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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8606
Verizon Communications Inc.
(Exact name of registrant as specified in its charter)
Delaware 23-2259884
(State of incorporation) (I.R.S. Employer
Identification No.)
1095 Avenue of the Americas 10036
New York, New York (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:(212) 395-2121
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $.10 par value ........... New York, Philadelphia, Boston,
Chicago and Pacific Stock Exchanges
Securities registered pursuant to Section 12(g) of the Act:
None
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 X No
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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 registrant's 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.
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At January 31, 2002, the aggregate market value of the registrant's voting stock
held by nonaffiliates was approximately $125,388,000,000.
At January 31, 2002, 2,717,198,915 shares of the registrant's Common Stock were
outstanding, after deducting 34,451,569 shares held in treasury.
Documents incorporated by reference:
Portions of the registrant's Annual Report to Shareowners for the year ended
December 31, 2001 (Parts I and II).
Portions of the registrant's Proxy Statement prepared in connection with the
2002 Annual Meeting of Shareowners (Part III).
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TABLE OF CONTENTS
Item No. Page
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PART I
1. Business.................................................................................... 1
2. Properties.................................................................................. 15
3. Legal Proceedings........................................................................... 16
4. Submission of Matters to a Vote of Security Holders......................................... 16
Executive Officers of the Registrant.................................................................. 16
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters................... 17
6. Selected Financial Data..................................................................... 17
7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 17
7A. Quantitative and Qualitative Disclosures About Market Risk.................................. 17
8. Financial Statements and Supplementary Data................................................. 17
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 17
PART III
10. Directors and Executive Officers of the Registrant.......................................... 17
11. Executive Compensation...................................................................... 17
12. Security Ownership of Certain Beneficial Owners and Management.............................. 18
13. Certain Relationships and Related Transactions.............................................. 18
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 18
Unless otherwise indicated, all information is as of March 13, 2002
PART I
Item 1. Business
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General
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Verizon Communications Inc. is one of the world's leading providers of
communications services. We are a Fortune 10 company with more than $67 billion
in annual revenues reported in 2001 and approximately 247,000 employees. Our
subsidiaries are the largest providers of wireline and wireless communications
in the United States, with 132.1 million access line equivalents and 29.4
million wireless customers. Our global presence extends to more than 40
countries in the Americas, Europe, Asia and the Pacific.
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 in a transaction accounted for as a pooling-of-interests
business combination. Bell Atlantic completed a merger with NYNEX Corporation on
August 14, 1997.
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 32 states and the District of
Columbia. 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, research and development and inventory management
services.
Domestic Wireless Domestic wireless products and services include wireless
voice and data services, paging services and equipment
sales.
International International wireline and wireless communications
operations, investments and management contracts in the
Americas, Europe, Asia and the Pacific.
Information Domestic and international publishing businesses, including
Services print and electronic directories and Internet-based shopping
guides, as well as website creation and other electronic
commerce services. This segment has operations principally
in North America, Europe and Latin America.
You can find segment financial information under the heading "Segment Results of
Operations" on pages 11 through 17 and in Note 21 on pages 58 through 60 of the
2001 Verizon Annual Report to Shareowners, which is incorporated herein by
reference.
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Domestic Telecom
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OPERATIONS
Our Domestic Telecom segment, principally representing our wireline telephone
operations, provided approximately 64% of 2001 total operating revenues. Our
telephone operations presently serve a territory consisting of 132.1 million
access line equivalents in 32 states and the District of Columbia. 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 customer's 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 five 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,
911 service and intelligent vehicle highway systems) and other communications
services such as distance learning, telemedicine, videoconferencing and
interactive multimedia applications. The Enterprise unit also includes our Data
Solutions Group which provides data
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transmission and network integration services (integrating multiple
geographically disparate networks into one system) and our Strategic Markets
unit which operates as a provider of network monitoring services and
telecommunications equipment sales to medium and large businesses. Revenues in
2001 were approximately $7.4 billion, representing approximately 17% of Domestic
Telecom's 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. Some of our long distance subsidiaries
operate as a reseller of national and international long distance services and
provide service in all 50 states to residential and business customers,
including long distance services, calling cards, 800/888 services and operator
services to its customers. Under the Telecommunications Act of 1996 (1996 Act),
our ability to offer in-region long distance services in the states where the
former Bell Atlantic telephone subsidiaries operate as local exchange carriers
is largely dependent on satisfying prescribed requirements. See
"Telecommunications Act of 1996" below. This unit also provides operator and pay
telephone services. The Retail unit includes Verizon Avenue, a subsidiary that
markets to customers located in multi-tenant buildings and Teleproducts, a
subsidiary that markets customer premises equipment to the end-user. Revenues in
2001 were approximately $23.5 billion, representing approximately 54% of
Domestic Telecom's aggregate revenues. These revenues were derived primarily
from the provision of telephone services to residential users.
The Network unit markets (i) switched and special access to the telephone
operations' local exchange networks and (ii) billing and collection services,
including recording, rating, bill processing and bill rendering. Revenues in
2001 were approximately $10.7 billion, representing approximately 25% of
Domestic Telecom's aggregate revenues. Approximately 39% of total Network
service revenues were derived from interexchange carriers. Most of the remaining
revenues came from business customers and government agencies with their own
special access network connections, wireless companies and other local exchange
carriers which resell network connections to their own customers. This unit also
includes various technical planning groups that provide strategic technology and
network planning, new service creation and emerging business management.
The Advanced Services unit markets our ADSL (Asymmetrical digital subscriber
line) and Internet access services. Our Global Networks unit is building a next
generation long distance network using ATM (asynchronous transfer mode)
technology. Revenues in 2001 were approximately $633 million, representing
approximately 2% of Domestic Telecom's aggregate revenues. These revenues were
derived primarily from the provision of data services.
The National Operations unit markets our Communications and Construction
services that supply installation and repair labor and manages our Supply unit
that is responsible for the procurement and management of inventory and supplies
for our telephone operations, as well as other subsidiaries. Our Supply unit
also sells material and logistic services to third parties. Revenues in 2001
(after eliminations and combined with all other Domestic Telecom revenues) were
approximately $877 million, representing approximately 2% of Domestic Telecom's
aggregate revenues.
TELECOMMUNICATIONS ACT OF 1996
We face increasing competition in all areas of our business. 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.
In-Region Long Distance
We offer long distance service nationwide, except in those states served by the
former Bell Atlantic telephone operations where we have not yet received
authority to offer long distance service under the 1996 Act. Under the 1996 Act,
our ability to offer in-region long distance services in the states where the
former Bell Atlantic telephone subsidiaries operate as local exchange carriers
is largely dependent on satisfying specified requirements. The requirements
include a 14-point "competitive checklist" of steps which we must take to help
competitors offer local services through resale, through purchase of unbundled
network elements, or by interconnecting their own networks to ours. We must also
demonstrate to the Federal Communications Commission (FCC) that our entry into
the in-region long distance market would be in the public interest.
We now have authority to offer in-region long distance service in five states in
the former Bell Atlantic territory, accounting for more than half of the lines
served by the former Bell Atlantic. In addition to its New York order released
in December 1999, the FCC released orders on April 16, 2001, July 23, 2001,
September 19, 2001 and February 22, 2002, approving our applications for
permission to enter the in-region long distance market in Massachusetts,
Connecticut, Pennsylvania and Rhode Island, respectively. Both the Massachusetts
and Pennsylvania orders are currently on appeal to the U.S. Court of Appeals.
We have filed applications with the FCC to offer long distance service in New
Jersey and Vermont. We expect the FCC to rule on those applications by March 20,
2002 and April 17, 2002, respectively. We have also filed state applications for
support of anticipated applications with the FCC for permission to enter the
in-region long distance market in New Hampshire, Delaware and Maine. Third-party
testing of our operations support systems is in its final stages in Virginia,
West Virginia, Maryland and the District of Columbia.
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FCC REGULATION AND INTERSTATE RATES
Our telephone operations are subject to the jurisdiction of the FCC with respect
to interstate services and related matters. In 2001, the FCC continued to
implement reforms to the interstate access charge system and to implement the
"universal service" and other requirements of the 1996 Act.
Access Charges and Universal Service
On May 31, 2000, the FCC adopted a plan advanced by members of the industry (the
Coalition for Affordable Local and Long Distance Services, or CALLS) 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.
On September 10, 2001, the U.S. Court of Appeals for the Fifth Circuit ruled on
an appeal of the FCC order adopting the plan. The court upheld the FCC on
several challenges to the order, but remanded two aspects of the decision back
to the FCC on the grounds that they lacked sufficient justification. The court
remanded back to the FCC for further consideration its decision setting the
annual reduction factor at 6.5% and the size of the new universal service fund
at $650 million. The entire plan (including these elements) will continue in
effect pending the FCC's further consideration of its justification of these
components.
As a result of tariff adjustments which became effective in July 2001,
approximately 80% of our access lines reached the $0.0055 benchmark.
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. In order to use these rules, carriers
must forego the ability to take advantage of provisions in the current rules
that provide relief in the event earnings fall below prescribed thresholds. In
2001, we were authorized to remove special access and dedicated transport
services from price caps in 35 of the 57 Metropolitan Statistical Areas (MSAs)
in the former Bell Atlantic territory and in three additional MSAs in the former
GTE territory. In addition, the FCC found that in 10 MSAs we have met the
stricter standards to remove special access connections to end-user customers
from price caps. We have an application pending that, if granted, would remove
special access services from price cap regulation in 16 additional MSAs.
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 July 31,
2001, the U.S. Court of Appeals for the Tenth Circuit reversed and remanded to
the FCC for further proceedings. The court concluded that the FCC had failed to
adequately explain some aspects of its decision and had failed to address any
need for a state universal service mechanism. The current universal service
mechanism remains in place pending the outcome of any FCC review as a result of
these appeals.
Unbundling of Network Elements (UNEs)
In November 1999, the FCC announced its decision setting forth new unbundling
requirements, eliminating elements that it had previously required to be
unbundled, limiting the obligation to provide others and adding new elements.
Appeals from this decision are pending.
In addition to the unbundling requirements released in November 1999, the FCC
released an order in a separate proceeding in December 1999, requiring incumbent
local exchange companies also to unbundle and provide to competitors the higher
frequency portion of their local loop. This provides competitors with the
ability to provision data services on top of incumbent carriers' voice services.
Appeals from this order are also pending.
In July 2000, the U.S. Court of Appeals for the Eighth Circuit found that some
aspects of the FCC's requirements for pricing UNEs were inconsistent with the
1996 Act. In particular, it found that the FCC was wrong to require incumbent
carriers to base these prices not on their real costs but on the imaginary costs
of the most efficient equipment and the most efficient network configuration.
This portion of the court's decision has been stayed pending review by the U.S.
Supreme Court. In addition, the court upheld the FCC's decision that UNEs should
be priced based on a forward-looking cost model rather than historical costs.
The U.S. Supreme Court currently has this case under review.
In December 2001, the FCC opened its triennial review of UNEs. This rulemaking
reopens the question of what network elements must be made available on an
unbundled basis under the 1996 Act and will revisit the unbundling decisions
described above. In this rulemaking, the FCC also will address other pending
issues relating to unbundled elements, including the question of whether
competing carriers may substitute combinations of unbundled loops and transport
for already competitive special access services.
Compensation for Internet Traffic
On April 27, 2001, the FCC released an order addressing intercarrier
compensation for dial-up connections for Internet-bound traffic. The FCC found
that Internet-bound traffic is interstate and subject to the FCC's jurisdiction.
Moreover, the FCC again found that Internet-bound traffic is not subject to
reciprocal compensation under Section 251(b)(5) of the 1996 Act. Instead, the
FCC established federal rates for this traffic that decline from $0.0015 to
$0.0007 over a three-year period. The FCC order also sets caps on the total
minutes of this traffic that may be subject to any intercarrier compensation and
requires that incumbent local exchange carriers must offer to pay reciprocal
compensation for
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local traffic at the same rate as they are required to pay on Internet-bound
traffic. Several competing carriers and state regulators appealed this order to
the U.S. Court of Appeals for the D.C. Circuit. The court denied a motion to
stay the FCC order, and the order went into effect. The appeal remains pending.
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.
Arizona
Verizon California's operations in Arizona are subject to rate of return
regulation.
California
Verizon California's 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 2002.
Nevada
Verizon California's 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). 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 Delaware's
telecommunications network during the first five years of the plan.
In April 2001, the Delaware Public Service Commission approved Verizon
Delaware's request for an extension of the current incentive regulation plan
until one year after Verizon Delaware obtains authority to enter the long
distance market, or March 2004, whichever occurs first. In exchange for the
extension, Verizon Delaware agreed to cap basic rates until December 31, 2002.
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.
Verizon Hawaii Inc.
Verizon Hawaii's telephone operations are subject to rate of return regulation.
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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 (CPI). Rates for Competitive Services may
be increased without regulatory limits. Regulation of profits is eliminated. A
review of the current price cap plan is scheduled for 2002.
Verizon New England Inc.
Maine
In June 2001, the Maine Public Utilities Commission ordered the continuation of
an Alternative Form of Regulation (AFOR) for Verizon Maine for a second
five-year term. Key aspects of the new plan:
. Eliminates annual filings to adjust rates of core services;
. Eliminates the 4.5% productivity factor applied in the initial AFOR term;
. Provides total pricing flexibility for all services except local service,
operator services and directory assistance;
. Allows an increase in local service rates that offsets (in whole or in
part) a legislatively required access charge reduction;
. Rejects proposals to institute over 9,000 retail service quality measures
and instead continues the current service quality plan with some
modifications; and
. Requires monitoring of Verizon's toll rate/revenue reductions to insure
that toll users benefit from the access reductions, either in reduced toll
rates from Verizon, or in toll savings from alternative carriers. At the
end of a two-year monitoring period that began December 31, 2000, Verizon
Maine's toll rates/revenues must be $19.8 million lower, or additional cuts
in toll rates will be required. Thereafter, toll rates are unrestricted.
Massachusetts
In 1995, the Massachusetts Department of Telecommunications and Energy (MDTE)
approved a price regulation plan for Verizon New England, with no restriction on
earnings. Some residence exchange rates are capped. Pricing rules limit Verizon
New England's ability to increase prices for most services, including a ceiling
on the weighted average price of all tariffed services based on a formula of
inflation minus a productivity factor plus or minus limited exogenous changes.
In addition, Verizon New England's service quality performance levels in any
given month could result in an increase in the productivity offset by
one-twelfth of one percent for purposes of the annual price cap filing.
The current plan expired in August 2001. Verizon New England has filed a
proposed new plan, which is being reviewed by the MDTE. It is anticipated that a
new plan will be adopted during the third quarter of 2002.
New Hampshire
Verizon New England's operations in New Hampshire are currently subject to rate
of return regulation.
Rhode Island
In 1996, the Rhode Island Public Utilities Commission (RIPUC) approved an
incentive regulation plan for Verizon New England. The plan had no earnings cap
or sharing mechanism and no set term or expiration, although it was subject to
annual review by the RIPUC. Other features of the plan included service quality
requirements, including a financial penalty, and no increase in residence or
business basic exchange rates through 1999. In August 2000, the RIPUC approved a
new incentive regulation plan for Verizon New England, with no restriction on
earnings. This plan essentially continued the plan adopted in 1996 with
adjustments to service quality standards, increases in lifeline credits, funding
for data network access for schools and libraries and a residential rate freeze
for the duration of the plan, which expired December 31, 2001. The RIPUC has
directed Verizon New England to file a new plan by May 1, 2002.
Vermont
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 England's earnings from Vermont operations during
the life of the plan and contains no productivity adjustment. The plan limits
Verizon New England's 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.
Verizon New Jersey Inc.
The 1992 New Jersey Telecommunications Act classifies telecommunications
services as "competitive" or "protected." "Protected telephone services" include
basic residence and business local service, touch-tone, access services 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 is now scheduled to expire on March 31, 2002.
There is no cap on earnings for Rate-Regulated Services. Under the terms of the
plan, Verizon New Jersey shares equally with ratepayers earnings above a 13.7%
return on equity for Rate-Regulated Services.
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Verizon New Jersey filed a new proposed Plan for Alternative Form of Regulation
which proposes to leave basic rates unchanged, eliminate earnings sharing and
treat multi-line business services as "competitive." The New Jersey Board of
Public Utilities (NJBPU) has stated its intention to adopt a new plan by June
30, 2002.
On December 17, 2001, the NJBPU released an order in which it prescribed new
rates, terms and conditions under which Verizon New Jersey is required to make
its network available to competitive local exchange carriers (CLECs). Many of
these rates constitute substantial reductions to Verizon New Jersey's prior UNE
rates. Verizon New Jersey is currently considering whether to seek judicial
review of these rates.
Verizon New York Inc.
The New York State Public Service Commission (NYSPSC) has adopted a new
incentive plan to regulate the services of Verizon New York, effective March 1,
2002. The plan provides pricing flexibility, adopts new service quality
standards and does not restrict Verizon New York's earnings. The plan will
expire in 2004, except that the service quality provisions of the plan will
expire in 2005.
The new plan:
. Permits Verizon New York to increase its retail rates by 3% of its
intrastate revenues per year in each of the two years of the plan, but
limits any increase on residence service first lines to $1.85 in 2002 and
$.65 in 2003, and freezes rates and lowers service connection charges for
low income consumers;
. Establishes state-wide service quality standards, with the potential for
customer credits and restrictions on Verizon New York's pricing flexibility
if it fails to meet those standards;
. Establishes that the rates provided in the NYSPSC's January 2002 order on
pricing of UNEs will remain in effect for the duration of the plan; and
. Requires Verizon New York to transition to generally accepted accounting
principles accounting for preparing financial statements for regulatory
purposes, over a three-year period.
On January 28, 2002, the NYSPSC issued an order mandating substantial reductions
in the rates that Verizon New York may charge its local exchange competitors for
access to UNEs.
Verizon New York's operations in Connecticut have been subject to rate of return
regulation. In February 2001, the 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.
Verizon North Inc.
Illinois
Verizon North's telephone operations in Illinois are subject to rate of return
regulation. Optional toll plans, Integrated Services Digital Network (ISDN),
frame relay, payphones, CentraNet(R), and other data services are considered
deregulated and have total pricing flexibility.
Indiana
Verizon North's telephone operations in Indiana are subject to rate of return
regulation.
Michigan
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 long-run incremental cost (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.
On July 17, 2000, several amendments to the Michigan Telecommunications Act,
among other things, reduced Verizon North's local rates by approximately $26
million and prohibited any rate increases for three years. On September 4, 2000,
the U.S. District Court for the Eastern District of Michigan issued an order
that temporarily stopped the rate freeze from going into effect pending further
proceedings, but refused to issue an order to stop the rate reduction from going
into effect. On September 28, 2000, the U.S. Court of Appeals for the Sixth
Circuit issued an order to temporarily stop the rate reduction from going into
effect, pending further proceedings. The matter is pending.
Ohio
Verizon North's telephone operations in Ohio are subject to rate of return
regulation.
Pennsylvania
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
6
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 North's plan that provided for improvement of
Verizon North's network infrastructure. On November 26, 2001, Verizon North
filed a revised infrastructure plan with the PPUC. We anticipate that the PPUC
will conclude review of this plan by the second quarter of 2002.
Wisconsin
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 non-basic rate element is 10% or the
increase in the GDP-PI, whichever is greater. Basic local service is 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 day 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 productivity factor is under
review.
Verizon Northwest Inc.
California
Verizon Northwest's California operations are subject to rate of return
regulation.
Idaho
Verizon Northwest's Idaho operations are subject to rate of return regulation.
Oregon
Verizon Northwest's 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(R) are in a competitive class
and are flexibly priced.
Washington
Verizon Northwest's 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 noncompetitive 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 PPUC's order approving the Bell Atlantic-GTE merger extended the cap on
residential and business basic exchange services through 2003.
The plan requires Verizon Pennsylvania to provide a Lifeline Service for
residential customers. The plan also requires deployment of a universal
broadband network, which must be completed in phases: 20% by 1998, 50% by 2004,
and 100% by 2015. Deployment must be reasonably balanced among urban, suburban
and rural areas.
On March 22, 2001, the PPUC proposed that Verizon Pennsylvania adopt a
functional separation between its retail and wholesale businesses, and abide by
a code of conduct in its operations between the retail and wholesale businesses.
Verizon Pennsylvania accepted this proposal and agreed to such a functional
separation in its Pennsylvania operations. The PPUC has not yet adopted a final
code of conduct to govern the functional separation.
Verizon South Inc.
Alabama
Verizon South's price cap plan started in January 1996. The plan does not have
an expiration date but is reviewed every five years. There are three service
categories: basic, non-basic and interconnection. Basic services are capped for
five years from the September 1995 order date. At the end of the cap, prices can
be increased by GDP-PI less a 1% productivity factor less any service penalties
(up to .75% maximum penalty). Non-basic services can be increased beginning
January 1997 and prices can be increased a maximum of 10% in the aggregate for a
given year. Individual prices can be changed more than 10% as long as the
aggregate change is 10% or less. Verizon South's intrastate access
7
charges are capped at a composite rate of $0.064 per minute. Tariff filings for
incumbent local exchange carriers are presumptively valid. Earnings are not
regulated.
Kentucky
Verizon South's operations in Kentucky are currently under rate of return
regulation.
North Carolina
Verizon South's operations in North Carolina have been under a price cap plan
since 1996 that is subject to review in 2002. 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.
South Carolina
Verizon South's 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.
Virginia
On December 21, 2000, the Virginia State Corporation Commission (VSCC) approved
a price cap plan for Verizon South that is substantially similar to Verizon
Virginia's plan described below.
The new plan was effective January 1, 2001 and has no expiration date.
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 Virginia's noncompetitive services on a price cap basis and
does not regulate Verizon Virginia's 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. The
plan has no expiration date.
Verizon Washington, DC Inc.
On February 28, 2002, the District of Columbia Public Service Commission (DCPSC)
approved a new price cap plan for local retail services provided by Verizon
Washington, DC. Key provisions of the 2002 plan include:
. a two 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 for the term of the plan and a
reduction in residential service connection charges;
. 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, PBX trunks,
local directory service and message units, which are subject to a 10%
annual limit on any rate increase;
. pricing flexibility on discretionary services, with a 15% annual limit on
any rate increase;
8
. flexibility to bundle or package existing services; and
. assistance by Verizon Washington, DC to the District of Columbia government
to set up "211" dialing for District of Columbia social services agencies,
as well as additional social services infrastructure investments and
one-time customer discounts.
Verizon West Virginia Inc.
On October 3, 2001, the West Virginia Public Service Commission (WVPSC) approved
Verizon West Virginia's new Incentive Regulation Plan (IRP). The new 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, as early as
January 1, 2002.
The new IRP also resolves the pending request by interexchange carriers, the
WVPSC staff and the WVPSC Consumer Advocate Division (CAD) for immediate annual
access charge decreases. Verizon West Virginia will phase-in an annual rate
decrease of $19.2 million by July 2004. Cumulative rate reductions will be $91.7
million over the five-year life of the IRP, and total annual reductions by the
end of the IRP will be $26 million. With the approval of the IRP, the CAD's
petition for an immediate $81.6 million annual rate reduction has been
dismissed.
Other Telephone Operations
Our Missouri statutory price cap plan started in February 1999. Under the plan,
we can rebalance rates in the first four years of the plan by increasing local
rates by $1.50 and reducing switched access by an equivalent amount. Toll rates
must be reduced by 10% in the first year. Non-basic service rates may increase
by 8% annually. Earnings are not regulated.
COMPETITION
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 has historically 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 CLEC's network with the ILEC's network.
As a result, competition in our local exchange markets continues to increase.
Our telephone operations are generally required to sell their services to CLECs
at discounts of approximately 38% from the prices our telephone operations
charge their retail customers. Our state regulators in New York and New Jersey
have recently mandated reductions in the rates we charge local exchange
competitors for access to UNEs. A number of other state regulators are
initiating similar proceedings. 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 the District of Columbia, 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 offer
interLATA long distance services nationwide, except in those states served by
the former Bell Atlantic telephone operations where we have not yet received
authority to offer long distance service under the 1996 Act. 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 FCC's 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.
9
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.
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.
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Domestic Wireless
- --------------------------------------------------------------------------------
OPERATIONS
Our Domestic Wireless segment provides wireless voice and data services, paging
services and equipment sales in the United States, principally through Verizon
Wireless.
Verizon Wireless is the leading wireless communications provider in the United
States in terms of the number of subscribers, network coverage, revenues and
operating cash flow. Verizon Wireless has the largest customer base of any U.S.
wireless provider, with 29.4 million wireless subscribers as of December 31,
2001, and provides wireless voice and data services across the United States.
Approximately 248 million people reside in areas of the United States in which
we have FCC licenses to offer our services and 221 million people reside in
areas covered by our service. We provide digital coverage in areas where
approximately 205 million people reside, including in almost every major U.S.
city.
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 (see following formation discussion) wireless licenses have
been successfully renewed.
In September 1999, Bell Atlantic and Vodafone Group plc agreed to combine their
U.S. wireless telecommunication businesses and form Verizon Wireless. In April
2000, Vodafone contributed U.S. wireless operations (AirTouch) and its interest
in PrimeCo Communications to Verizon Wireless in exchange for a 65.1% economic
interest in Verizon Wireless. Bell Atlantic contributed its U.S. wireless
operations and its interest in PrimeCo to Verizon Wireless. In July 2000, after
the merger of Bell Atlantic and GTE, Verizon contributed GTE's U.S. wireless
operations to Verizon Wireless, increasing Verizon's economic interest in
Verizon Wireless from 34.9% to 55%.
Verizon Wireless brought together the operations of four well-recognized U.S.
wireless carriers: Bell Atlantic Mobile, GTE Wireless, AirTouch and PrimeCo,
resulting in the formation of the most extensive wireless network in the United
States.
Bell Atlantic Mobile
Bell Atlantic Mobile, based in Bedminster, New Jersey, had 8.0 million customers
as of March 31, 2000. It operated in 18 states and the District of Columbia and
12 of the top 50 U.S. markets, including Baltimore, Boston, New York City,
Philadelphia and Washington, D.C.
GTE Wireless
GTE Wireless had more than 7.0 million U.S. wireless customers in June 2000. It
operated in 19 states and 18 of the top 50 United States markets, including
Chicago, Cleveland, Houston, San Francisco and St. Louis. GTE Wireless was based
in Atlanta, Georgia and a subsidiary of GTE Corporation.
AirTouch
AirTouch, based in San Francisco, California and owned by Vodafone, served
nearly 10 million wireless customers and 3.5 million paging customers in the
United States as of March 31, 2000. It operated broadband wireless networks in
22 states and 18 of the top 50 U.S. markets, including Atlanta, Detroit, Los
Angeles, Phoenix, San Diego and Seattle.
PrimeCo
PrimeCo was formed in October 1994 as a limited partnership to provide advanced
wireless digital communications services over an all-digital wireless network.
As of March 31, 2000, PrimeCo had more than 1.5 million subscribers. Immediately
prior to its contribution to the partnership, PrimeCo was a partnership between
Bell Atlantic and Vodafone. Based in Westlake, Texas, PrimeCo operated in nine
states and 13 of the top 50 United States markets, including Dallas, Miami, San
Antonio and Tampa.
The preceding customer numbers include overlapping markets that have been
subsequently sold.
10
Price Communications
In December 2001, Verizon Wireless and Price Communications Corporation agreed
to combine the business operations of Price Communications Wireless, Inc. and a
portion of Verizon Wireless, in a transaction valued at $1.7 billion, including
$550 million in net debt that will be assumed or redeemed. Under the terms of
the transaction, which replaces an agreement announced by the companies in
November 2000, Price Communications Wireless and Verizon Wireless will form a
limited partnership consisting of substantially all of the assets of Price
Communications' wireless operations and some of Verizon Wireless's assets.
Verizon Wireless will control and manage the partnership. Price Communications'
partnership interest will be exchangeable into Verizon Wireless or Verizon
stock, subject to several conditions. The transaction, which remains subject to
the approval of Price Communications' shareholders and other customary closing
conditions, will significantly expand the company's footprint in the
Southeastern U.S. and add approximately 560,000 customers.
Dobson's Wireless Operations
In November and December 2001, we announced that Verizon Wireless signed
definitive agreements to acquire several of Dobson Communications Corporation's
(Dobson) wireless operations in California, Georgia, Ohio, Tennessee and
Arizona. The transactions closed in February 2002. The acquired Dobson
properties serve a population of approximately 1.2 million.
COMPETITION
There is substantial competition in the wireless telecommunications industry. We
expect competition to intensify as a result of the consolidation of the
industry, the entry of new competitors, the development of new technologies,
products and services, the auction of additional spectrum and regulatory
changes. Other wireless providers serve each of the markets in which we compete.
We currently provide service to 49 of the top 50 markets in the U.S., and these
49 markets have an average of five other competing wireless providers.
Competition also may increase to the extent that smaller, stand-alone wireless
providers transfer licenses to larger, better capitalized and more experienced
wireless providers.
We compete against five other national wireless service providers: AT&T
Wireless, Cingular Wireless, Nextel Communications, Inc., Sprint PCS and
VoiceStream. In addition, we compete against several regional wireless companies
in markets where we provide service. Additional competitors are seeking to enter
the market using new types of spectrum. The wireless communications industry has
been experiencing consolidation, and we expect that this trend will continue.
This consolidation trend may enhance the ability of wireless service providers
with substantial financial, technical, marketing and other resources to compete
with our offerings.
We believe that the following are the most important competitive factors in our
industry:
Brand Recognition: We introduced the Verizon Wireless brand name in April 2000
- -----------------
and believe that we have developed strong brand recognition.
Network 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. As
a result, the ability to offer national coverage through a company's own network
is important, including the ability to ensure uniform performance and the
availability of features throughout the country, as many features are not fully
available through roaming partners.
Digital Service and Technology: Digital service offers benefits to the customer
- ------------------------------
and also permits a network to have greater capacity.
Customer Service: Quality customer service and care is essential to ensure
- ----------------
that existing customers do not terminate service and to obtain new customers.
Capital Resources: In order to expand and build-out networks and introduce
- -----------------
next generation services, wireless providers require significant capital
resources.
As a result of competition, we may encounter further market pressures to reduce
our service prices, restructure our service packages to offer more value, or
respond to particular short-term, market-specific situations, for example,
special introductory pricing or packages that may be offered by new providers
launching their service in a particular market. We also expect to increase our
advertising and promotional spending to respond to competition.
Our ability to compete successfully will depend in part on our marketing efforts
and on our ability to anticipate and respond to various competitive factors
affecting the industry, including the factors described above, new services and
technologies, changes in consumer preferences, demographic trends, economic
conditions and pricing strategies by competitors.
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International
- --------------------------------------------------------------------------------
Our International segment includes international wireline and wireless
communications operations, investments and management contracts in the Americas,
Europe, Asia and the Pacific, extending to approximately 40 countries. Our
consolidated international investments as of December 31, 2001 included Grupo
Iusacell S.A. de C.V. (Mexico), Codetel, C. por A. (Dominican Republic), CTI
Holdings, S.A. (Argentina), Micronesian Telecommunications Corporation (Northern
Mariana Islands) and Verizon Global Solutions Inc. As of December 31, 2001, our
International segment managed approximately 10 million access lines and provided
wireless services to approximately 39 million customers.
11
AMERICAS
Argentina
We own a 65.3% interest in CTI Holdings, S.A., (CTI) whose subsidiaries hold
three concessions that, together, offer wireless services throughout Argentina.
CTI also owns a long distance provider that primarily serves its wireless
affiliates. At December 31, 2001, the consolidated CTI group served
approximately 1.1 million wireless subscribers.
The National Telecommunications Commission of Argentina awarded wireless
licenses to CTI-Interior in 1994. The Buenos Aires wireless licenses were
awarded to CTI PCS Holdings, S.A. in 1999.
Canada
We own a 23.7% interest in TELUS Corporation, which is the full-service
telecommunications provider in British Columbia, Alberta and parts of Quebec.
TELUS also provides wireless, data, voice and Internet protocol services
elsewhere in Central and Eastern Canada. TELUS served approximately 4.8 million
access lines and provided wireless services to approximately 2.5 million
subscribers as of December 31, 2001.
On October 20, 2000, TELUS acquired Clearnet Communications, a leading Canadian
wireless company, creating Canada's largest wireless company in terms of annual
revenue.
Dominican Republic
We own 100% of Codetel, C. por A., the principal telecommunications provider in
the Dominican Republic. CODETEL provides local, wireless, national and
international long distance and Internet access services throughout the
Dominican Republic. At December 31, 2001, CODETEL served approximately 763,000
access lines and approximately 550,000 wireless customers.
Mexico
We own a 39.4% interest in, and control the management of, Grupo Iusacell, S.A.
de C.V. (Iusacell), a telecommunications company which provides wireless long
distance and data services primarily in the central and southern regions of
Mexico. At December 31, 2001, Iusacell served approximately 1.9 million wireless
customers.
Puerto Rico
As of December 31, 2001, we owned a 40% interest in Telecomunicaciones de Puerto
Rico, Inc. (TELPRI), which owns Puerto Rico Telephone Company (PRTC), Puerto
Rico's principal wireline company, and Verizon Wireless Puerto Rico, Inc.
(VWPR), one of the island's wireless companies. At December 31, 2001, PRTC
served 1.3 million access lines and VWPR provided wireless services to
approximately 327,000 customers.
On January 25, 2002, Verizon exercised its option to purchase an additional 12%
of TELPRI common stock from the government of Puerto Rico. Verizon obtained the
option as part of the March 1999 TELPRI privatization. Accordingly, Verizon now
holds 52% of TELPRI stock and will begin consolidating TELPRI in 2002.
Venezuela
We own a 28.5% interest in Compania Anonima Nacional Telefonos de Venezuela
(CANTV), Venezuela's full-service telecommunications provider. CANTV offers
local, national and international long distance, Internet access and wireless
services in Venezuela as well as public telephony, private network, data
transmission, directory and other value-added services. At December 31, 2001,
CANTV served approximately 2.7 million access lines and 2.5 million wireless
customers.
Effective November 27, 2000, CANTV's exclusive concession to operate as a
full-service telecommunications provider offering local and domestic and
international long-distance service throughout Venezuela expired. CANTV is now
subject to direct competition for these services.
EUROPE AND ASIA
Czech Republic and Slovakia
We own a 24.5% interest in Eurotel Praha, spol. s r.o. and a 24.5% interest in
EuroTel Bratislava, a.s. Eurotel Praha provides voice, data and wireless
Internet access over analog and digital Global System for Mobile Communications
(GSM) networks to the Czech Republic and EuroTel Bratislava provides voice and
data over analog and digital GSM networks to Slovakia.
Gibraltar
Gibraltar NYNEX Communications Limited is the sole provider of wireline and
wireless 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.
Italy
We own a 23.1% interest in Omnitel Pronto Italia, S.p.A. (Omnitel), an Italian
digital cellular telecommunications company. Omnitel served over 17 million
subscribers at December 31, 2001.
Indonesia
P.T. Excelcomindo Pratama (Excelcomindo) is a nationwide provider of GSM
services in which we own a 23.1% interest. We also own a 36.7% interest of P.T.
Citra Sari Makmur, a provider of data, voice and video communications.
12
Northern Mariana Islands
We are the sole shareholder of The Micronesian Telecommunications Corporation
(MTC), a provider of local services. At December 31, 2001, MTC served
approximately 25,000 access lines and 6,000 wireless customers on the islands of
Saipan, Tinian and Rota. In November 2001 an agreement was signed to sell MTC,
which is subject to regulatory approval.
New Zealand
Telecom Corporation of New Zealand Limited (TCNZ) is the principal provider of
telecommunications services in New Zealand, offering local, national and
international long distance, Internet access and wireless services. Our current
ownership level is 21.5%.
OTHER
Our International segment also includes several properties in which our
investment is 20% or less. These include: Japan - Tu-Ka companies, 2.7% - 5%;
Philippines - BayanTel, 19.4%; Taiwan - Taiwan Cellular Corporation, 13.0%;
Thailand - TelecomAsia, 12.5%; Greece - STET Hellas Telecommunications SA,
17.5%; United Kingdom - Cable & Wireless plc (C&W), 4.6% and NTL Incorporated,
8.9%. With the exception of C&W, which has worldwide operations, all of these
investments provide a variety of telecommunication and cable services to the
country or a specific region within the country in which they reside.
FLAG
FLAG Telecom Holdings Ltd. (FLAG) owns and operates undersea fiber optic cable
systems, providing digital communications links between Europe and Asia and
North America. On June 6, 2001, we exercised an option to exchange 15 million
shares in FLAG for shares in Tycom Ltd., which were subsequently exchanged for
Tyco International Ltd. shares. As a result of this transaction, our interest in
FLAG declined from 29.8% to 18.6%, and the investment is now accounted for on a
cost basis.
Global Solutions
In February 2001, Verizon launched an initiative designed to expand our presence
in the carrier and large business market. The new business unit, Global
Solutions, will offer a primarily facilities based network which connects
commercial centers around the world and provides an array of voice, data and
Internet services.
INTERNATIONAL REGULATORY AND COMPETITIVE TRENDS
For several years, the telecommunications industry has been experiencing dynamic
changes as national and international regulatory reforms embrace competition.
This opportunity provided by the global market liberalization has allowed us to
expand our international operations across the Americas, Europe, Asia and the
Pacific.
In the Americas, the degree of liberalization varies widely among countries. In
Argentina, CTI operates in a highly competitive marketplace. Argentina's
wireless telecommunications industry was previously subject to substantial
government regulation in a competitive environment. Deregulation of the industry
started in October 1999 and was completed in November 2000.
In Venezuela, CANTV's wireless operations have faced competition for several
years. In late 2000, the government opened the basic telephony 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, continues to be Venezuela's principal telecommunications provider.
In the Dominican Republic, CODETEL faces both wireline and wireless competitors.
While the competition has slowed both access line and wireless subscriber
growth, CODETEL remains the principal provider of local, national and
international long distance, wireless and Internet services.
The Mexican wireless and long distance markets each have several significant
competitors. During 2001, Iusacell made progress towards its goal of achieving a
national wireless operating footprint with its fourth quarter acquisition of
Grupo Portatel, S.A. de C.V., a wireless service provider in southern Mexico,
and launch of wireless services in northeastern and northwestern Mexico. With
respect to regulatory matters, Mexico's legal system continues to be unable to
implement or enforce effective dominant carrier regulation against Telefonos de
Mexico, S.A. de C.V. (Telmex), the dominant local wireline and long distance
carrier, and Radiomovil Dipsa, S.A. de C.V. (Telcel), the dominant wireless
provider. For example, in November 2001, Telmex and Telcel chose not to
implement a new national numbering plan, placing Iusacell and other complying
carriers at a competitive disadvantage. To date, the Mexican Ministry of
Communications and Transport has chosen not to impose any sanctions against
either carrier.
In Puerto Rico, five other facilities-based providers operate in the wireless
market. All wireline services, including local, long distance, Internet access
and data, have also experienced new competition. Nevertheless, TELPRI continues
to be the principal provider of telecommunications services in Puerto Rico to
both the business and consumer markets. With respect to regulatory matters, the
Puerto Rico Telecommunications Regulatory Board recently issued an order
requiring substantial reductions in access rates for intra-island long distance
service.
In Asia, Taiwan Cellular Corporation continues to expand its wireless network
system. Taiwan Cellular currently has 6.6 million subscribers, the highest
number of subscribers of any wireless operator in the country.
13
In Greece, the government approved a bill deregulating the country's
telecommunications market as of January 1, 2001, ending Hellenic
Telecommunications Organization SA's fixed line monopoly. In July 2001, STET
Hellas was awarded a license for third-generation mobile spectrum.
In the Czech Republic, Eurotel Praha was awarded a license for the
third-generation mobile spectrum in December 2001.
In Italy, Omnitel was awarded a license for third-generation mobile spectrum in
2000. Subsequently, in November 2001, the lives of the five third-generation
mobile licenses issued were extended from 15 years to 20 years providing the
operators additional time to recover their costs.
- --------------------------------------------------------------------------------
Information Services
- --------------------------------------------------------------------------------
Information Services is the 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(R) print yellow and white pages directories, as well as the
Internet's preeminent online directory, SuperPages.com(R). We pursue national
and international 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
nearly 2,300 directory titles in 48 states, the District of Columbia and 14
countries. Total circulation is approximately 106 million copies in the U.S. and
44 million copies internationally.
In 2001, we acquired the TELUS's advertising services business in Canada from
TELUS Corporation. This acquisition advances our growth strategy by expanding
our existing Canadian footprint with the creation of a new company, Dominion
Information Services, Inc.
Our directory publishing business competes within the yellow pages industry with
five major U.S.-based directory publishers (SBC Communications Inc., BellSouth
Corporation, Sprint Corporation, Yellow Book USA, and QwestDex), and encounters
competition in nearly all 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.
- --------------------------------------------------------------------------------
Recent Developments
- --------------------------------------------------------------------------------
VERIZON WIRELESS
FCC Auction
On January 29, 2001, the bidding phase of the FCC reauction of 1.9 GHz C and F
block broadband Personal Communications Services spectrum licenses, which began
December 12, 2000, officially ended. Verizon Wireless was the winning bidder for
113 licenses. The total price of these licenses was $8,781 million, $1,822
million of which has already been paid. Most of the licenses that were
reauctioned relate to spectrum that was previously licensed to NextWave Personal
Communications Inc. and NextWave Power Partners Inc. (collectively NextWave),
which have appealed to the federal courts the FCC's action canceling NextWave's
licenses and reclaiming the spectrum.
In a decision on June 22, 2001, the U.S. Court of Appeals for the D.C. Circuit
ruled that the FCC's cancellation and repossession of NextWave's licenses was
unlawful. The FCC sought a stay of the court's decision which was denied. The
FCC subsequently reinstated NextWave's licenses, but it has neither returned
Verizon Wireless's payment on the NextWave licenses nor has it acknowledged that
the court's decision extinguished Verizon Wireless's obligation to purchase the
licenses. On October 19, 2001 the FCC filed a petition with the U.S. Supreme
Court to reverse the U.S. Court of Appeals for the D.C. Circuit's decision. On
March 4, 2002, the U.S. Supreme Court granted the FCC's petition and agreed to
hear the appeal.
Timing of Initial Public Offering (IPO)
In November 2001, Verizon Wireless Inc. filed an amended registration statement
with the Securities and Exchange Commission (SEC) in connection with the
proposed IPO of its common stock. Since August 2000, when the Verizon Wireless
Inc. registration statement was initially filed with the SEC, we have
periodically reiterated that the IPO would occur when market conditions are
favorable.
SALE OF ACCESS LINES
In July 2001, we announced that we were exploring the sale of 1.2 million access
lines in Alabama, Kentucky and Missouri.
In October 2001, we agreed to sell all 675,000 of our switched access telephone
lines in Alabama and Missouri to CenturyTel Inc. for $2.2 billion. The sale must
be approved by the Missouri public service commission, the FCC and the
Department of Justice (DOJ). The Alabama public service commission approved the
sale in December 2001. We expect to close the sale and transfer our operations
to CenturyTel during the second half of 2002.
Also in October 2001, we agreed to sell approximately 600,000 access lines in
Kentucky to ALLTEL Corporation for $1.9 billion. The sale has been approved by
the Kentucky public service commission, and remains subject to approval by the
FCC and the DOJ. We expect to close the sale and transfer our operations to
ALLTEL during the second half of 2002.
14
- --------------------------------------------------------------------------------
Employees
- --------------------------------------------------------------------------------
As of December 31, 2001, Verizon and its subsidiaries had approximately 247,000
employees. Unions represent approximately 52% of our employees.
- --------------------------------------------------------------------------------
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:
. the duration and extent of the current economic downturn;
. materially adverse changes in economic conditions in the markets served by
us or by companies in which we have substantial investments;
. material changes in available technology;
. an adverse change in the ratings afforded our debt securities by nationally
accredited ratings organizations;
. the final outcome of federal, state and local regulatory initiatives and
proceedings, including arbitration proceedings, and judicial review of
those initiatives and proceedings, pertaining to, among other matters, the
terms of interconnection, access charges, and UNE and resale rates;
. the extent, timing, success, and overall effects of competition from others
in the local telephone and toll service markets;
. the timing and profitability of our entry and expansion in the national
long distance market;
. our ability to satisfy regulatory merger conditions and obtain combined
company revenue enhancements and cost savings;
. the profitability of our broadband operations;
. the ability of Verizon Wireless to achieve revenue enhancements and cost
savings, and obtain sufficient spectrum resources;
. the continuing financial needs of Genuity Inc., our ability to convert our
ownership interest in Genuity into a controlling interest consistent with
regulatory conditions, and Genuity's ensuing profitability;
. our ability to recover insurance proceeds relating to equipment losses and
other adverse financial impacts resulting from the terrorist attacks on
September 11, 2001; 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.
Item 2. Properties
- --------------------------------------------------------------------------------
General
- --------------------------------------------------------------------------------
Our principal properties do not lend themselves to simple description by
character and location. Our total investment in plant, property and equipment
was approximately $170 billion at December 31, 2001 and $159 billion at December
31, 2000, 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:
2001 2000
- --------------------------------------------------------------------------------
Network equipment 77.9% 78.5%
Land, buildings and building equipment 8.3 8.2
Furniture and other equipment 9.2 8.0
Other 4.6 5.3
------------------------
100.0% 100.0%
========================
15
Our properties are divided among our operating segments as follows:
2001 2000
- --------------------------------------------------------------------------------
Domestic Telecom 73.1% 83.0%
Domestic Wireless 21.5 13.4
International 3.9 2.4
Information Services 0.3 0.4
Corporate and Other 1.2 0.8
------------------------
100.0% 100.0%
========================
"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, 2001,
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
communications services and to further improve such services. Capital
expenditures for Domestic Telecom were approximately $11.5 billion in 2001,
$12.1 billion in 2000 and $10.1 billion in 1999. Capital expenditures for
Domestic Wireless were $5.0 billion in 2001, $4.3 billion in 2000 and $1.5
billion in 1999. Capital expenditures for International, Information Services
and Corporate and Other businesses were approximately $.9 billion in 2001, $1.2
billion in 2000 and $1.4 billion in 1999. Capital expenditures exclude additions
under capital leases. We expect capital expenditures in 2002 to be in the range
of $15 billion to $16 billion.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
- --------------------------------------------------------------------------------
Executive Officers of the Registrant
- --------------------------------------------------------------------------------
Set forth below is information with respect to our executive officers.
Held
Name Age Office Since
- ---------------------------- --- ----------------------------------------------------------------------- -----
Charles R. Lee 62 Chairman and Co-Chief Executive Officer * 2000
Ivan G. Seidenberg 55 President and Co-Chief Executive Officer * 2000
Lawrence T. Babbio, Jr. 57 Vice Chairman and President 2000
Mary Beth Bardin 47 Executive Vice President - Public Affairs and Communications 2000
William P. Barr 51 Executive Vice President and General Counsel 2000
David H. Benson 52 Executive Vice President - Strategy, Development and Planning 2000
William F. Heitmann 52 Senior Vice President and Treasurer 2000
Michael T. Masin 57 Vice Chairman and President 2000
Frederic V. Salerno 58 Vice Chairman and Chief Financial Officer 2000
Ezra D. Singer 47 Executive Vice President - Human Resources 2000
Dennis F. Strigl 55 Executive Vice President and President - Domestic Wireless 2000
Lawrence R. Whitman 50 Senior Vice President and Controller 2000
* Effective April 1, 2002, Mr. Lee will be Chairman of the Board, and Mr.
Seidenberg will be President and Chief Executive 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.
16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The principal market for trading in the common stock of Verizon Communications
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, 2001, there were 1,197,000 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
High Low Declared
- -----------------------------------------------------------------------------------------
2001: First Quarter $57.13 $43.80 $.385
Second Quarter 56.99 47.00 .385
Third Quarter 57.40 48.32 .385
Fourth Quarter 55.99 46.90 .385
2000: First Quarter $63.19 $47.38 $.385
Second Quarter 66.00 49.50 .385
Third Quarter 56.88 39.06 .385
Fourth Quarter 59.38 45.19 .385
Item 6. Selected Financial Data
Information required by this item is included in the 2001 Verizon Annual Report
to Shareowners under the heading "Selected Financial Data" on page 10, which is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information required by this item is included in the 2001 Verizon Annual Report
to Shareowners under the heading "Management's Discussion and Analysis of
Results of Operations and Financial Condition" on pages 10 through 30, which is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information required by this item is included in the 2001 Verizon Annual Report
to Shareowners under the heading "Market Risk" on pages 25 through 26, which is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Information required by this item is included in the 2001 Verizon Annual Report
to Shareowners on pages 31 through 63, which is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The information required by this item regarding a change in accountants is
included in a Current Report on Form 8-K dated September 7, 2000.
PART III
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 information with
respect to the Directors and compliance with Section 16(a) of the Securities
Exchange Act of 1934, see the Proxy Statement for our 2002 Annual Meeting of
Shareholders filed pursuant to Regulation 14A, which is incorporated herein by
reference.
Item 11. Executive Compensation
For information with respect to executive compensation, see the Proxy Statement
for our 2002 Annual Meeting of Shareholders filed pursuant to Regulation 14A,
which is incorporated herein by reference.
17
Item 12. Security Ownership of Certain Beneficial Owners and Management
For information with respect to the security ownership of the Directors and
Executive Officers, see the Proxy Statement for our 2002 Annual Meeting of
Shareholders filed pursuant to Regulation 14A, which is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
For information with respect to certain relationships and related transactions,
see the Proxy Statement for our 2002 Annual Meeting of Shareholders filed
pursuant to Regulation 14A, which is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
Page
------
(1) Report of Independent Auditors *
Financial Statements covered by Report of Independent
Auditors:
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 registrant's annual report to shareowners for the fiscal
year ended December 31, 2001. (See Part II.)
(2) Financial Statement Schedule
II - Valuation and Qualifying Accounts 21
(3) Exhibits
Exhibit
Number
- ------
3a Restated Certificate of Incorporation of Verizon Communications Inc.
(Verizon) (Exhibit 3a to Form 10-K for the year ended December 31, 2000).
3b Bylaws of Verizon, as amended and restated (Exhibit 3b to Form 10-K for the
year ended December 31, 2000).
4 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.
10a Description of Verizon Deferred Compensation Plan for Non-Employee
Directors (Exhibit 10a to Form 10-K for the year ended December 31, 2000).*
10b 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).*
10c Deferred Compensation Plan for Non-Employee Members of the Board of
Directors of GTE, as amended (Exhibit 10-1 to GTE's Form 10-K for the year
ended December 31, 1997 and Exhibit 10.1 to GTE's Form 10-K for the year
ended December 31, 1998, File No. 1-2755).*
10d GTE's Directors' Deferred Stock Unit Plan (Exhibit 10-8 to GTE's Form 10-K
for the year ended December 31, 1997, File No. 1-2755).*
10e Description of Plan for Non-Employee Directors' Travel Accident Insurance
(Exhibit 10c to Form 10-K for the year ended December 31, 1999).*
10f 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).*
10g GTE's Charitable Awards Program (Exhibit 10-10 to GTE's Form 10-K for the
year ended December 31, 1992, File No. 1-2755).*
18
10h NYNEX Directors' Charitable Award Program (Exhibit 10i to Form 10-K for the
year ended December 31, 2000).*
10i Verizon Communications 2000 Broad-Based Incentive Plan (Exhibit 10h to Form
10-Q for the period ended September 30, 2000).*
10j Verizon Communications Inc. Long-Term Incentive Plan (Appendix B to
Verizon's 2001 Proxy Statement filed March 12, 2001).*
10k GTE's Long-Term Incentive Plan, as amended (Exhibit B to GTE's 1997 Proxy
Statement and Exhibit 10.5 to GTE's 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).*
10l NYNEX 1990 Stock Option Plan, as amended (Exhibit No. 2 to NYNEX's 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).*
10m NYNEX 1995 Stock Option Plan, as amended (Exhibit No. 1 to NYNEX's 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).*
10n Verizon Communications Inc. Short-Term Incentive Plan (Appendix C to
Verizon's 2001 Proxy Statement filed March 12, 2001).*
10o Bell Atlantic Senior Management Income Deferral Plan (Exhibit 10i to Form
10-K for the year ended December 31, 1999).*
10p GTE's Supplemental Executive Retirement Plan, as amended (Exhibits 10-3,
10-3, 10-3 and 10-3 to GTE's Form 10-K for the years ended December 31,
1991, 1992, 1993 and 1994, respectively, File No. 1-2755).*
10q GTE's Executive Salary Deferral Plan, as amended (Exhibit 10.10 to GTE's
Form 10-K for the year ended December 31, 1998, File No. 1-2755).*
10r 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).*
10s Description of Bell Atlantic Senior Management Estate Management Plan
(Exhibit 10rr to Form 10-K for year ended December 31, 1997).*
10t GTE's Executive Retired Life Insurance Plan, as amended (Exhibits 10-6,
10-6 and 10-6 to GTE's Form 10-K for the years ended December 31, 1991,
1992 and 1993, respectively, File No. 1-2755).*
10u NYNEX Supplemental Life Insurance Plan (Exhibit No. 10 iii 21 to NYNEX's
Form 10-Q for the period ended June 30, 1996, File No. 1-8608).*
10v Employment Agreement between Verizon and Charles R. Lee (Exhibit 10x to
Form 10-K for the year ended December 31, 2000).*
10w Amended and Restated Employment Agreement between Verizon and Ivan G.
Seidenberg. (Exhibit 10 to Form 10-Q for the period ended June 30, 2000).*
10x Employment Agreement and stock option arrangements with respect to the
stock of Grupo Iusacell, S.A. de C.V., between Verizon and Lawrence T.
Babbio (Exhibit 10a to Form 10-Q for the period ended September 30, 2000,
Exhibit 10s to Form 10-K for the year ended December 31, 1993 and Exhibit
10q to Form 10-K for the year ended December 31, 1996).*
10y Employment Agreement between Verizon and Mary Beth Bardin (Exhibit 10b to
Form 10-Q for the period ended September 30, 2000).*
10z Employment Agreement between Verizon and William P. Barr (Exhibit 10c to
Form 10-Q for the period ended September 30, 2000).*
10aa Employment Agreement between Verizon and David H. Benson (Exhibit 10cc to
Form 10-K for the year ended December 31, 2000).*
10bb Agreements with William F. Heitmann (Exhibits 10ll and 10nn to Form 10-K
for the year ended December 31, 1998).*
10cc Employment Agreement between Verizon and Michael T. Masin (Exhibit 10d to
Form 10-Q for the period ended September 30, 2000).*
10dd Employment Agreement between Verizon and Frederic V. Salerno (Exhibit 10e
to Form 10-Q for the period ended September 30, 2000).*
19
10ee Employment Agreement between Verizon and Ezra D. Singer (Exhibit 10gg to
Form 10-K for the year ended December 31, 2000).*
10ff Employment Agreement between Verizon Wireless and Dennis F. Strigl (Exhibit
10f to Form 10-Q for the period ended September 30, 2000).*
10gg Employment Agreement between Verizon and Lawrence R. Whitman (Exhibit 10g
to Form 10-Q for the period ended September 30, 2000).*
10hh 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).
12 Computation of Ratio of Earnings to Fixed Charges filed herewith.
13 Portions of Verizon's Annual Report to Shareowners for the fiscal year
ended December 31, 2001. Only the information incorporated by reference
into this Form 10-K is included in the exhibit.
21 List of principal subsidiaries of Verizon filed herewith.
23a Consent of Ernst & Young LLP filed herewith.
23b Consent of PricewaterhouseCoopers LLP filed herewith.
23c Consent of Arthur Andersen LLP filed herewith.
99a Report of PricewaterhouseCoopers LLP filed herewith.
99b Report of Arthur Andersen LLP filed herewith.
* Indicates management contract or compensatory plan or arrangement.
- --------------------------------------------------------------------------------
(b) Current Reports on Form 8-K filed during the quarter ended December 31,
2001:
A Current Report on Form 8-K filed October 4, 2001, and amended by Form
8-K/A filed on October 5, 2001, containing a press release regarding the
company's guidance for third quarter financial results, as a result of the
September 11th terrorist attacks.
A Current Report on Form 8-K filed October 30, 2001, containing a press
release announcing our third quarter and year-to-date financial results and
an outlook for the remainder of 2001.
20
Schedule II - Valuation and Qualifying Accounts
Verizon Communications Inc. and Subsidiaries
For the Years Ended December 31, 2001, 2000 and 1999 (dollars in millions)
Additions
---------------------------------
Charged to
Balance at Other
Beginning of Charged To Accounts-- Deductions-- Balance at End
Description Period Expenses Note (a) Note (b) of Period
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for Uncollectible
Accounts Receivable:
Year 2001 $ 1,562 $ 1,952 $ 808 $ 2,169 $ 2,153
Year 2000 1,170 1,409 974 1,991 1,562
Year 1999 988 1,133 597 1,548 1,170
Valuation Allowance for
Deferred Tax Assets:
Year 2001 $ 441 $ 1,133 $ -- $ -- $ 1,574
Year 2000 326 115 -- -- 441
Year 1999 317 9 -- -- 326
Discontinued Businesses:
Year 2001 $ 286 $ (60) $ -- $ 7 $ 219
Year 2000 353 (52) -- 15 286
Year 1999 223 184 -- 54 353
Merger-Related Costs:
Year 2001 $ 783 $ -- $ -- $ 252 $ 531
Year 2000 473 1,056 -- 746 783
Year 1999 598 -- -- 125 473
(a) 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.
(b) Amounts written off as uncollectible or transferred to other accounts or
utilized.
21
- --------------------------------------------------------------------------------
Signatures
- --------------------------------------------------------------------------------
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 20, 2002 By /s/ Lawrence R. Whitman
-------------- ------------------------
Lawrence R. Whitman
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 Officers:
/s/ Charles R. Lee Chairman and March 20, 2002
- ------------------------------ Co-Chief Executive Officer
Charles R. Lee
/s/ Ivan G. Seidenberg President and March 20, 2002
- ------------------------------ Co-Chief Executive Officer
Ivan G. Seidenberg
Principal Financial Officer:
/s/ Frederic V. Salerno Vice Chairman and March 20, 2002
- ------------------------------ Chief Financial Officer
Frederic V. Salerno
Principal Accounting Officer:
/s/ Lawrence R. Whitman Senior Vice President and March 20, 2002
- ------------------------------ Controller
Lawrence R. Whitman
22
- --------------------------------------------------------------------------------
Signatures - Continued
- --------------------------------------------------------------------------------
/s/ James R. Barker Director March 20, 2002
- ------------------------------
James R. Barker
/s/ Edward H. Budd Director March 20, 2002
- ------------------------------
Edward H. Budd
/s/ Richard L. Carrion Director March 20, 2002
- ------------------------------
Richard L. Carrion
/s/ Robert F. Daniell Director March 20, 2002
- ------------------------------
Robert F. Daniell
/s/ Helene L. Kaplan Director March 20, 2002
- ------------------------------
Helene L. Kaplan
/s/ Charles R. Lee Director March 20, 2002
- ------------------------------
Charles R. Lee
/s/ Sandra O. Moose Director March 20, 2002
- ------------------------------
Sandra O. Moose
/s/ Joseph Neubauer Director March 20, 2002
- ------------------------------
Joseph Neubauer
/s/ Thomas H. O'Brien Director March 20, 2002
- ------------------------------
Thomas H. O'Brien
/s/ Russell E. Palmer Director March 20, 2002
- ------------------------------
Russell E. Palmer
/s/ Hugh B. Price Director March 20, 2002
- ------------------------------
Hugh B. Price
/s/ Ivan G. Seidenberg Director March 20, 2002
- ------------------------------
Ivan G. Seidenberg
/s/ Walter V. Shipley Director March 20, 2002
- ------------------------------
Walter V. Shipley
/s/ John W. Snow Director March 20, 2002
- ------------------------------
John W. Snow
/s/ John R. Stafford Director March 20, 2002
- ------------------------------
John R. Stafford
/s/ Robert D. Storey Director March 20, 2002
- ------------------------------
Robert D. Storey
23