Good morning, and welcome to the Verizon Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to turn the call over to your host, Mr. John Doherty, Senior Vice President, Investor Relations for Verizon.

Thanks, Brad. Good morning, and welcome to our fourth quarter 2011 earnings conference call. Thanks for joining us this morning, I'm John Doherty. With me this morning is Fran Shammo. Before we get started, let me remind you that our earnings release, financial and operating information, investor quarterly and the presentation slides are available on our Investor Relations website. This call is being webcast. If you would like to listen to a replay, you can do so from our website. I would also like to draw your attention to our Safe Harbor statement. Information in this presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Discussion of factors that may affect future results is contained in Verizon's filings with the SEC, which are available on our website. This presentation also contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also on our website. For the fourth quarter of 2011, we reported a loss of $0.71 per share on a GAAP basis. These results include a noncash pension and benefits charge of $5.6 billion on a pretax basis. This mark-to-market adjustment related to our current year asset returns, discount rate and mortality assumption changes in our pension and postretirement plans. This adjustment is in accordance with the accounting policy we adopted a year ago, which requires us to recognize actuarial gains and losses in the year in which they occur and not smooth the effects over a longer period of time. Adjusting for $1.23 per share of nonoperational items, fourth quarter EPS was $0.52, bringing our full year 2011 adjusted EPS to $2.15. The comparable adjusted EPS in 2010 was $2.08. With that, I will now turn the call over to Fran.

Thanks, John, and good morning, everyone and happy new year. Before we get into the details, let me start with a few summary comments. We finished the year very strong, creating value for our shareholders in 2011 by generating a total return of 18.2% through a combination of stock price appreciation of 12.1% and our dividend payments. Our stock price appreciation outpaced our peers, as well as the S&P, Dow Jones and broader indices. For the fifth consecutive year, our Board of Directors approved a dividend increase, indicating their confidence in the sustainability of our business model, cash flows and our improving earnings profile into 2012 and beyond. In 2011, we also made some smart investments for the future growth and improved profitability. While very disciplined in our approach to capital spending, we continue to invest in networks and new technologies, which will be the platform for accelerated growth. On the strategic front, we made some moves that will significantly improve our competitive position. These include the acquisitions of Terremark and CloudSwitch in the cloud computing space, several agreements to purchase additional spectrum, joint efforts around innovation with a number of partners including the cable companies and, of course, our continued leadership in the rapid development of the 4G LTE ecosystem. We also renewed our focus on delivering solutions to customers and the markets we serve by better leveraging our capabilities across all parts of the business, wireless, FiOS, Strategic Services, the cloud, digital media and our global high-speed IP network. Our recently formed Global Enterprise solutions organization will strengthen our ability to provide fully integrated customer solutions. In addition to making these investments in our future, 2011 was a great year of solid execution. We posted record revenue growth in the fourth quarter, resulting in adjusted revenue growth of…

Thanks, Fran. Brad, let's open it up for questions please.

[Operator Instructions] Our first question will come from John Hodulik of UBS.

If we could just start with the -- or stay with the 2012 outlook. Last year, Fran, when you gave the 5% to 8% earnings growth, you also suggested that, that could double in 2012. Is that still the right range as we look forward here? And then turning to postpaid ARPU, you had a big quarter in terms of smartphones and Internet devices. Based on what you're seeing now, how do you expect those sort of growth trends on the postpaid ARPU side to progress, maybe in the first quarter and an outlook for 2012, if possible?

First of all, on the 2012 outlook, so let me start here. Actually, John and I are doing this call remotely from our Innovation Center up here in Waltham, which is just a pillar of how we're going to accelerate our growth in the future. As of many of you visited this facility, you saw the innovation of the products and the services, which I believe are pioneer in the industry of developing these types of solutions that will increase our revenue from a machine-to-machine perspective and everything that is going to be driven over our LTE network, which we believe we are a market leader in. So if you take the Wireless asset and then the FiOS asset and you look back at to what we said back in January of 2011, when Lowell and I first stood on this stage live, we stated that we had a year of execution in front of us and we ha certain targets that we wanted to hit. And I think that coming out of this year, I would say that my position has not changed from where I stood on that stage. So growth opportunities for the future, I believe, are there. As I said in my script remarks, I believe that the $2.15, as you look at it for 2012, should be a baseline of $2.20 as you project our growth out. But I would reiterate that my position from January has not changed as I sit here at the end of this year. Going on to postpaid ARPU growth, I think, if you look at this, we continue to grow our ARPU growth. I think that from an overall perspective, if you break that down, we had our phone ARPU grow to an all-time high of 4%. Now if you look back, that was 3.3% in the second quarter. That went up to 3.7% in the third and now sitting at 4% overall. So you can see that the smartphone penetration is accelerating that phone ARPU growth. As we've talked in the past, the Internet category has some dilution in it. So year-over-year, we're down 11% and this is reflected back when we changed our prices back in October perspective. So on an ARPU perspective of Internet devices, down 11%, but overall revenue growth from that category as we said, we did this to expand the category. And again, this quarter, we were up 24% year-over-year in the amount of Internet devices we added and we continue to have our strongest quarter of the year. So we are executing on the expansion of that category. So year-over-year, the actual revenue is up 10%, even though that there is some dilution in the ARPU side. So I think, John, to answer your question, I'm extremely positive and I stay with what I've said coming out of the third quarter. We continue to see that we can accrete our ARPU into the future of 2012.

Our next question will come from Jason Armstrong of Goldman Sachs.

Maybe a couple of questions just related to Wireline margins. Fran, you talked about continued improvement into 2012, and I'm just wondering if you can help us with the baseline for that comment. Is that meant to be improvement off the 23.8% exit rate? Or is that a sort of general 2012 versus 2011 comment? And then related to that, can you just help us think through what the bigger drivers of improvement would be and if that includes any sort of benefit from the labor negotiations?

So the 23.8% coming out of the fourth quarter, what I would say is, we are very, very confident that through all of the things that we were doing on Wireline. First, start off with FiOS and our continued penetration there and we continue to gain market share in every market. New York continues to be our highest growing market there. So FiOS is a critical component to the growth of the Wireline on a top line basis. The other strategy that we've talked about a little bit in the past is the strategy of migrating our copper plant over to the FiOS plant, now that we have substantial FiOS passing prems, where there is also copper. So what you're going to going to see this year is a very strategic initiative that we go out and we look at areas, where there are chronic copper problems and we start to transform them onto our FiOS network. And the math would say, if there is a chronic problem that we have to visit more than 2x a year, the actual financial benefit of us transforming that to FiOS pays for itself within that year. So we will strategically start to go in there. What that brings is, that brings an enormous expense savings to us from just an overall operational plant perspective. That's one big component. The second is, obviously, with the new organization of Enterprise, we believe that with the acquisitions of Terremark and CloudSwitch, we continue to grow that top line. As I said, Terremark had an outstanding quarter, sequentially up 10%. That came out of a September all-time high booking. That will continue into '12 because, obviously, those bookings don't book all in the same quarter that you sell. In this business, it takes 6 to 12…

Fran, that's helpful. If I could just ask for one clarification just on the prior sort of EPS commentary. You said nothing's changed from your January position. I'm just -- the clarification, I guess, would be the interpretation around the January position because the math of it would tell you, 5% to 8% growth and then double that, so 10% to 16% growth. But then the separate interpretation was double the rate of 2011 growth. So are you saying you're comfortable in doubling the rate of 2011 or you're comfortable with the original 10% to 16%?

Yes. It's more of, I'm comfortable with where we said we would be in January of '11. So my position has not changed.

Our next question will be from Simon Flannery of Morgan Stanley.

Very strong results, obviously, from the iPhone, we've seen it across the industry. You talked about a very strong December. How should we think about Q1 versus Q4? Is this a product that's going to continue to have legs into the first quarter of the year? Or do you think the first quarter is going to be a more normal quarter as we'd had in, say, the first 9 months of the year. I'm including this sort of original iPhone launch? So any trends, I know it's early in the year, but anything -- how we should be thinking about Wireless margins in Q1? And then staying on wireless, you noted that there was some pressure on other service revenues from wholesale, roaming, I think that you lost your Telematics customer. Can you just give us a little bit more color about -- around that and what's going to sort of make that better in 2012?

So from a Wireless margin perspective, here, look, I think I'd look at it this way. You talked about one product, I talk about a whole portfolio of products. So if you look at our LTE lineup and just to give you some numbers. We sold almost 15 million Android-based products, and if you do the math for the quarter, it's about 10.8 million iPhone products. So they're both extremely significant to our portfolio. If you look at LTE, we're coming out of the year with almost 18 devices on our network and we will add 6 more in the first quarter of this year, leading us to 24. So I think that the way we look at it is, our momentum coming out of the fourth quarter into the first quarter and, obviously, the first quarter will be more of what we saw in the first 3 quarters because, obviously, the fourth quarter is always a much higher volume quarter just because of seasonality. So I would think that, Simon, on this one, what I would say is this: is we have a proven track record in Wireless that we both drive profitability and growth. And I would expect that in 2012, we will get back to and continue to improve on the Wireless margins. So if you look at what we did in the third quarter, going back, we had an iPhone in our portfolio. We had 3 quarters under our belt with a very real large lineup of 4G LTE devices, and we produced the highest margin in Wireless in the history of the Wireless business at 47.8% margins. So, I guess, what I would say to you is, is that we will strive to continue to improve on the Wireless margins, not only on the top…

Our next question comes from Phil Cusick of JPMorgan. Philip Cusick - JP Morgan Chase & Co, Research Division: Maybe let's talk about CapEx to start. You talk about better efficiency in the slide deck. So with the revenue rising, should we think about that as being sort of flat? And then also on the cash outlay side, can you talk about cash taxes in 2012? Do you expect that to be sort of in line with the GAAP taxes or maybe a little higher as bonus depreciation starts to slip away?

So from a CapEx perspective, coming out of the first half of this year, I stated that we would have very strong management of our capital expense as we continued to build out the EV-DO network and the capacity required to carry the iPhone on the 3G network from a capacity standpoint. And I think you've seen that Verizon Wireless has managed this extremely efficiently by moving higher end Internet devices off of the 3G network onto our 4G network. And just one other note is, in the fourth quarter, all of our Internet devices sold, 100% of those adds, were all on the 4G LTE network. So I think from a CapEx standpoint, what I would say is, I would not expect any change here from a disciplined capital spending coming out of the back end of 2011 going into '12. And as I said, we will continue to improve our overall CapEx-to-revenue ratio. So I wouldn't expect you to see anything differently than what we've executed on through 2011. As far as cash outlay, from a cash tax perspective, as you know, the bonus depreciation is Safe Harbor for 2012. So there really is no additional cash tax from the bonus depreciation and, obviously, there's still a lot of things that we're looking at for 2012 from a bonus depreciation discussion down in Washington, of an extension of that, possible overall corporate tax restructure. So we look at those things. But I will tell you, that even without that, we continue on a very complex organization of taxes for federal purposes, continue to strategize and continue to think of how we best utilize our structure to make sure that we have as minimal cash outlay as possible from a cash tax perspective. The only thing I will highlight from a cash differentiation for 2012 is the pension plan contribution, as I talked about. This will go from $400 million up to $1.26 million for '12, and those contributions will be made more or less smoothly through the year, but the first and the third quarter will be around $400 million and then evenly in the second and fourth quarters. So that really is the only change from what I would expect from a cash outlay. The only other thing I would say is, as our profits continue to increase and we grow bottom line, obviously, our cash taxes will increase with them.

Our next question will come from Timothy Horan of Oppenheimer. Timothy K. Horan - Oppenheimer & Co. Inc., Research Division: I'm just trying to understand, Fran, your comments on LTE. Maybe what you're thinking on market share and on the pricing for LTE. It's clearly expanded the market, but maybe when do you think you'll have the ability to go out and raise prices for LTE. And I'm not sure if you gave the numbers, but what percentage of LTE subscribers are new to Verizon and maybe how does that compare with the iPhone? And lastly, it just seems like LTE is just a huge advantage this year. Do consumers really understand it? Is the advantage really going to be pressed with all the new devices that you have coming out? And just how you're thinking about LTE versus your competition for this year, which it seems, it was the year you'd be able to capture a lot of the high-end subscribers off your peers?

I think that just from an overall market perspective, obviously, we believe that we are, without a doubt, the market leader in this innovation pioneering of the technology of LTE. We have now over 200 million POPs covered, which exceeded what our original plans were to achieve 185 million POPs. And as I said, we initially told that we would have 3G and 4G coverage about the same by the end of 2013, and we have now said by mid-2013, we'll have that coverage fulfilled. So, I think, from just an overall leadership position and a market position, I think we're in great shape. From a pricing perspective, obviously, we did the fourth quarter promotion, where we said we doubled your allowance coming, so that we would have more enticement of people looking at the 4G product. And as you can see, we had our all-time high of 4G devices moved, of over 2.4 million devices in the quarter moved, from that strategy. So I think overall pricing what I would say is this, I think you'll see more movement on device pricing than you will on overall service pricing. We'll have to see what the competitive marketplace holds for this. But I think that from just an overall perspective, LTE will be a market leadership for us. And it's not only around just the retail market, but we can't lose sight of the machine-to-machine market. And obviously, I said, I was sitting up here in the innovation lab, there is a lot of technology and innovation that's going to come out around an automobile, around healthcare, around energy conservation that really will leap bound anything that we see currently in the marketplace today. So I think that from a machine-to-machine perspective, we continue to see growth in our adds quarter-over-quarter, and I see that continuing through 2012 and have a market leadership position there.

Our next question will come from Michael Rollins of Citigroup.

First, could we just get an update on Verizon Wireless debt and cash at the end of the quarter? And then secondly, could we just get a deeper dive on what's happening in the improvement in Global Enterprise revenue? What are the products that you find are really helping the Strategic Service revenue growth? And then, are you also seeing less headwinds on -- those downward pressures on the legacy side of Enterprise?

So from a Verizon Wireless perspective, they're going to end the year at $12.3 billion worth of cash on the balance sheet. They have $11.6 billion of debt, so they're actually in a surplus position of $700 million. For 2012, they have about $1.6 billion of maturities coming that will be paid down. And as I said, within the next week, we will have a $10 billion distribution to both of the parents there. So that's the situation of the cash and the debt on the Wireless side. From an enterprise perspective, I think that it's critical here, just overall, with this organizational structure that Lowell has set up with the Enterprise Solutions Group. It is key for us because, I said before, as we approached our enterprise customers, we still had a delineation between a wireless solution and a wireline solution. And now that the organizations come together with the product rationalization that I talked about, it's going to be critical for us to present one solution to our customer end-to-end. And that really, I think, will elevate where we are today just from an overall strategic services position. But to get to your question, Mike, about exactly what are we selling. Obviously, cloud services, the acquisition of Terremark, the addition of CloudSwitch, the opening of the NAP center in Amsterdam, the expansion of our São Paulo, Brazil data center which quite honestly, up to the acquisition of Terremark, Verizon really never played or had a position in Latin America, so this is a very high growth area for us. So I think, one, absolutely around the cloud, but also the convergence of cloud and what that brings to -- from an overall enterprise mobility standpoint and the integration of that cloud and that mobility solution when you look…

Our next question will come from Jennifer Fritzsche of Wells Fargo.

Most of my questions have been answered but just on FiOS, nice growth there. I know you said it's going to be a large part of the revenue contribution in Wireline next year, or this year rather. Can you just comment on the pricing you're seeing there and the competitive environment specifically with the cable players?

Yes. I think this is extremely important because as I've said before, I know folks are saying that we're overly competitive in pricing. But what I would say is, that the pricing has not actually changed and if anything, if you look at it, there was a price increase in 2011. And there will probably be some more price increases in 2012 as we go here. But I think the differentiation we have here is, we have a superior product in FiOS. It is taking hold in the marketplace. We are seeing, as I said, New York is our highest growing market. This past year, we crossed a milestone in Virginia. We passed 40% penetration on our video services. You can see we had a good quarter on broadband connection in FiOS. And I think if you look at the line loss that we set at 7.2%, you can see that, that strategy of the chronic, we started that in the fourth quarter of this year a little bit. You can see that we are starting to convert copper voice customers onto FiOS. So continuing to grow and hold on to that declining revenue stream of the legacy products. So I think, overall, FiOS will continue to play a very important strategic role in the future of Wireline. We will compete vigorously with this, even with the agreements that we entered into with the cable companies. If you look at the innovation agreement, that innovation will come into FiOS. And being a superior product already, that innovation will add what we can bring to the consumer base from an overall perspective. So I think, overall, I'm very optimistic on our FiOS penetration for 2012.

Your last question will come from David Barden of Bank of America Merrill Lynch.

Two, if I could. Just first, Fran, going back to the Wireless pricing equation. You guys have had, I think, a comfort level with your products' status relative to others, pricing it at a premium. We saw a price hike a year ago from Sprint. We saw an overall kind of refresh of pricing from AT&T recently. You have talked about the introduction of new family plan prices. If you could kind of elaborate a little bit on how the pricing lever can be used to kind of grow ARPU in 2012, that would be helpful. And then second, the Wireline revenue side would probably have grown in aggregate, if it weren't really for the kind of other segment, which kind of fell off in 4Q. Could you kind of elaborate a little bit on, on what's going on there and what the outlook for that is in '12?

So, David, just to follow up, you're talking on the wholesale side of Wireline?

Sorry, on the -- there's consumer, small business equals mass markets, then Strategic Services and other, which was 1.94 down from 1.99 in 3Q.

Okay. All right. Very good. Thanks. So from an overall Wireless pricing equation, I think that we are the market leader. We set our tier pricing structure when we launched our 4G network. And as I've said, the way we positioned our 4G tier pricing was that based on our future view of where usage would go, we saw that we had opportunity from a tiered structure and the proliferation of video through the LTE network that we would grow our revenue streams. And that's what we're seeing just from an overall tiered pricing structure. As we continue to mature this, we have said that we are looking at family data plans, if you will, and we continue to look at that. And obviously, the play there is, is to make sure that it's a win-win for the customer and a win-win for us from an accretion standpoint. So we continue to work that. But I think that it's important to note that we are a premium-priced product, but we will win in the marketplace just like we did with Unleashed even though that, that's priced $10 above the market. We now see that there are niches of people that want to be on the best network in the world. So I think that will continue to be our strategy, and we'll see here as 2012 goes. As far as Wireline goes on that, I think wholesale, we continue to see pressure on the wholesale side of the business just from a legacy voice. And as we transform this business from a legacy voice business to a data business, continue with our fiber to the cell program, which we are building out for various wireless carriers. This continues to be very good business for us, but not quite enough to offset the voice loss. So I think we'll continue to see pressure in there going into 2012. As far as the other category, this is legacy MCI 108 traffic, call collect-type traffic, which will continue to decline. It's not something that's strategic for us and we'll just really move that as a cash cow at this point, and that will continue to decline. So overall, the focus here is on the consumer Wireline margin, the Enterprise portfolio and then also the wholesale portfolio.

Ladies and gentlemen, that does conclude the conference call for today. Thank you for your participation and for using Verizon Conference Services. You may now disconnect.