Good morning and welcome to the Verizon Third Quarter 2012 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode, and the floor will be opened for questions following the presentation. (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, John Doherty, Senior Vice President, Investor Relations for Verizon.

Thanks Brad. Good morning, and welcome to our third quarter 2012 earnings conference call. Thanks for joining us this morning. I am John Doherty. With me this morning is our Chief Financial Officer, Fran Shammo. Before we get started, let me remind you that our earnings release, financial and operating information, the 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 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 also available on our website. This presentation contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also available on our website. I would also point out that the quarterly growth rates disclosed in our presentation slides and during our formal remarks are on a year-over-year basis unless otherwise noted as sequential. Before Fran takes you through the details of our results, I would like to cover a few items upfront. For the quarter, we reported earnings of $0.56 per share on a GAAP basis. These results include $232 million or $0.08 per share for non-operational charges related to patent litigation settlements with TiVo and ActiveVideo. On an adjusted basis, EPS was $0.64 in the third quarter, up 14.3% year-over-year. Through nine months adjusted EPS is $1.87, an increase of 14.7% from last year. Discussion of consolidated results and growth rates in this presentation exclude the effects of non operational items. As we have previously indicated, we are no longer reporting average revenue per unit or ARPU for wireless postpaid devices, instead, we are disclosing average revenue per account or ARPA which we believe is a more meaningful metric going forward given our new shared data pricing plans. Earlier this month, we filed a Form 8-K which disclosed 10 quarters of historical information for the following retail postpaid metrics; the number of accounts, the average connections per account and the average revenue per account. This information can also be found on our investor website. It is now part of the wireless selected operating statistics included in our financial and operating information schedules. With that, I will turn the call over to Fran.

Thanks, John. Good morning everyone. Before we get into the details, let me start with a few comments about our financial results. We continue to execute our plan well across the entire business. Consolidated revenue growth increased to 3.9% and our strong focus on cost management and improving profitability resulted in solid double-digit growth in operating income and earnings per share for the third consecutive quarter. This sustained operating performance together with disciplined capital spending is driving significant increases in free cash flow, resulting in capital efficiency gains and an improving return on investment profile for the overall business. Through the first nine months, we generated $13.4 billion of free cash flow, which is 50% more than last year. The wireless business is setting global benchmarks for performance and we are building significant momentum heading in to the fourth quarter and 2013. Service revenue growth increased to 7.5%, driven by increasing smartphone penetration and greater device adoption, stimulated by the successful and well received introduction of our Share Everything plans. This sustained revenue growth performance, together with our demonstrated ability to effectively manage cost and retain customers, resulted in a record setting EBITDA service margin of 50%, even with our strongest subscriber growth in four years. In Wireline, consumer revenue growth accelerated to 4.6%, a sharp increase from 2.5% in the second quarter, driven by increased FiOS revenue per customer. Enterprise and Wholesale revenues continue to be impacted by secular and global economic challenges, particularly in Europe. We are confident that our focus on improving long-term profitability through product rationalization and simplification along with process streamlining will prove to be the right decisions as we build a fundamentally stronger business. On September 19th we reached a tentative agreement with the CWA and IBEW for new three-year contracts covering about 43,000…

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

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question will come from Jason Armstrong of Goldman Sachs. Your line is open.

First on FiOS just a question on video; Fran you talked about certain impacts in the quarter and you talked about the potential for this to rebound next quarter. I think what you talked about in the Q2 call was sort of a normal run rate of 150 to 170, is that still a target range we should think about for 4Q? And then second question just on the pension structure in terms of the feel and the $7.5 billion, can you help us think through how that impacts the P&L, what that does to the expense stream in wireline? Thanks.

First on the FiOS growth, yeah I think that I gave a range of 150 to 170; where we came out of September I am very confident that we will get to that 150 plus for net adds in the fourth quarter, so I think that's a good target. And then on the pension side, I think that from a P&L perspective, it’s very hard for me to distinguish at this point in time; there are so many fluctuations here. But I think the key to this whole thing a couple of points I want to make here. So from just an overall cash perspective which is the real key here, because this is really the cash impact of the business. As you know we made a first half contribution of $600 million. In the third quarter, we added another $1.2 billion to the plan, so $1.8 billion from a cash impact perspective to-date and in the fourth quarter we determined that we will put another $1.6 billion into the plan. All these contributions are tax deductible. We will not have any 2013 contributions and that based on our planning and the assumptions that we have in this transaction, the future cash contributions to the pension plan will be less post this transaction close, which we anticipate to be early December. So from that perspective, that to me is the important part. I think everything else is pretty minimal at this point in time.

Thanks Fran, and you talked about this being applicable to current retirees, is there any prospects for taking this in to sort of the active employee base?

I think at this time, we've no more definitive agreement at this time and to extend this transaction. This transaction is specifically related to management retirees, who retire before January 1 of 2010. It does not impact current active management employees. It does not impact current active union represented employees nor does it impact retiree union represented employees.

Thanks Jason. Brad could we move on to the next question please.

Our next question will come from John Hodulik of UBS. Your line is open.

If we could just talk about margins little bit here; first on the wireless side, you know, last year you guys saw a little over 500 to 600 sequential decline in the fourth quarter mostly related to fourth quarter launch of the iPhone. Does the earlier launch of the iPhone sort of lower that decline along with some of the another initiatives you’ve been doing. If you just could about, what do you expect from a trending standpoint there? And then on the wireline side, I know you guys don’t want to give the details on the union contract, but can we start to see some of the benefits as early as the fourth quarter or what kind of trend are you looking for there?

So on the wireless margin, look I think that this has a lot to do with volume, right? So the iPhone 5 came out in very late September. There really wasn’t all that much volume on the iPhone 5. If you look at our total iPhone adds, we added 3.1 million, 1.1 million than we did a year ago, and about 651,000 of them were iPhone 5s, the rest were 4 and 4S. What we’re seeing here is, we’re seeing that the iPhone 5 we had supply constraints, we’re not sure where we’re going to stand in the fourth quarter with those constraints. But what we’re seeing on the 4 and the 4S is that we’re attracting customers who probably previously did not come to Verizon because of the cost point of that iPhones. So, I think you saw that in our net adds growth for the quarter. So, again from a trending perspective and all the work that we’ve done around cost and the $2 billion, and if you look at the three years; we’ve taken out $5 billion of cost structure of wireless. Again, I think that given the volume, there could be some dilution in that margin. If the volumes exceed what they were in the third quarter, which I anticipate they will. If you recall back to the first quarter, I said we would accelerate our growth throughout the quarters for the year, as we come out of the third quarter. You saw we posted our highest growth in the last four years, and I think that we will accelerate that growth into the fourth quarter. So, yes, I think we will have some deterioration in the margins in the fourth quarter for wireless. But at this point I can’t tell you what that will be, because I don’t know what the volume will be. But obviously, I don’t anticipate it to be as much as it was a year ago. Great, and then on the wireline side, I think this story is a much more complex story. But in the short, just for the union piece of this, I think, we’ll wait till the fourth quarter, but you’re not going to see any benefits this year. But I don’t want to really get into the details until this contract is ratified. A number of unions have ratified it, but it will not be ratified by all until the next couple of days are over. So, once that happens I will give some more clarity around this add during the fourth quarter and into the first quarter.

Thanks John. Brat could we move on to the next question.

Our next question comes from Simon Flannery of Morgan Stanley. Your line is open.

Fran, could you talk to us about these 700 MHz spectrum process where you stand in that, how it’s looking so far, when do you think you might be able to give us some more news on that? And then what are the implications of that and what’s the likely timing of another decision on the Verizon wireless dividend to the parent Verizon and to Vodafone? Thanks.

So on the 700 MHz we started this process late in the third quarter, the process is ongoing. We have a lot of interested parties, a lot of complexity to the bidding process here from the individual respective party. So there is a lot of work to be done here and we are not ready to talk about exactly where we are with these. I think the important point though is, we are going to analyze each and every bid. We are also developing our own internal plans to launch this spectrum, because as I said before, this is not a fire sale on spectrum. So if we do not get fair value or what we believe to be fair value, then we will use this spectrum internally. But at this point I think it’s too early to communicate exactly how this will proceed, but I think it will happen late in the fourth quarter possibly not till the first quarter, and if we do come to terms with some of these than it has to go through the normal FCC approval. We are probably very close on that, probably till late third quarter, fourth quarter of 2013. As far as Vodafone dividend; this is a very interesting question. Because I think we all forget that on January of 2012 we actually did do a dividend that’s $10 billion, and throughout the year during our normal course we did about another $4.5 billion of tax distributions. So year-to-date, we have done $14.5 billion of dividend distributions out of wireless. To talk about a further dividend, I think it’s pretty mature, we have an agreement with Vodafone that we will discuss this before the end of the year, and once we have that discussion and we will report out what the decision will be.

Brad could we move on to the next question please.

Our next question is from Phil Cusick of JPMorgan. Your line is open.

Two things, one I wonder, if you can tell us whether substantially higher portion of phones came in with no subsidy this quarter, people paying for price and it is [down] their previous plan that happened in the past?

Yeah, Phil, so obviously, if you look at our growth and you look at the number of phones we have moved, the majority of the phones sales incurred a subsidy on them. But we did have a number of customers who actually paid full price for phones to remain on the unlimited plan. So we did have some customers who made that choice and stayed with Verizon Wireless. But for the majority most of the smartphones that we sold included a subsidy. But we also had our large volume in our postpaid tablet category, and we also had a large volume in our internet category, and they carry for the postpaid tablets at really no subsidy. And on the internet devices, we almost doubled the amount of net adds we had from second quarter to third quarter, which was a contribution to our Share Everything plan and they have a reduce subsidy compared to what a smartphone would be, but the majority of devices did have a subsidy.

You mentioned that given the Septembers results you expect FiOS to be over a 150. Is that more a seasonal shift or are you putting a little more effort in to promotion and marketing here?

Well I think it’s a combination of a couple of things. Number one, I think as I said coming out of second quarter, we probably moved away a little bit too much of promotional activity. So we picked that up in September, and the third quarter is a very high seasonality of moves for us and this is always a third quarter issue with FiOS, because people move out of the area and we can't retain them because they move to an area that does not have FiOS availability to them. We are doing a lot of effort in reconnecting existing homes that already have an O&T on the side of the house, for people who have moved in. So you are going to see a lot more activity around that. I also think that we did see some pressure in the current phase from the price upset we had. And I think those price ups were all done now, so I think we are going to stabilize here and I'm very comfortable that we’ll get back to that 150,000 plus for net add projection.

Thanks Phil. Brad the next question please.

Our next question is from Tom Seitz of Jefferies.

Fran I would like to discuss copper shutdown a little bit. AT&T has publicly stated that for them to invest in the 20 million access lines they have got under a strategic review, they are going to need relief from copper circuit-switched TDM regulations. If they were to get that, would you consider applying for the same relief and accelerating the copper shutdown? I ask because at current course and speed in the neighborhood of $200,000 conversions per year that's 50 plus years to shutdown the redundant copper plant, and its probably the largest structural impediment to improving wireline margins.

From a copper shutdown perspective its highly unlikely that you will ever see a Verizon have no copper in their network, because of the vastness of this network. But I think strategically the way we have approached this from a copper-to-fiber migration all copper is not created equal. We have areas where the copper has really deteriorated because its 60 years plus, and we are strategically going after what we call chronic troubles and that is a truck roll that happens in a period of six months time and that costs us about 900 hours in cash from a perspective of that. So, when you look at the overall investment that we have to make to migrate that customer from copper to FiOS, its more cost effective to go after those chronic problems first. But not all of the network that leads into one switch is having these chronic problems. So to think about decommissioning every switch in our network would be a huge cost undertaking. So we believe that the strategy we've outlaid with our copper-to-fiber migration is financially viable, it’s better for the customer, we see that from the customers who we have migrated in the short term, they are actually buying up in the FiOS quantum and generating $10 plus more ARPU. So we are strategically going after this. We have also received a lot of regulatory relief already in the states that we deal with, from being a carrier of lost resort, replacing in Pennsylvania, fulfilling our obligation of bringing broadband to customers via (PA30) rulings which would be with wireless instead of wireline, which is a much more financial beneficial to Verizon. So we have already explored a lot of this regulatory highway and we will continue with our copper to fiber migration under the plan that we are executing.

Thanks Tom. Brad the next question please.

Our next question comes from Michael Rollins of Citi Investment Research.

First if I could ask my quarterly question for an update on the net debt at Verizon wireless, and then secondly just moving over to the wireline side, can you give us an update on the VDMS segment and just the strategy that you are continuing to pursue there, the progress including the relationship that you have with Redbox? Thanks.

Sure thanks, Mike. So your general normal quarterly question I have it right here is gross debt of $10 billion, cash of $8.1, so net debt of about $1.9 billion. And then on the Wireline side of house was VDMS; we are making significant progress. We have been dealing with, what we call a number of chartered customers which includes many content providers and movie houses in helping us to customize this package and get this thing to market. We anticipate that it will come to market in 2013; I won't be specific on that date at this point in time, but we believe we have a very viable product to come to marketplace that will significantly change the way content is, if you will, packaged and picked and shipped. So we will have more to say on that within 2013, but I think that will start to contribute to some of the Wireline top growth and help to improve the margin overall.

Thanks very much.

I am sorry, I mentioned Redbox. Now, we are very close to launching here in the fourth quarter of Redbox. VDMS plays a very critical role in the content delivery with that joint-venture with Redbox and again, I think moving into 2013, the business case that we have with us with Redbox will improve our topline and contribute to the profitability of the overall Wireline segment.

Alright, let’s keep this moving. Thanks Mike. Brad lets take the next question.

Our next question is from Jennifer Fritzsche of Wells Fargo. Your line is open.

Great, thank you, Fran. If I could, could you provide a little color on your CapEx trend; I understand you are saving on the 3G spend, but given these impacts of postpaid net add results and growth in internet devices, I would think you would need to continue to spend on capacity. I guess I am just trying to understand if this is all benefited following 3G or also a result of your spectrum position?

Yeah, thanks Jennifer for the question. I think that from a CapEx perspective as I said all along, I believe that 2012 would be flat, I am saying now it will definitely be down from our 2011 spend; I think the trajectory in the ’13 will be very similar to the ’12. I think what you’ll see is what you saw in the third quarter that we continue to very closely manage the CapEx on the Wireline side of the business, meanwhile Wireless will continue with their plan to build out the 4G LTE by mid-year, next year compared to our 3G footprint. I don’t see a substantial change in the CapEx trajectory here, but obviously, this does depend on growth and we hang our hat on being the best network, most reliable network in the industry and that we’re not going to loose that position. So Wireless has been A plus in this area and I don’t believe that will change, but I don’t think there is a significant change in the capital trajectory here.

Thanks, Jennifer. Brad, next question please.

Our next question is from Mike McCormack of Nomura. Your line is open.

Fran, maybe just a quick comment, you talked a little bit about the cover migration process and yeah there’s obviously some leg to that and the longer term benefits I think are pretty clear, but just give us a sense if you can as to maybe the magnitude of margin pressure as you do that migration process over the next two year or so? And then, secondly on the Wireless side, we’ve had this sort of honeymoon with the change in policy with respect to upgrade window that I think should be coming to a close right about now. So as we look into the fourth quarter and you’ve got this pool of people that are now upgrade eligible, that have not been for the last six months. How should we be thinking about upgrade percentages as we go through maybe both 4Q as well as 1Q? Thanks.

Hey thanks Mike. So migration in Wireline pressure I guess there is a couple of things here and it’s not just the migration, but obviously doing some of this work does increase some CapEx to us and thus increase some of the operating expense to us, but I would say that’s in combination with a lot of other things that we are doing. But this positions us for the future. I would say though that beyond this from a pressure standpoint on Wireline obviously the third quarter to us is always a seasonal pressure point from a weather condition, the construction issue, fiber cuts and so forth, so that’s not unusual for the third quarter to be a bigger margin pressure for us. But the delay of the union contract had an impact on our margins, the Hughes results, obviously if you go back and look at Hughes on a standalone basis, they contribute to dilution in the Wireline segment because that is now included in the Wireline. As we said, we are in the process of retooling the enterprise which is putting a little bit of pressure in the expense category with system consolidation and product rationalization. And then we have also deliberately have gone out during the third quarter and we will probably do a little bit of this in the fourth quarter and accelerated some of the repairs and maintenance within our facilities. We are also doing some additional work in our networks to increase our diversity and reliability within the Wireline network. So there is a lot of things that’s putting a little bit of pressure on the Wireline, but again I think we are taking this opportunity during the low of the economic condition, preparing for this economic turn that hopefully will come in 2013 and I think we will be in a better position to ride that wave when it comes. So I think it’s a combination of all that. And then on the Wireless side, the upgrade window, I guess the way I would put it this way is, our upgrade percentage will be more in the fourth quarter than it was in the third quarter, but I will tell you, I think it will be less in the fourth quarter of a year ago.

Okay. And just, I am sorry, just circle backing the Wireline side, should you be thinking about the third quarter is not the right starting point as we go in the fourth quarter, if it’s the seasonality impact, we’ll be looking at 2Q as the run rate?

Well, I think what I would say is for the third and the fourth quarter, I think you will see similar performance here, while we reposition ourselves, but this will position us for improved profitability in 2013.

Thanks Mike. Brad, the next question please.

Our next question comes from Kevin Smithen of Macquarie. Your line is open.

Thank you. There are a lot of questions this week on what the impact would be from the (inaudible) entry into the U.S. Does this at all change the way you run your business over the next couple of years, whilst Sprint and T-Mobile are going for the regulatory approval integration and network build out processes and what if anything will be the long term impact on Verizon’s Wireless business?

So let me just start out with the couple of things here, because it’s important. First, as I said in few of the investor conferences, I anticipated and we suspected some consolidation. And I think what the market should walk away with here is that there are two very large companies willing to invest in the U.S. wireless market. I believe this is a sign and it is very good for the industry and I think this shows the strength of the U.S. market and the growth potential that’s still available within this market. I think, what this means from us is a couple of things. First, if you go back to January, 2011, the biggest that Lowell and I made was, we are all about executing on our plans. We have invested and built and remain on our brand to be the best and most reliable network. We have pioneered, launched and now are the largest 4G LTE network with more coverage than all of our competitors combined. I think if you look at our spectrum holding, we have a superior spectrum holding and quality of spectrum with our 700 MHz contiguous across the United States which we've launched our 4G LTE network launch on, and with the closing of our AWS spectrum with the cable companies. So I think we are in a very strong position from a spectrum holding perspective. If you look at our capital, and in the past we've taken a little heat from the market for the amount of capital that we have spent on our networks. But if you look at, on average we spend about $10 billion per year investing in our wireless and our wireline IP backbone support for that wireless network, and I think at the end of the day, you would all agree that execution equal results here. I think the third quarter results speak for themselves. So we will continue to execute and we will continue to lead the industry.

Just a quick question, new reports indicate Isis is finally launching on Monday. Can you confirm this and what's the strategy going to be there to compete against Square, Google Wallet and others.

I think that at this point we let Isis answer those questions. They are going to launch and we will see how the trial markets doing, and then we will go from there.

Thanks Kevin. Brad can we take next one please.

Our next question is from Brett Feldman of Deutsche Bank.

Now that we are getting some visibility here on the number of postpaid accounts that you have, I was wondering if you can give us a little more color here on the portion of them that are business accounts. And then just sticking with Share Everything, it sounds like the initial benefit you got out of the gate was that households are starting to attach internet devices like tablets and other and MiFi. Was that the principal benefit or did you actually see an increase in the attachment rate of smartphones on existing households, mean that maybe homes were taking advantage of the plan to consolidate people who maybe, have been on different carriers all on to Verizon.

So on the accounts, we're not going to split the accounts here between business and consumer. We will just leave it as we will give the accounts, we will give the devices per account and the ARPA on that. As far as the Share Everything plans, I think the best answer is we're seeing a little bit of everything. We're seeing our customers move from their old legacy plants. We're seeing customers who were on unlimited plans, move to Share Everything plan. Now you would think that these initial customers that moved are optimizing from that. But what we're seeing is that they are attaching more devices. That includes more smartphones, and especially with the price points now and some of the lower end iPhones that we're seeing more attachment rates there. We're seeing a lot of attachment on internet, Wi-Fi devices. And I think what we're seeing is they are attaching the MiFi device at $20 price point, rather than each individually attaching a tablet. So, I think we're seeing very good success in MiFi attachment rates, and from tablets, we're seeing some of that but probably not as much as we had expected. But the MiFi attachment is running extremely higher than we expected. So I think overall, again, what we're seeing in Share Everything is better than what we had expected in our business case.

Thanks Brad. Brad, we are going to take two more questions. I know folks you’ve had a busy night with our pension release as well as - that’s why we got our earnings out a little bit early. So we will take two more. I know you also have another busy day ahead of you with some other meetings. So let’s move on for two more questions.

Our next question comes from Tim Horan of Oppenheimer. Your line is open.

Fran, two questions; one related to the data side of things. It looks like Sprint and T-Mobile are really going to be focused on unlimited data. As they get their networks up to speed in a few years, how do you convey to your customers that, your share data is still economical and makes sense for customers like, really how you’re positioned against that? And do you think they can continue to afford to do it? Secondly, as these companies really restructure their networks in the next two years, historically have you been able to capture share to those periods, and do you think you’ll be able to kind of do that again, I know it’s early stages with what PCS and T-Mobile are doing, and what Sprint’s but maybe your expectations for the next few years in share gains?

I tried to answer your question in my speech on industry consolidation, but maybe I didn’t do a good enough job. But on the data side of the house, I think our network and our competitive advantage speaks for itself. And I think superiority of our network; I think what you’re seeing is that we’re competing in that arena today against the unlimited plans. As far as the network goes, we’ve invested $10 billion, probably in the last 10 years in our network. It’s going to be difficult for others to make that within two years as you say. So, I think that’s a longer term plan. But, look it’s all good for the industry. The industry is focused on the growth, but there is a lot of opportunity out there, and we’ve proven that we can be a leader in the industry and we’ll continue to do that.

Thanks, Tim. Brad, this will be the last question.

Our final question comes from Jonathan Chaplin of Credit Suisse. Your line is open.

Looking at the upgrade rate, it looks like you are on a trend to have an upgrade rate this year that’s below your historical rate of about 32% a year. Can that continue to go down in 2013, and if it does, with the 50% EBITDA margins in wireless this quarter, where can wireless EBITDA margins go next year and longer term? Thanks.

On the upgrade rate, yes, I do think it will decline. There is a lot of things that we took in place from 2010 all the way through, but I think that that will continue happen. As I said in the fourth quarter, it will be more than the third quarter obviously; but I think we will be less than a year ago and I see that trend continuing. As far as wireless margins, I will leave at this. If you trend out on a graph over the last 10 years what wireless has done given we grow and more profitable, you will see that we will continue to manage that balance and continue to increase our overall portfolio in our profitability.

Thanks Jonathan. Brad that concludes our call.

Ladies and gentlemen that does conclude today’s conference call. Thank you for your participation and thank you for using Verizon conference services. Your may now disconnect.