Local
Services
Local service revenues are earned by our telephone operations
from the provision of local exchange, local private
line, wire maintenance, voice messaging and value-added
services. Value-added services are a family of services
that expand the utilization of the network, including
products such as Caller ID, Call Waiting and Return
Call. The provision of local exchange services not only
includes retail revenues but also includes local wholesale
revenues from UNEs, interconnection revenues from CLECs
and wireless carriers, and some data transport revenues.
The decline in local service revenues of $932 million,
or 4.8% in 2004 and $817 million, or 4.0% in 2003 was
mainly due to lower demand and usage of our basic local
exchange and accompanying services, as reflected by
a decline in switched access lines in service of 4.6%
in 2004 and a decline of 4.2% in 2003. These revenue
declines were mainly driven by the effects of competition,
regulatory pricing rules for UNEs and technology substitution.
Regulatory pricing rules for UNEs, which mandate lower
prices from other carriers that use our facilities to
provide local exchange services, are putting downward
pressure on our revenues by shifting the mix of access
lines from retail to wholesale. We added approximately
0.9 million UNE platform lines in 2004 and 1.8 million
in 2003, bringing total UNE platform provisioned lines
to 6.0 million at December 31, 2004 and 5.0 million
at December 31, 2003. See “Other Factors That
May Affect Future Results – FCC Regulation and
Interstate Rates” for additional information on
FCC rulemakings concerning UNE rates. Technology substitution
also affected local service revenue growth in both years,
as indicated by declining demand for residential access
lines resulted in 5.3% fewer lines at December 31, 2004
compared to year-end 2003 and a reduction in lines of
3.7% during 2003, as more customers substituted wireless
services for traditional landline services. At the same
time, basic business access lines have declined by 3.1%
in 2004 and 5.0% in 2003, primarily reflecting competition
and a shift to high-speed, high-volume special access
lines.
We continue to seek opportunities to retain and win-back
customers. Our Freedom service plans offer local services
with various combinations of long distance, wireless
and Internet access services in a discounted bundle
available on one bill. Since January 2003, we have introduced
our Freedom service plans in nearly all of our key markets.
As of year-end 2004, approximately 56% of Verizon’s
residential customers have purchased local services
in combination with either Verizon long distance or
Verizon DSL, or both. For small businesses, we have
also introduced Verizon Freedom for Business in eleven
key markets, covering approximately 84% of business
access lines.
Network Access Services
Network access services revenues are earned from end-user
customers and long distance and other competing carriers
who use our local exchange facilities to provide usage
services to their customers. Switched access revenues
are derived from fixed and usage-based charges paid
by carriers for access to our local network. Special
access revenues originate from carriers and end-users
that buy dedicated local exchange capacity to support
their private networks. End-user access revenues are
earned from our customers and from resellers who purchase
dial-tone services. Further, network access revenues
include our DSL services.
Our network access revenues declined by $484 million,
or 3.8% in 2004 and $708 million, or 5.3% in 2003 principally
due to decreasing switched MOUs and access lines, as
well as mandatory price reductions associated with federal
and state price cap filings and other regulatory decisions.
Switched MOUs declined in 2004 by 5.7% compared to 2003
and 7.2% in 2003 compared to 2002, reflecting the impact
of access line loss and wireless substitution.
Total revenues for high-capacity and data services
were $7,796 million in 2004, an increase of 7.4% compared
to 2003 revenues of $7,262 million, which decreased
0.5% compared to 2002. Special access revenue growth
reflects continuing demand in the business market for
high-capacity, high speed digital services, partially
offset by lessening demand for older, low-speed data
products and services and price reductions in 2003.
Voice-grade equivalents (switched access lines and data
circuits) at December 31, 2004 increased to 144.7 million,
or 3.1% higher than year-end 2003 of 140.3 million,
which was a 3.4% increase from December 31, 2002 as
more customers chose high-speed, digital services. In
2004, we added 1.24 million net new DSL lines, for a
total of 3.6 million lines in service at December 31,
2004, an increase of 53.5% compared to December 31,
2003 lines in service of 2.3 million, which was an increase
of 38.9% compared to December 31, 2002.
The FCC regulates the rates that we charge long distance
carriers and end-user customers for interstate access
services. See “Other Factors That May Affect Future
Results – FCC Regulation and Interstate Rates”
for additional information on FCC rulemakings concerning
federal access rates, universal service and unbundling
of network elements and broadband services.
Long Distance Services
Long distance service revenues include both intraLATA
toll services and interLATA long distance voice services.
Long distance service revenues increased $394 million,
or 10.4% in 2004 and $618 million, or 19.5% in 2003,
principally as a result of customer growth from our
interLATA long distance services. In 2004, we added
2.3 million long distance lines, for a total of 17.7
million long distance lines nationwide, representing
a 15.3% increase from December 31, 2003. The introduction
of our Freedom service plans continues to stimulate
growth in long distance services.
In 2003, we received final FCC approval to offer long
distance services in our remaining three jurisdictions
and began offering long distance services throughout
the United States, capping a seven-year effort. As of
December 31, 2004, approximately 47% of our local wireline
residential customers have chosen Verizon as their long
distance carrier.
Other Services
Our other services include such services as billing
and collections for long distance carriers, public (coin)
telephone and customer premises equipment and supply
sales. Other services revenues also include services
provided by our non-regulated subsidiaries such as data
solutions and systems integration businesses.
Revenues from other services declined by $29 million,
or 0.8% in 2004, and by $330 million, or 8.3% in 2003.
Revenue increases resulting from higher sales of voice
and data customer premises equipment services were more
than offset by the dissolution of non-strategic businesses
and declines in business volumes related to billing
and collection services and public telephone services.
For continuation of Segment
Results of Operations, see next page. |
