenues, up from 25.1 percent in the third quarter 2008 on a pro forma basis.
  • Verizon Wireless continued to extend the reach of its broadband network, the nation’s largest and most reliable 3G (third-generation) network. Verizon’s 3G network provides more coverage than any U.S. carrier and is available to approximately 284 million people.
  • Verizon Wireless marked a significant milestone in its LTE network deployment plans in August with the successful completion of the first LTE 4G (Long Term Evolution, fourth generation) test data calls over its 700 MHz spectrum in Boston and Seattle. The company also released updated specifications for wireless devices that will run on the LTE network. Verizon Wireless plans to offer commercial LTE-based service in the U.S. in 2010 in up to 30 markets.
  • Verizon Wireless and Google have announced a strategic partnership that will leverage the Verizon Wireless network and the best of the Android open platform to deliver leading-edge mobile applications, services and devices. As a result of this agreement, consumers will have access to an array of products that combine the speed of the nation’s largest and most reliable 3G network with the flexibility of the Android mobile platform. Verizon Wireless expects to launch two Android-based devices before the end of the year.
  • The company continued to roll out new devices, including the HTC Touch Pro2, a 3G global smartphone; the Samsung Rogue, with a full-touch display, QWERTY keyboard and one-touch access to popular social networking widgets; and the Nokia 7705 Twist, featuring a unique, swivel-open square shape.
  • During the third quarter, Verizon Wireless customers sent or received more than 153 billion text messages. Customers also sent more than 2.8 billion picture/video messages and completed nearly 38 million music and video downloads.

Wireline

  • Third-quarter operating revenues in the Wireline segment were $11.6 billion, a decline of 4.8 percent compared with the third quarter 2008. This is an improvement of 0.4 percentage points compared with the year-over-year revenue declines reported in the second quarter 2009.
  • Broadband connections totaled 9.2 million at the end of the third quarter, an 8.5 percent year-over-year increase. This is a net increase of 63,000 from the second quarter 2009, as the increase in FiOS Internet connections more than offset a decrease in DSL-based High Speed Internet connections.
  • Over the past year, Verizon has added 1.1 million FiOS TV customers and expanded the availability of FiOS triple-play bundles. Of the approximately 32 million total households in areas covered by Verizon’s wireline network, FiOS triple-play bundles were available to 10.9 million premises at the end of the third quarter 2009, compared with 8.2 million premises at the end of the third quarter 2008.
  • As of the end of the quarter, the FiOS network passed 14.5 million premises, or approximately more than 45 percent of total households in areas covered by Verizon’s wireline network. This is on track to the end-of-year target of 15 million.
  • For global and other large-business customers, Verizon unveiled a suite of managed solutions to help enterprises manage mobile devices, usage plans and applications across multiple carriers globally, along with new IT consulting services to support enterprise-wide mobility programs. The company also rolled out a next-generation managed security services platform for enterprises and a program to prevent hacker attacks on business applications.
  • Continuing to widen and deepen its global scope and capabilities, Verizon extended availability of its on-demand, “cloud-based” Computing as a Service (CaaS) solution to the company’s Amsterdam data center. It also rolled out both its Managed Services portfolio and Remote IP Application Management service in India.
  • New agreements with multinational customers included ING, Manulife, NYSE Euronext and Sandvik. Verizon also signed new contracts with several U.S. government agencies, including the U.S. Citizenship and Immigration Service.

NOTE: Comparisons are year over year unless otherwise noted. See the accompanying schedules and www.verizon.com/investor for reconciliations to generally accepted accounting principles (GAAP) for non-GAAP financial measures cited in this news release. Reclassifications of prior-period amounts have been made in accordance with the adoption of the accounting standard on noncontrolling interests in consolidated financial statements and, where appropriate, to reflect comparable operating results for the spinoff of the Wireline segment's non-strategic local exchange and related business assets in Maine, New Hampshire and Vermont in the first quarter of 2008. Unless stated otherwise, segment results shown are adjusted for special items.

Verizon Communications Inc. (NYSE:VZ), headquartered in New York, is a global leader in delivering broadband and other wireless and wireline communications services to mass market, business, government and wholesale customers. Verizon Wireless operates America’s most reliable wireless network, serving more than 89 million customers nationwide. Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and delivers innovative, seamless business solutions to customers around the world. A Dow 30 company, Verizon employs a diverse workforce of more than 230,000 and last year generated consolidated revenues of more than $97 billion. For more information, visit www.verizon.com.  

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NOTE: This document contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. 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 could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: the effects of adverse conditions in the U.S. and international economies; the effects of competition in our markets; materially adverse changes in 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; the effect of material changes in available technology; any disruption of our suppliers’ provisioning of critical products or services; significant increases in benefit plan costs or lower investment returns on plan assets; the impact of natural or man-made disasters or existing or future litigation and any resulting financial impact not covered by insurance; technology substitution; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations or adverse conditions in the credit markets impacting the cost, including interest rates, and/or availability of financing; any changes in the regulatory environments in which we operate, including any loss of or inability to renew wireless licenses, and the final results of federal and state regulatory proceedings and judicial review of those results; the timing, scope and financial impact of our deployment of fiber-to-the-premises broadband technology; 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 ability to complete acquisitions and dispositions; our ability to successfully integrate Alltel Corporation into Verizon Wireless’ business and achieve anticipated benefits of the acquisition; and the inability to implement our business strategies.

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