威訊通訊 (VZ) 2008 Q4 法說會逐字稿

Good morning and welcome to the Verizon fourth-quarter 2008 earnings conference call.

(Operator Instructions).

Today's conference is being recorded.

If you have any objections, you may disconnect at this time.

It is now my pleasure to turn the call over to your host, Mr.

Ron Lataille, Senior Vice President Investor Relations of Verizon.

Thank you.

Good morning, everyone, and welcome to our fourth-quarter 2008 earnings conference call.

Thanks for joining us this morning, and I'm Ron Lataille.

With me this morning are Ivan Seidenberg, our Chairman and Chief Executive Officer; Denny Strigl, our President and Chief Operating Officer, and Doreen Toben, our Chief Financial Officer.

Before we get started, let me remind you that our earnings release, financial statements, the investor quarterly publication and the presentation slides are on the Investor Relations website.

This call is being webcast.

If you would like to listen to a replay, you can do so from our website.

I would also like to draw your attention to our Safe Harbor statement.

Information in this presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties.

Discussion of factors that may affect future results is contained in Verizon's filings with the SEC, which, of course, are available on our website.

This presentation also contains certain non-GAAP financial measures.

Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also on our website.

I would like to very quickly cover the differences between reported and adjusted earnings for the fourth quarter.

Reported earnings per diluted share were $0.43.

Adjusted earnings per share before the effects of special items were $0.61.

We are excluding the following special items from adjusted results.

The first is an after-tax charge of $424 million or $0.15 per share for severance and other related expenses.

Included in this charge are pension settlement losses for employees receiving lump sum distributions resulting from our previous separation plans, as well as charges associated with additional employee severance in 2009.

We're also excluding an after-tax charge of $35 million or $0.01 per share for merger integration costs, as well as a charge of $31 million after-tax or $0.01 per share related to an "other-than-temporary" decline in the fair value of our investments in certain marketable securities.

And with that, I will now turn the call over to Ivan for some opening remarks.

Ivan?

Thank you, Ron, and good morning, everyone.

Before Doreen presents a full financial review of the quarter's results, Denny and I would like to provide a few opening comments.

To state the obvious, 2008 was a difficult economic environment, and there was more than the usual uncertainty as we try to plan for 2009.

It is pleasing to report, however, that throughout 2008 we stayed focused on our strategic business model and made progress in delivering value to both customers and shareholders.

We were able to grow earnings more than 7%, increase the dividend by 7% and grow free cash flow before dividends by about 14%.

We feel confident that we took the right steps during the year to maximize growth and potential returns of the business going forward.

For example, we improved our spectrum position with the purchase of nationwide 700 megahertz licenses.

We acquired the Rural Cellular and Alltel properties, and we spun off some wireline properties in Northern New England.

We passed more than 3 million additional homes with fiber, opened 3.3 million homes for sale of our FiOS TV service and expanded FiOS availability in big city markets like New York.

We also reached long-term agreements with our labor unions, the CWA and IBEW and very aggressively put that issue behind us and as we expanded our worldwide reach, product and service portfolio and customer support capabilities for our large enterprise customers served by Verizon Business.

Our strategic investments are driving innovation and allow us to have better products and services and, therefore, be a very formidable competitor in every market we serve.

As a result, we were able to effectively gain share and at the same time grow revenues by 5% and increase ARPUs, the key metrics for our success.

Denny and Doreen will review many of the operating numbers with you, but I think the results reflect solid execution by each business unit and in the context of 2009 indicate that we clearly have the potential to continue to perform well both absolutely and relatively in this very challenging market.

So with that, I would like to ask Denny now to provide us with some additional comments on our operational performance.

Thank you.

Good morning, everyone.

I share Ivan's confidence.

Our business will continue to compete effectively, and we think it will do so in any environment.

Within each of our businesses, that means we must continue to innovate and be leaders in the marketplace.

And I think we can demonstrate that leadership in each of our strategic areas in 2008.

I would like to give you some examples.

So in wireless, we launched a total of 36 new devices in 2008, more than one-third of which were PDAs or smart phones, and we already have about two dozen new devices scheduled to launch in the first half of 2009.

We were the first to introduce nationwide unlimited plan aimed at the high-end of the market and the first to introduce megabyte pricing for data usage.

Our Open Development initiative is another platform for innovation, and we made solid progress partnering with developers this past year with 29 approved open development devices.

We were again recognized by industry organizations and publications in 2008 for providing the highest level of satisfaction and setting the standard in customer service for the wireless industry.

And just last week our focus on providing customers with the most reliable network service paid off at the presidential inugaration when our service held up under the strain of significantly higher than normal usage while others struggled.

FiOS was also a market leader in 2008.

In terms of speed, we expanded our industry-leading consumer broadband connection speeds of up to 50 megabits downstream and 20 megabits upstream to our entire FiOS footprint.

We expanded our high-definition offer to include over 100 HD channels.

We continued to add features, enhancements and upgrades that no other provider has matched in our home media DVR, our interactive media guide, our content search and our interactive widgets.

And FiOS has been recognized by various publications and surveys as being a superior best-in-class service.

And in Verizon Business, we continued to expand our capabilities as a leading provider of advanced communications and IT solutions to governments and businesses throughout the world.

Nearly 70% of our customers have or are in the process of transitioning to private IP services.

As in our other businesses, industry experts and partners gave us recognition for our capabilities throughout the year.

Although the environment continues to be challenging from both a competitive and economic perspective, our strategic focus has not changed.

We will continue to focus on growing revenue, taking share and at the same time, improving profitability.

So from our perspective, the fourth quarter demonstrates that our business continues to perform well both operationally and financially.

If you look at the fourth quarter in absolute terms or relative to our historic growth, it was a good quarter.

We delivered year-over-year revenue growth in all strategic areas, over 12% in wireless, nearly 37% in broadband and video, and over 8% in the key strategic services offered by Verizon Business.

In addition, ARPU grew 1.4% in wireless and over 14% in consumer.

Customer growth was also good this quarter -- 1.4 million wireless net adds, record net adds for FiOS with over 300,000 new TV subscribers and 282,000 new FiOS Internet customers.

We also saw some sequential improvement in retail residence primary line losses and DSL.

We were also focused on productivity, of course, and improving productivity throughout 2008.

Wireless once again showed improvements in our already industry-leading cash cost per subscriber metrics, and we remain the industry leader in margins.

In FiOS we reduced install times by 15%.

In addition, the telco group reduced force by over 10,000 last year and, by the way, over 22,000 in the last three years.

So, as we said in the third quarter, Verizon Business also saw some increasing competitive pricing pressures and some upfront costs related to new contract wins that affected our margins.

This quarter some volume declines tied to a weakening economy increased the pressures on margins.

So in summary, we made progress, but we can do more, and we will stay operationally flexible and look for ways to simplify the business and manage the cost structure for a long-term margin improvement.

Doreen, I will now turn it over to you for a review of the details of the quarter.

Thanks, Denny.

Turning to slide five, consolidated revenues grew nearly $1.1 billion or 4.6% in the fourth quarter, finishing the year at $97.1 billion representing topline growth of 5.1% in 2008.

Our margins also expanded in the fourth quarter and full year.

Operating income grew 6.6% in the fourth quarter and 9.2% for the year with full-year margin expansion of 70 basis points.

EBITDA grew 5.4% in the fourth quarter and 6.2% for the full year with the 2008 EBITDA margin increasing to 33.5%.

Finally, we ended the year with earnings from continuing operations of $2.54 per share, up 7.6%.

Turning next to cash flows and the balance sheet, we ended the year with $26.6 billion in cash flows from continuing operations.

As we expected, total capital spending declined $300 million year-over-year to $17.2 billion.

Our ratio of CapEx to revenue improved 120 basis points to finish the year at 17.8%.

In 2008 we also returned value to shareowners, paying $5 billion in dividends and repurchasing approximately $1.4 billion of our stock.

Our balance sheet metrics remained strong with net debt of $42.2 billion, including more than $9 billion in cash held in anticipation of the Alltel closing and net debt to EBITDA of about 1.3 times at the end of 2008.

With regard to the financing for the Alltel transaction, we used the combination of Verizon Wireless and Alltel cash, proceeds from pre-fundings and a $12.35 billion bank bridge loan to fund the acquisition.

Looking ahead, we anticipate that the bridge loan will be paid off with Verizon Wireless free cash flow, proceeds from the required asset divestitures and term-out financing, which we estimate will be somewhere between $6 billion and $7 billion.

Now let's look at our segments, beginning with wireless.

Wireless had a strong quarter of high-quality retail customer growth, capping a year in which we added 5.8 million organic net new retail customers.

Excluding divestitures, total net adds for the fourth quarter were 1.4 million.

All of these were retail, and 93% were postpaid.

We divested a net 122,000 customers, primarily in Rural Cellular markets, as part of a previously announced exchange agreement with another carrier.

We ended the year with a total customer base of 72.1 million, 67 million of which were retail postpaid.

We have just over 3 million prepaid customers and only 2 million customers from resellers.

Retail gross adds in the fourth quarter were essentially flat both sequentially and year-over-year.

On an annual basis, retail gross adds were up 3.5%.

Churn was up 2 basis points sequentially, and on a year-over-year basis, total churn was up 15 basis points to 1.35%, and retail postpaid churn was up 11 basis points to 1.05%.

We also maintained strong wireless revenue performance, delivering double-digit revenue growth for the quarter and for the year.

Total revenue grew 12.3% in the fourth quarter and 12.4% for the full year, and service revenue grew by 12% on both a quarterly and annual basis.

Total service ARPU increased 1.4% in the quarter and 1.2% for the full year, making this 11 consecutive quarters of year-over-year growth in ARPU.

As we have seen all year, about 70% of service revenue growth is driven by wireless data.

Wireless data represented 26.8% of total service revenue in the fourth quarter.

Data revenue is now in excess of $10 billion annually, up 44% in 2008.

Total data ARPU in the fourth quarter grew by $3.02 or nearly 28% year-over-year.

The main drivers of this growth continue to be broadband access and usage, e-mail and messaging.

Revenue from non-messaging data services represents more than half of the total wireless data revenue.

Non-messaging data revenues grew 52% in the fourth quarter and 53% for the year.

The fact is we are still in the early stages of non-messaging services with relatively modest adoption rates so far.

So we continue to see plenty of upside potential as we further penetrate the customer base and as the proliferation of new devices stimulate demand for more and more wireless data usage.

Smart phone sales continue to accelerate, representing more than 37% of the retail devices sold in the fourth quarter, up from 30% last quarter.

Obviously we expect that the ARPU, particularly the data component, will be significantly higher from these devices.

With our enhanced spectrum position, 4G plans with LTE, and our open development initiative, we are well-positioned to compete for future wireless data growth.

As it is today, our focus will be on driving revenue growth, increasing ARPU and generating cash flow.

We also enhanced our growth opportunities through the acquisition of Alltel.

This acquisition has many compelling long-term strategic benefits.

It expands our network to cover nearly the entire United States population, improves our revenue mix by increasing the wireless portion to about 55% of total Verizon, and makes us the largest US carrier in terms of total customers, which will be in excess of 80 million following the required divestitures.

In addition, the Alltel merger also provides us with significant synergy opportunities.

To refresh your memory, we identified saving opportunities with a net present value in excess of $9 billion.

Our estimates for cost synergies, both capital and expense, as well as the estimates for integration costs to achieve those synergies, are unchanged from our announcement last June.

Having just closed the transaction, we are still reviewing the Alltel financials to determine our opening balance sheet.

Higher-than-expected financing and interest costs will impact earnings accretion in the short-term; however, this is clearly a value-creating transaction.

So to summarize, Verizon Wireless continues to demonstrate success in achieving both strong growth and profitability.

Chart 10 displays an impressive list of metrics for 2008.

Our continued focus on increasing retail market share, retaining customers and improving operational efficiency has resulted in sustained double-digit revenue growth, increasing ARPU, industry-leading margins and substantial cash flow.

The EBITDA margin on service revenue was 47.2% in the fourth quarter and 45.5% for the full year.

We had some favorable impacts in the fourth quarter, which resulted in higher profitability than normal.

Absent these items, the fourth quarter and full-year margin would have been in the 45% plus range.

Going forward you should continue to expect us to maintain EBITDA margins within the previously stated range of 43% to 45%.

Wireless capital spending for the year was $6.5 billion, and the CapEx to revenue ratio was 13.2% at year-end, an annual improvement of 160 basis points.

Let's next move to wireline, starting with the consumer market.

Our FiOS results this quarter demonstrate the power of our triple-play offer and show the resilience of our value proposition even in a slowing economy.

We had our best FiOS quarter ever with record net adds for both TV and Internet.

And while we remain pleased with our progress in New York City, I will once again say that it was only one factor in a strong result across the board.

During the fourth quarter, we added 303,000 new FiOS TV customers, ending the year with just over 1.9 million subscribers and a penetration rate of 21%.

So during 2008, we more than doubled our TV subscriber base, adding 975,000 customers and increased our penetration by roughly 500 basis points.

At the same time, we also significantly expanded the availability of the FiOS triple-play, ending 2008 with 9.2 million homes open for sale for FiOS TV and a 57% increase in market availability in just one year.

More than 2.2 million of these homes opened for sale during the third and fourth quarters, and earlier this month we passed the 1 million mark for premises open for sale in the multi-dwelling units or MDU category.

So we're clearly building momentum and gaining critical mass.

And, as we've previously said, there is a strong correlation between homes open for sale and customer growth in subsequent quarters.

On the broadband side, we added 214,000 net new subscribers in the fourth quarter, a 66% sequential improvement.

We added a record number of new FiOS Internet customers with 282,000, and we saw some sequential improvement in DSL.

We ended 2008 with 2.5 million FiOS Internet subscribers, adding 956,000 customers during the year for an increase of 63%.

We also saw our penetration rate increase by about 400 basis points to 25%.

From a FiOS deployment perspective, we passed 12.7 million homes as of the end of 2008, so we are a bit ahead of our planned rollout schedule of 3 million homes per year.

Fiber to the home now passes about 40% of the total households in our land line footprint, and 93% of the 10 million FiOS data homes open for sale can purchase a triple-play, up from 80% a year ago.

We will continue to expand FiOS triple-play availability as we further expand existing markets and enter new urban markets later this year.

On the traditional access line side of the business, we saw some sequential improvement in retail, residential primary lines, which were down 460,000.

Total switched access lines declined by 911,000.

We continue to see an increasing correlation between our triple-play availability and line retention.

In the past we've referenced an average improvement in line retention of about 250 basis points when we look at video markets open for sale for more than six months compared with markets with no fiber to the home.

By the end of the year, we were tracking average improvements of about 400 basis points.

As FiOS continues to scale and we expand triple-play coverage, we are optimistic that this correlation will strengthen, and we see a more meaningful improvement in overall line loss trends.

FiOS remains at the center of our consumer strategy as our broadband and video services continue to drive consumer revenue growth.

Legacy consumer revenues grew by 2.9% in the fourth quarter and were up 1.7% for the full year.

Broadband and video revenue totaled $1.2 billion in the fourth quarter, up 42% and totaled more than $4.2 billion for the full year.

We are also seeing consistently strong growth in consumer retail ARPU, which increased 14.3% from fourth quarter a year ago.

About 80% of this increase is attributable to new services we have introduced within the past few years.

Our overall FiOS ARPU continues to grow and now stands over $133 per month, and the FiOS triple-play ARPU is even higher.

Now let's take a look at Verizon Business.

Total revenues in the fourth quarter declined $124 million or 2.3% year-over-year.

We're starting to see some revenue softness that we believe is cyclical and economy-related due to an a combination of delayed decision-making on the part of the CIOs and lower volumes tied to rising unemployment.

With the strengthening of the dollar, the negative FX impacts this quarter were also significant.

As we said all along, there continues to be a shift within enterprise customer spending towards strategic services like private IP, managed services and security.

Our strategic services now comprise 30% of the total Verizon Business revenues.

Revenues from these services continue to grow, up 8.4% in the quarter.

Looking ahead, you can expect us to continue to be disciplined and balance new sales and profitability, and we are focused on increasing the range of our professional consulting services and improving our competitive position in this area.

In summarizing wireline, I would emphasize that we have made good progress in improving our revenue mix and competitive positioning.

Broadband and video services now comprise more than 31% of legacy consumer revenue.

FiOS is on plan both financially and operationally and will continue to provide us great opportunity to drive customer growth and revenue growth.

We are also very focused on continuing to improve capital and operational efficiency.

In Verizon Business the continued shift to services like private IP resulted in strategic services revenue growth in excess of 16% in 2008.

So we are well-positioned to compete in all the strategic growth areas of the Company.

As you can see, wireline EBITDA margin in the fourth quarter fell below the 27% we experienced in the first three quarters.

There were several reasons for this.

First, pressure on Verizon Business as significant increases in non-farm unemployment late in the fourth quarter resulted in volume declines in higher margin services, as well as lower volumes from small-business customers.

In addition, there were some timing issues related to force reductions and organizational realignments, as well as increases in bad debt, marketing and some information system contracts.

So to wrap up, from a financial perspective, in 2008 we were able to continue growing revenues in the mid single digits, deliver bottom-line earnings growth, generating solid cash flow growth and return value to shareowners through dividends and share repurchases, and we were able to arrange the necessary financing to fund the $28 billion acquisition of Alltel.

All things considered, solid performance.

Our balance sheet is healthy, and we are in a strong financial position.

Our investments are clearly paying off, driving volumes and revenues in our key strategic areas, and the capital efficiency of the business continues to improve.

In terms of net pension and other post-retirement benefits expense, we're estimating an incremental negative impact on earnings per share of between $0.09 and $0.11 in 2009.

And from a funding perspective, we estimate a $300 million funding requirement in 2009 for our qualified pension trust, which is slightly less than last year.

For 2009 we're targeting capital spending, excluding amounts related to the Alltel acquisition to be less than the 2008 total of $17.2 billion.

We have indicated that, as a cautionary measure, we intend to start out the year at a lower annual run-rate and ramp up as we move through the year as appropriate, and we expect that our ratio of CapEx to revenue will continue to improve.

And finally, we have confidence in our ability to generate cash, invest for growth, and return value to shareowners.

And with that, I will turn it back to you, Ron.

Thank you, Doreen.

Stacey, Ivan, Denny and Doreen are now available today questions.

(Operator Instructions).

Tom Seitz, Barclays.

Thanks for taking the question.

Can you describe the economic forecast that underpins your view that you're going to be able to grow earnings this year?

I think you previously said that.

Are you assuming current trends will hold throughout the year, or does growing earnings require some improvement in the economy?

And then secondly, we're just through the election.

Can you give us some early insight into whether or not you think the more radical net neutrality proposals might start popping up?

Thanks.

Ivan here.

I don't think we have any magic economic forecast that we have looked at.

But here is a theory of the case.

When we look at '09, our view is we stay focused on our strategic innovation, our capital investments and the execution on the part of any of this team.

We obviously layer in things like the Alltel transaction, and our view is that, as I said earlier, we have the potential to continue to perform well absolutely and relatively.

So I don't think we have any specific forecast.

I think Doreen will reaffirm this, but the idea is that visibility into 2009 is less clear than it has been in other years.

But the thesis here for us is clear, focus on outperforming our competitors in the market and doing well relatively.

On the election I think the new administration has been very responsible.

They have been reaching out.

There's lots of dialogue.

I think they recognize that the most important issues they have right now are to focus on the balance of the stimulus package between tax benefits versus grant approaches to things, you know stimulus pending versus tax.

There's lots of meetings going on.

The business round table is focused on this issue.

We have been working with the administration.

Net neutrality, I have not heard anybody ask me about it in the last couple of weeks, but I'm sure it is out there someplace.

But even some of the players within net neutrality have already modified their position on it, so I do not view that as an issue that will dominate the headlines for a while.

John Hodulik, UBS.

If we could talk about margins real quick, just both on the wireless and the wireline side.

On the wireless side, very strong.

Obviously above longer-term corporate guidance.

Can you just talk about some of the drivers there?

And then as we sort of look out into how the competitive environment keeps evolving, is that sort of what we can expect going forward?

And then on the wireline side, obviously very different than your longer-term guidance.

Is this the sort of level or in this range is what we can expect while the economy remains weak?

It sounded like a lot of the drivers that you talked about in the prepared remarks were really driven by the economy, and obviously it could be some time before things improved.

Plus, this sector is generally thought of as something of a lagging indicator.

Is this sort of the right level, say, for going forward in 2009?

I will start with the wireless margin.

I think as I said, every time I meet with investors, there can always be a quarter that will bump up over the 43 to 45.

Clearly if you want to miss, you want to miss on the upside.

So this quarter there were some onetime, having to do with vendor credits, some other systems pieces.

So I would look at this as more of a onetime, and we will go back to the 43% to 45%.

So nothing earth shattering that happened, just a lot of moving pieces this particular quarter.

Can you maybe quantify some of that, or were there just a lot of little nits and nats that you do not want to break out?

Well, mostly nits and nats.

I'm not going to give you the vendor credit number because that is not something that we disclose, but it was more significant than it typically is in the Q.

And the rest I think were nits and nats that added up to a number that bumped over the 45.

Okay, got you.

On the wireline margin, I would make several comments on this.

First of all, FiOS is on plan and healthy, EBITDA positive for the full year in '08, and as we look at FiOS, the strategic transformation has gone very well for us.

And, of course, there is always a lag in the margin when you go through a transformation like we have on FiOS.

FiOS productivity is improving.

On the line loss side, as you have heard, there is no change there.

We continue to reduce force in areas that are not growing, and we are in the process of consolidating our wireline telecom and business network organizations.

We expect that that will generate some efficiency and productivity improvements in the network planning area, engineering, the maintenance functions, and we have a number of ongoing initiatives in the areas of customer self-service, process automation, flowthrough, backoffice productivity and so forth.

Longer-term our guidance on wireline margins really has not changed.

Thank you.

The additional comment I would add is I did give the guidance of pension and OPEB between $0.09 and $0.11.

You should think of that as almost exclusively wireline, which will hit obviously in '09.

So that will certainly be an impact for next year.

Mike McCormack, JPMorgan.

On the wireless side, can you just give us a little more data on -- you talked about non-messaging data revenue being an opportunity, but maybe comment just on the impact of the economy, headcount reductions, the use of BlackBerrys and also very the AirCard business.

Secondly, on the enterprise side, can you just give us some sense for the impact of FX on the international side because it certainly looked like it rolled over pretty hard on growth rates?

Thanks.

I will start on the FX, and Denny, you wanted to go.

Actually the impact was the largest impact that we have seen ever to the tune of, say, $110 million to $120 million sequentially.

We have a very sizable international portfolio, so it was, in fact, a very big number sequentially.

So, Mike, on the wireless question, I guess the underlying question there is, is there a slowdown in wireless, or what has changed in wireless?

And I think you need to look at a number of factors.

Service revenue grew 12%.

ARPU increased 1.4%.

Data revenues for us continued to grow about 41%, as Doreen had said.

And non-messaging revenue, that is non-messaging revenue increased 52%.

So we are selling more smart phones that Doreen mentioned in her comments, about 37% of the retail devices that have been sold.

We are increasing our focus on the business segment where we have relatively lower share.

So our growth drivers are clearly performing for us.

So we are the first to report, but I don't think that we lost share this quarter.

Our porting ratio actually improved.

We have no evidence of slowing or customers trading down either on plans or features.

Our churn did pick up a bit compared to the prior year, and I think you saw about 11 basis points increase on postpaid churn, and I can give you specifically where we see most of that.

About 5 basis points from access cards, and that probably reflects the employment issue, the layoffs in many businesses.

About 4 basis points on third and fourth line disconnects, and we see no porting evidence that they are going to other providers.

So I think that is economy-related, and I would just conclude by I think we're well-positioned to compete, and we will continue to have strong financial performance in our wireless companies.

As you look in at '09 with the Boost and Leap and Metro entering your markets, is there anything you guys are going to do differently?

Mike, no.

We're going to do nothing differently, and this always comes up two, three times a year.

So if you look at Sprint, Boost, Leap and Metro, I think as you know, that is not our primary focus.

Our primary focus is on the retail postpaid market.

So that is not something that we're going after strongly.

I don't see having any impact or at least a negligible impact to date.

So I don't think there is any need for us to respond.

Do you feel the same way on the wireline business just from a replacement standpoint?

Yes, we do.

Yes, we do.

David Barden, Bank of America.

Just a couple if I could.

Number one, if you could just share how the Qwest relationship impacted net adds reporting in the quarter.

Obviously we're expecting you guys to kind of see an acceleration in that, bringing adds over to your base over the course of the year.

And then just second, maybe, Doreen, on enterprise, obviously incremental to the currencies.

Could you talk a little bit about the financial sector and some of the consolidation we are seeing there and kind of what impact you think that might have incremental to the stand-alone currency impacts we saw year-to-date?

So, David, let me start with your Qwest question, and frankly, I do not have much to tell you there.

Qwest started selling Verizon Wireless service to new customers in the fourth quarter.

These are -- they are Verizon customers.

It is not, I think as you know, a reseller agreement.

Notification of Qwest's Sprint customers will occur starting this quarter.

So no specifics to give you, but we expect Qwest to be overall a very good distribution partner.

David, I think we saw an impact in both the financial and the retail sectors and particularly in LD minutes.

After you started to see the November and December unemployment and the job losses is where we really saw it kick in.

Verizon Business is probably the hardest visibility for next year.

You saw the job announcements yesterday.

So trying to determine what impact that is going to have on the different sectors has been difficult.

But one thing, it has been financial and retail that we have seen the biggest changes in to date.

And if I could follow up real quick, Doreen, just on CapEx you guys have been talking about slowing it up a little bit at the beginning of the year, trying to come in lower than last year.

Is this more of a containing wireline to rightsize the business?

Is this maybe holding off on LTE deployments to see how the year unfolds?

Where are the savings going to be emerging in this business?

I would say it is not a containment.

It is really to start out slow, see what we need to do.

So we don't get ahead of ourselves in putting in capacity that we don't need.

Simon Flannery, Morgan Stanley.

I wonder if you could expand a bit on the open development initiative?

You talked about 29 devices approved.

Now are we going to see those coming online in the next month or two, or is that somewhat longer-term?

Also, on LTE if you could just update us on the timeline of what we might see in the next -- in sort of the remainder of '09 and into 2010?

Thanks.

We're planning on the LTE piece to do our market trials later this year.

So they are scheduled for '09.

We are working with our manufacturers, very good cooperation in that regard.

Commercial availability in 2010.

Our goal is within the first half of 2010.

On the ODI, those devices will come online as we roll out our LTE initiative.

So in conjunction with that.

But the 29 devices, some of them are actually ready to go on our existing 3G network.

So I think it is positioned very well.

Obviously machine to machine is the focus of our ODI, and I think we have got a good start in that regard.

And a delay on the cutover of digital TV should not cause a problem there?

No, it should not.

We're trying to work through that issue.

But certainly later in the year had been our plan on the trials, and we're trying to work through whether even with the DTV delay whether we could use some of that spectrum to work out the trial.

The bill, as we understand it, allows certain programmers to cut over sooner if they are ready, and it gives us a chance to use that spectrum where it is available for testing and to move forward.

So I think the way the bill is currently constructed, the potential for further delay beyond the June 12 date is probably very low.

Mike Rollins, Citi Investment Research.

Just to follow up on the wireless side, as growth in the industry slows and potentially more of the growth comes from data and upselling customers, why would not margins improve above the guidance that you have had of 43%, 45% over time just as that marketing could be scaled across the slower adds but better revenue from existing users?

This is sort of the age-old question, and it is the same answer.

We continue to balance growth and margins, and so we want to make sure as the growth is available to us, we do not slow down the growth enough to impact the margins.

But so it is really a growth in margin, and we just think that continues to be the right balance.

Jason Armstrong, Goldman Sachs.

A couple of questions.

Maybe just first, sorry, one more on the wireless margin outlook maybe from a different angle.

You know, 43% to 45% range that we have talked about.

The Alltel deal synergy targets get you somewhere in the range of 150 to 200 basis points of margin enhancement.

So I guess the question is, what keeps us at the 43% to 45% in the context of the Alltel enhancement?

Because what it implies, if you stay there, is that you intend to reinvest those synergies back into the business.

And then the second question on enterprise, you have obviously flagged the pricing pressure.

There is the FX headwinds.

Denny, you mentioned volume slowing down.

Can you give us the outlook for this business?

I think a lot of us we sort of look at a framework of the last cycle where enterprise was down in double digits.

Can you just help us think through that?

I guess if I start on the Alltel, I don't know that I agree that it should kick us up above 45%.

There clearly is reinvestment that we're doing.

If you think about the handsets that need to be replaced for Alltel to enable us to get more data revenue growth, that is probably a short-term piece.

So I just feel -- I still think 43% to 45% is all right and will not bump us up above that on an ongoing basis.

So on the enterprise side, let me cover just a number of things that hopefully will help here.

We did see, of course, specifically weakness in financial services and in the retail sectors.

I think we are seeing a correlation between the significant force reductions.

Certainly Doreen had mentioned this, and the force reductions are causing lower volumes.

LD usage dropped from quarter from quarter and was at the lowest level in at least two years.

So we expect the layoffs and consolidations will probably continue to have an impact in 2009.

Certainly as Doreen indicated, the announcements that you heard yesterday will have an impact.

For our part though, we're still focused on driving growth where we can, and we're enhancing our long-term growth opportunities.

Long-term enterprise customers we think will seek more bandwidth capabilities, add new applications, buy our managed services, and we're well positioned to deliver in all of those areas.

And, of course, we continue to manage the cost side of the business.

Now I might mention here, too, that we continued to look for ways to partner.

You will soon see a formal press release that Verizon and Accenture have reached agreement on a strategic partnership that leverages our complementary assets and capabilities.

We will do joint marketing, sales initiatives, which will be launched first in the United States, and then we will expand globally as opportunities arise.

And again, you can expect to see a formal press release in that regard shortly.

On the enterprise side, as we think about how we could bottom out this cycle versus how we bottomed out last cycle, people think sort of puts and takes, the positive is that you have got a heck of a lot more pricing discipline this cycle relative to last lifecycle.

The negative is this cycle is a heck of a lot more broad-based across enterprise.

So as people look at the framework of down in high singles, low double digits, is it better or worse this time?

This is Ivan.

I think we all have an opinion.

Let me just make a couple of points.

First of all, we have a much better industry structure than we had the last time.

So we are more consolidated.

We are more focused.

We have better products.

I think we have much better products to sell into the market once the market starts to pick up.

So my guess is there are some positives there, and you are correct it is broader so you have some issues on that side.

But this is where I think Denny has talked about productivity and cost and doing partnerships.

So net net to me the industry is healthier this time around.

So I think we should bottom out differently, and we should see the upside in a much better way.

Tim Horan, Oppenheimer.

Just back on the enterprise front again, can you talk about maybe what percentage of revenues are more usage-based correlated there?

And then secondly, maybe where you think some of the pricing pressure is coming from because clearly the industry structure is a lot better than we saw last time?

The biggest usage base is LD.

I don't have at the tip of my tongue what percentage of it is really LD, to be honest.

Sure.

We can get that.

So Ron has it here.

So he thinks it is about 20%, 25% is -- so that would be the usage piece.

And I am sorry and the second part of your question?

Where do you think the pricing, price competition is coming from?

Is it driven by customers?

Because it does not seem like you have a lot of -- an awful lot of competitors right now.

It is driven by contract renewals.

So every time we see a customer, you know, a three-year, four-year contract expiring, there is very heavy price competition, and essentially that is where you see it.

It is price takedowns on renewals.

I think then one last one going on the FiOS side, as you do all your puts and takes, it looks like the mass markets revenue should turn positive here in '09.

I am not looking for kind of guidance on it, but do you think access lines have peaked, or how are you feeling about those trends in terms of overall mass markets, if not maybe this year when you think that turns positive?

The consumer revenue is positive this quarter, right?

So if you take out -- when we have mass market, we have, if you will, the old MCI long distance, which is national.

So you have already seen consumer be positive this quarter.

So obviously FiOS, it just gets better from here.

Chris King, Stifel Nicolaus.

Two quick questions for you.

First of all, I was just wondering if you had any broad commentary on the broadband stimulus proposals that have been flying around Washington over the course of the last couple of weeks?

What you were looking for, what you would not like to see in any of those plans?

Secondly, I just was wondering you guys are evidently selling a femtocell now over the course of the last couple of days, really is just a kind of a signal enhancer it appears at this point.

Any kind of longer-term plans for that product offering?

Thanks.

So I will take the stimulus issue.

Look, I think we are part of the process.

We appreciate it.

To give you sort of a benchmark, what we like are things like depreciation and tax policy.

What we probably don't like are grants that have a lot of government conditions on them.

So given those two benchmarks, so far the dialogue has been pretty good, and we will continue to comment on that.

But I think as you look at our Company, we have made a lot of investments in broadband, and what we don't want to see is additional government regulation on any new broadband that would have any sort of backward looking impact on the Company.

Now femtocell, as you know, is the secret weapon of the century.

So you will I'm sure after one day of sales, we can tell you that it is the next millennium secret weapon.

You know -- (multiple speakers)

I do think it has opened some good opportunity for us, and for those of you that have not followed this closely, it is a signal enhancing device for both homes and businesses where we have weak signal.

We just see a good opportunity here, particularly as more and more customers begin to use broadband applications in the home and in the business and want to be portable with those devices.

But nothing specific to tell you at this point.

Philip Cusick, Macquarie.

Working capital management was really good this quarter.

In particular, inventories were down 16% sequentially, which is not what typically happens.

Can you talk about was that an effort by you guys, and do you expect that to come down further going forward, or how are you thinking about it?

Yes, I think one of the biggest changes that we had in the quarter were set-top boxes, and it was a concerted effort on our part to manage that process better.

And so that was really the biggest change to tell you the truth, and we are very focused on set-top box management going forward.

Also to some extent handsets.

We had some handsets in the third quarter that we needed to work on and move those through, which we did.

So those are the two biggest changes that we will continue to work on all through '09.

Okay.

Do you expect that inventory to come down further going forward?

The absolute inventory number in the balance sheet I'm not sure.

Do I expect the inventory and the set-top boxes to come down, yes.

Stacey, I would like to now turn the call over to Ivan for some concluding remarks.

Okay.

Ron, thank you, and thank you all.

We are exhausted from all these questions here.

So we appreciate all your interest and your interest in probing in the business.

Just a couple of comments.

We think we had a very solid quarter.

We had an excellent year, and we think that we have built solid momentum as we head into 2009.

Hopefully you think of us in 2009 as having built a solid foundation on execution, great financial discipline, innovation.

So we see no reason why the momentum we have developed in terms of our progress in the marketplace should not continue in some way.

Like all of you, we do not have perfect visibility into the economy.

So the level of success we will have will be tempered somewhat by what the economy gives us.

But at this point, our view is that we will continue to perform well absolutely and perform well relatively, and we are looking to continue to be a formidable player in the markets we serve.

As the year unfolds, we will obviously have more insights to offer you as we start to build the track record in 2009.

Thank you.

Okay.

Thank you, Ivan.

Stacey, that concludes our call today, and once again, I would like to thank everybody for joining us and see you next quarter.

This concludes today's conference.

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