Verizon Reports Strong Wireless, FiOS Customer Growth; Increased Enterprise Revenues; Strong Cash Flow in 2Q

Results Include Costs for Voluntary Workforce Reductions, as Prior Cost- Reduction Initiatives Gain Momentum and Strategic Divestitures Are Completed

2Q HIGHLIGHTS

Consolidated

· $9.8 billion in cash flow from operations during 2Q 2010, up 29.8 percent from 2Q 2009; $5.5 billion in free cash flow (non-GAAP), up 76.7 percent.

· A loss of 7 cents per share, including 65 cents of earnings per share in adjustments, compared with 2Q 2009 EPS of 52 cents.

Wireless

· 1.4 million total net customer additions, excluding divestitures and adjustments, in 2Q 2010; 665,000 retail postpaid net customer additions in the quarter; continued low retail postpaid churn of 0.94 percent.

· 86.2 million retail customers; 92.1 million total customers, after divestitures and conforming adjustments related to the Alltel acquisition.

· 3.4 percent increase in total revenues from 2Q 2009; 5.2 percent increase in service revenues; data revenues up 23.8 percent; 30.3 percent operating income margin and 47.5 percent Segment EBITDA margin on service revenues (non-GAAP).

Wireline

· 196,000 net FiOS Internet and 174,000 net FiOS TV customer additions; 3.8 million total FiOS Internet customers and 3.2 million total FiOS TV customers.

· 11.4 percent increase in consumer ARPU from 2Q 2009; total broadband and video revenues of $1.8 billion, up 20.1 percent from 2Q 2009.

· 6.2 percent increase in strategic business services revenues; total global enterprise revenues up 0.6 percent from 2Q 2009.

NEW YORK — For second-quarter 2010, Verizon Communications Inc. (NYSE, NASDAQ: VZ) reported continued strong cash flow growth, coupled with improved margins for both its Wireless and Wireline business segments, and improved revenue trends for sales to global business customers.

The company reported a loss of 7 cents in basic earnings per share (EPS) in the quarter, which included $2.3 billion in pre-tax costs for workforce reductions associated with a second-quarter incentive offer that will lead to approximately 11,000 voluntary separations this year.  This compares with earnings of 52 cents per share in the second quarter of 2009.

‘Solid Improvement in Operational Results’

“Verizon showed solid improvement in operational results in the quarter,” said Chairman and CEO Ivan Seidenberg.  “In addition, the wireline spinoff to Frontier on July 1 improves our future growth profile.  We see the opportunity to create additional shareholder value with a revenue portfolio that is now more heavily focused on wireless, FiOS and global IP.”

Seidenberg added, “We have the network platforms in place, and the product and service innovations in the pipeline, to fuel the next generation of growth in our changing industry.  Our cost-reduction efforts are gaining momentum, and trends in the global business market are showing signs of stabilization.”

Consolidated Results Include Divestitures

Verizon’s consolidated second-quarter 2010 results include wireline local exchange businesses covering 4 million access lines that were spun off and merged with Frontier Communications on July 1.  Results also include certain wireless properties until they were divested in April and June to comply with conditions imposed in connection with regulatory approvals of last year’s acquisition of Alltel.  These wireless properties, covering more than 2 million customers, were held in a trust through the date of divestiture.

Items that negatively impacted Verizon’s second-quarter 2010 net income were 52 cents per share associated with the voluntary incentive program for union-represented employees, about two-thirds of whom left the payroll in late June or early July; 6 cents per share for both Alltel merger integration costs and taxes associated with the divestiture of the Alltel trust properties; 4 cents per share in Frontier spinoff-related charges; and 3 cents per share for a one-time, non-cash revenue adjustment of $268 million, which was recorded to properly defer previously recognized wireless data revenues that will be earned and recognized in future periods.

Verizon’s total operating revenues were $26.8 billion in second-quarter 2010, a decrease of 0.3 percent compared with second-quarter 2009.

Cash flow from operations totaled $16.9 billion in the first half of 2010, compared with $14.1 billion in the first half of 2009.  Cash flow from operations totaled $9.8 billion in second-quarter 2010 alone, up 29.8 percent compared with second-quarter 2009.

Capital expenditures totaled $4.2 billion in the second quarter of 2010, down 3.6 percent from second-quarter 2009.  Full-year 2010 guidance for capital expenditures remains in the range of $16.8 billion to $17.2 billion.  In second-quarter 2010, free cash flow (non-GAAP; cash flow from operations less capital expenditures) totaled $5.5 billion, a 76.7 percent year-over-year increase.

Verizon’s net debt (non-GAAP; total debt less end-of-period cash and cash equivalents) was $52.7 billion at the end of second-quarter 2010.  The net debt to Adjusted EBITDA ratio (non-GAAP; net debt divided by earnings before interest, taxes, depreciation and amortization adjusted for non-recurring or one-time items) was approximately 1.5 at the end of the quarter, and Verizon expects it to be lower by year-end 2010.

Wireless Momentum Continues: Top-Line Revenue Growth, Strong Profitability, Low Retail Postpaid Churn

Verizon Wireless continued to deliver strong margins and data revenue growth, and solid customer additions.  In the second quarter of 2010:

· Verizon Wireless added 665,000 retail postpaid and 454,000 total retail customers in the quarter, excluding divestitures and adjustments, both increases over the first quarter of 2010.

· At the end of the second quarter, the company had 86.2 million retail customers, which represented nearly 94 percent of the company’s wireless customers, the largest number of retail customers of any U.S. wireless provider.

· The company also added 896,000 reseller customers in the second quarter.

· The total number of customers at the end of the quarter was 92.1 million, after adding 1.4 million total net customers in the quarter and removing a net 2.1 million customers in connection with divestitures and conforming adjustments related to the Alltel acquisition.

· In addition, the company had 7.7 million “other connections” at the end of the quarter — such as machine-to-machine, eReaders and telematics — adding 264,000 net other connections in the quarter.  This brings the number of total wireless connections to 99.7 million at the end of the second quarter.

· Retail postpaid churn, retail churn and total customer churn remained low, at 0.94 percent, 1.33 percent and 1.27 percent, respectively.  All are the company’s best levels in nearly two years.

· Retail service revenues in the quarter totaled $13.5 billion, up 4.2 percent year over year.  Retail data revenue was up 23.4 percent to $4.7 billion.  Service revenues in the second quarter were $14.0 billion, up 5.2 percent.  Total revenues were $16.0 billion, up 3.4 percent year over year.

· Retail service ARPU (average monthly service revenue per user) grew 0.9 percent over the second quarter of 2009 to $51.56.  Retail data ARPU increased to $17.85, up 19.4 percent year over year.

· Wireless operating income margin was 30.3 percent, an increase of 150 basis points, or 1.5 percentage points, year over year.  Segment EBITDA margin on service revenues (non-GAAP) was 47.5 percent, up 120 basis points over second-quarter 2009.

Wireline Growth in Consumer and Enterprise Markets: Revenues Increase for FiOS and Strategic Business Services

Verizon continued to add customers for broadband and video services provided over its FiOS fiber-optic network, and revenues increased for advanced communications and related business services provided over Verizon’s global IP (Internet protocol) network.  In the second quarter of 2010:

· Verizon added 196,000 net new FiOS Internet customers and 174,000 net new FiOS TV customers.  Verizon has posted consecutive quarterly gains in the number of customers using FiOS services since FiOS Internet was introduced in 2004, and by the end of the second quarter had 3.8 million FiOS Internet and 3.2 million FiOS TV customers.

· FiOS Internet penetration (customers as a percentage of potential customers) was 29.7 percent by the end of the quarter, with the product available for sale to 12.9 million premises.  This compares with 28.1 percent and 11.0 million, respectively, at the end of second-quarter 2009.

· FiOS TV penetration was 25.9 percent by the end of the quarter, with the product available for sale to 12.4 million premises.  This compares with 24.6 percent and 10.3 million, respectively, at the end of second-quarter 2009.

· Total wireline broadband and video revenues were $1.8 billion in the quarter, up 20.1 percent from second-quarter 2009.  This includes FiOS broadband revenues, which grew 33.2 percent year over year.  All FiOS-based services, including narrowband voice, generated 43 percent of consumer wireline revenues in second-quarter 2010, compared with 33 percent in second-quarter 2009.

· Consumer ARPU for wireline services was $80.76 in the quarter, up 11.4 percent compared with second-quarter 2009.  ARPU for FiOS customers was more than $145.

· Global enterprise revenue totaled $4.0 billion in the quarter, an increase of 0.6 percent compared with second-quarter 2009 and an improvement from the 1.4 percent year-over-year decline in the first quarter of 2010.  Sales of strategic enterprise services — such as security and IT solutions, as well as strategic networking — generated $1.6 billion, up 6.2 percent compared with second-quarter 2009.

· Segment EBITDA margin (non-GAAP) was 22.7 percent, compared with 21.7 percent in the first quarter of 2010 and 24.5 percent in the second quarter of 2009.

Additional Highlights

Wireless

· Verizon Wireless continued to lead the industry in cost efficiency.  Monthly cash expense per customer (non-GAAP) decreased in the second quarter 2010 to $26.48, from $27.42 in the comparable period in 2009.

· In the second quarter, data revenues increased to 34.5 percent of all service revenues, up from 29.3 percent in the second quarter 2009.

· Verizon Wireless continued to invest in its broadband network, the nation’s largest and most reliable 3G (third generation) network.  Verizon’s 3G network provides more coverage than any other U.S. carrier’s and is available where 289 million people reside.

· Verizon Wireless plans to launch the nation’s first 4G LTE (Long Term Evolution) network in 25 to 30 markets by the end of this year and cover virtually all of its current nationwide 3G footprint by the end of 2013.  In addition, as part of its 4G LTE network deployment plans, Verizon Wireless announced efforts during the quarter to work with rural companies to collaboratively build and operate a 4G network in those areas, using Verizon Wireless’ 700MHz spectrum.

· In June, Verizon Wireless unveiled the much-anticipated DROID X by Motorola, the newest Android smartphone, which became available in stores and online last week.  The Droid X features a large, high-resolution screen, 3G Mobile HotSpot capabilities, personal HD video capture and sharing, and is ready for Adobe Flash Player 10.1 when the software is released by Adobe.  During the second quarter, the company also expanded its smartphone lineup with the LG Ally, an Android device; the LG Fathom, powered by Windows Mobile; and the BlackBerry Bold 9650 global smartphone.  The company also introduced the Samsung Reality, which has a full suite of messaging options, and the Pantech Jest.

· During the second quarter, Verizon Wireless customers sent or received more than 180 billion text messages.  Customers also sent nearly 4.2 billion picture/video messages and completed more than 25 million music and video downloads.

· Verizon Wireless ranked highest among wireless providers in small to mid-sized business customer satisfaction in the J.D. Power and Associates 2010 U.S. Business Wireless Satisfaction Study released in June.

Wireline

· Second-quarter 2010 operating revenues were $11.1 billion, a decline of 3.3 percent compared with second-quarter 2009.  Second-quarter 2010 operating expenses were $10.9 billion, a decline of 0.3 percent compared with second-quarter 2009.

· Broadband connections totaled 9.3 million at the end of the second quarter 2010, a 2.5 percent year-over-year increase.  This is a net increase of 28,000 from the first quarter 2010, as the increase in FiOS Internet connections more than offset a decrease in DSL-based High Speed Internet connections.

· As of the end of second-quarter 2010, the FiOS network passed 15.9 million premises.

· The wireline workforce totaled 110,600 at the end of the second quarter 2010.  This is a decline of 3,800 compared with the end of the first quarter 2010.  In the first half of 2010, Verizon reduced its wireline workforce by 6,100.  More than 9,200 employees were subsequently transferred to Frontier as part of the July 1 spinoff.

· Verizon continued during the quarter to roll out global solutions that enable multinational enterprise, medium business and government customers to take advantage of cloud-based service delivery of key IT resources and applications.  These included new cloud-based computing, data storage, security and unified communications offers, as well as expanded network coverage, enterprise mobility and professional service solutions.  In addition, Verizon announced industry-specific solutions, including extension of its dedicated financial services network to Europe and data consulting services for healthcare providers.

· Continuing to broaden its global scope and capabilities, Verizon expanded its network infrastructure, adding a second data center in Hong Kong which will enhance the company’s cloud and data center services in the Asia-Pacific region and provide direct access to its global network.  The company also installed 18 additional Private IP edge routers for a total of 781 edge routers in 221 sites throughout 60 countries and added four new converged packet architecture switches in Tel Aviv, Israel; Rotterdam, Netherlands; Winnipeg, Canada; and San Jose, Costa Rica. This brings the total number of CPA switches to 146 in 129 sites across 35 countries.

· In addition to winning new business with a number of multinational corporate customers, Verizon entered into new agreements with several government agencies, including the U.S. Department of Health and Human Services.