Good morning and welcome to the Verizon Fourth Quarter 2013 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, Mr. Michael Stefanski, Senior Vice President, Investor Relations.

Thanks Evan. Good morning and welcome to our fourth quarter 2013 earnings conference call. This is Mike Stefanski and I am here with our Chief Financial Officer, Fran Shammo. Thank you for joining us this morning. 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. Replays and a transcript of this call will be made available on our website. I would also like to draw your attention to our Safe Harbor statement and other legends on slides two and three. 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. Before Fran takes you through the details of our results, I would like to cover a few special items that are included in our reported results. These are displayed on Slide 4. For the fourth quarter, we reported earnings of $1.76 per share on a GAAP basis. This includes several significant non-operational items that I would like to highlight. The largest item is a pre-tax gain of $6 billion related to the year-end mark-to-market adjustment of pension and OPEB liabilities. This favorable accounting adjustment is primarily non-cash and is caused by an increase in the discount rate, changes in actuarial assumptions and a greater than projected return on planned assets. On an after-tax basis, this gain amounted to $3.7 billion or $1.29 per share. Partially offsetting this favorable item were pre-tax charges of $865 million related to the transaction to acquire Vodafone’s 45% stake in Verizon Wireless. These transaction costs include net incremental interest expense of $616 million related to the debt raised in connection with the acquisition and the bridge financing and other cost of $249 million. On an after-tax basis, these transaction charges totaled $540 million or $0.19 per share. Excluding these non-operational effects, adjusted earnings per share was $0.66 in the quarter compared with $0.38 a year ago, which included a $0.07 per share charge for the direct impact from Superstorm Sandy. For the full year, adjusted earnings per share were $2.84 compared with $2.24 last year, an increase of 26.8%. If you exclude the Sandy impact from last year the increase was 22.9%. The quarterly growth rate disclosed in this presentation are on a year-over-year basis unless otherwise noted as sequential. Also the results and growth rates exclude the effects of the non-operational items. With that I will now turn the call over to Fran.

Thanks Mike. Good morning everyone and Happy New Year. Before we get into the details I like to start with an overview with our results in a proper context. 2013 was a great year for Verizon from both a strategic and financial perspective. Of course the big strategic milestone was in our agreement to purchase Vodafone’s 45% stake in Verizon Wireless which will give us sole ownership of the best asset in the global wireless industry. We have all the necessary financing in place, the special shareholder meetings for both companies are scheduled for one week from today on January 28th and a closing is planned for February 21st. As we have stated the transaction will be accretive to earnings per share by about 10% on day one. Full ownership will also provide access to all the cash flows and give us greater flexibility to develop converged solutions without any integration and due diligence risks. Our strategy is to build upon the foundation and strength of our network assets as a platforms for the future growth and innovation. To the end we’re extremely well-positioned in the center of the trends that are driving growth in our industry. Mobility, broadband, video, cloud services and security. Sole ownership of Verizon Wireless along with our portfolio of other assets will enable us to better leverage our capabilities across the entire business. In wireless we completed our LTE coverage build and continue to invest in our 4G network to take advantage of the significant opportunities enabled by this technology as we innovate around our customer solutions. In 2013, we further strengthened our portfolio of enterprise strategic services with the development of a new cloud services product suite. The launch of a mobile healthcare platform and several targeted acquisitions which will enhance our capabilities in…

Fran thank you. Evan, we are now ready for questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Your first question comes from John Hodulik of UBS. Please go ahead with your question.

Okay, thanks. Good morning guys.

Hey John.

Hi. Wireless margins were better than we thought. It looks like partially due to the lower upgrade rate. Is Edge putting pressure on the number of upgrades and do you expect that the number to be lower in ‘14 than it was in ‘13? And then secondly, T-Mobile’s new strategy with ETFs has been getting a lot of attention, how do you see that? Is that sort of an incremental change or do you think more of a fundamental change to the industry and how do you expect that to affect your business as you look out to ‘14? Thanks.

Hi, thanks John. Good morning. On the upgrades side, obviously the volume of upgrades this year were less than last year given all of the policy changes that we made and also keep in mind that at the end of 2012, we also had a free iPhone for the first time on our network, so that drove a lot of upgrade activity year-over-year so we had less volume this year. As far as the Edge program, the Edge program is going very well for us, but I would tell you just to give you a sense, it’s generating less than 1% of our profitability right now. So this is not a significant portion of our portfolio, but obviously given the competitive environment here. First off, let me just reiterate the fact that I know there has been a lot of questions around a price war and if you really look at what’s going on really what’s the shift of pricing is between service and equipment and really when you do the math, there really isn’t much of a price decrease here. It’s just a shift of how that’s marketed into the consumer market. So obviously, Edge is important to us from a competitive standpoint, but I am not going to give guidance John on where our upgrade rate will be in ‘14. As I said, I will give more guidance here once we close the Vodafone transaction. We have a shareholder vote here in a week. So I think it’s – it would put us in a – at a very peculiar situation to give a further guidance at this point in time. So I will give more guidance on that at the end of the first quarter. So that’s where we stand.

Great, thanks.

Evan, let’s take the next question please.

Your next question comes from Phil Cusick of JPMorgan. Please go ahead with your question.

Hey guys. Thanks. I guess two. One, can you help us think about Wireline margins next year, how do you think about the issues of total revenue being sort of flat to down and mix issues versus cost cutting just trying to sort of scale the potential for Wireline margin growth? And then second on the OnCue platform, can you give us some more color do you envision a full MSO over Wireless are out of region eventually versus more of a in region and sort of ancillary product? Thank you.

Hi, thanks Phil. Good morning. So Wireline margin, look I think that I had been pretty clear on this. Coming into this year, I said we would be flat given a lot of headwinds that we have from some of these startup products we have, especially around the Redbox joint venture, VDMS and some other things in there. So look, we are very optimistic that we can improve this margin in 2014. As far as top line, what I gave here today is we are very confident that we can sustain the 4% plus top line growth on the Wireline consumer piece of this. And as you noticed, we did our price ups here in the fourth quarter of this year which is different than what we have done in the past and that was to prepare us for obviously the January 1st which is when content cost go up in all of our contractual arrangements. So we have put ourselves in a position this year to offset that content increase which we weren’t in a position last year. So we have done some strategic things from a top line perspective. Obviously enterprise continues to be a press point and I would say that we don’t plan for that to change in ’14 and I’ve said that coming into ’13 and leaving ’13 that I don’t think we’re going to see much of a change in our enterprise that top-line position in ’14. So I think that the cost cutting measures of Verizon Lean Six Sigma some of the improvement in some of these other ancillary platforms where obviously we acquired Hughes Telematics that is now growing topline revenue coming into the fourth quarter of this year. You probably saw today we just signed another agreement with Hyundai to acquire…

Okay Evan let’s take the next question please.

Your next question comes from Michael Rollins of Citi Investment Research. Please go ahead with your question.

First Fran if you can just give an update on the net debt for Verizon Wireless and then secondly can you talk about the total amount of cost cutting that the Verizon Wireless business achieved during 2013 that contributed to the margin expansion you have had in the past few different initiatives that you were working on. And I was wondering if you can also share your aspirations in terms of the cost cutting potential for 2014. Thanks.

So I guess this will be the last and final quarter that I ever have to do this, hopefully. Gross debt of $5.3 billion, cash of $3.6 billion and net debt of $1.7 billion. As far as the cost cutting side goes look I mean coming into ’13 we said that Verizon Wireless had already cut about $5 billion worth of cost out of their infrastructure. We said that we were targeting them for another $2 billion in 2013, they actually exceeded that benchmark in 2013 and again I’m going to hold on 2014 here and I will give you more guidance when we get to the end of the first quarter and again it is all around our shareholder vote and the acquisition of the Vodafone transaction.

If I can just follow-up with a different question then. On the pension side you mentioned the cash investment that you’re planning to make for ’14 where are you starting off the year in terms of the funding status and then where would that 1.2 billion roughly get you to?

Yeah so with the change in the discount rate and our assumptions around the return on assets are actual unfunded liability from the end of last year to the end of this year has improved by $2.6 billion. So our unfunded liability at the end of the year is for pension is at $5.9 billion. Now that also is very helpful from us well in the annuitization [ph] that we also did there in the – during the year of ‘13. So it puts us in a very good position with the $1.2 billion minimum contribution that we have into the plan to really start to make this a 100% funded plan. On the OPEB side of the house, our unfunded liability went from $24 billion at the end of 2012 to $19 billion, so a $4.2 billion improvement on that unfunded liability. So when you look at our balance sheet, even with the $8.1 billion of bonds that I paid off, we also had a decrease of over $6 billion in our unfunded liability. So the strength of our balance sheet has really taken off this year with almost $14 billion of a decline in our liabilities.

Thank you.

Evan, let’s take the next question please.

Your next question comes from Brett Feldman of Deutsche Bank. Please go ahead with your question.

Thanks for taking the question. Since we have seen some changes in competitive behavior, I feel like we have been getting sort of gathered data points around who is taking share from who, in the past, you guys have always had pretty positive reporting ratios versus all your peers, I know you don’t give that on a regular basis. I am just curious can you either qualitatively or even quantitatively talk about how you feel about your net share gains versus your peers in light of the current environment?

Yes, thanks Brett. Well, I think the fourth quarter will stand on its own at 1.7 million ads and 824,000 net phone ads with the best quarter we have had since we launched tablets of 625,000. And I think that in a combination of itself will stand on its own. But let’s just go back here a second from a competitive environment standpoint and I have said before we will compete and respond accordingly where we need to. And if you recall coming out of the third quarter this question came up and I said look we are seeing a segment of our base that is responding to some of the competitive offers and we will make the necessary changes that we need to, to compete against those changes. And if you look at our churn in the fourth quarter which was unusual because of a seasonal season, we normally would go up in churn from the third quarter to the fourth quarter. In this year, we sequentially declined by 1 basis point. So I think that tells you that we responded to our base, we listened to our customers and this is what we do. Now, the competitive environment has changed again here in the fourth quarter and you can expect us to respond accordingly. The other thing I would hedge ourselves on that we have built our brand. They are very long-term and we built loyalty with our customers and they come to us because of our network quality and superiority. We have, if you look at the coverage of our LTE network compared to our coverage, we are by far multiple times more coverage than our competitors and some as much as five and six times more coverage than our competitors. If you look at our Share Everything Plans, we continue to change them. We launched a new price plan. You probably picked up yesterday to go after our basic phone customers. And look I mean, we are going to compete in all devices in all markets. I think that another competitive advantage we have is our customer service and the quality of that customer service. If you look at the new store we launched which we call our destination store in Minneapolis, I mean we are going after smartphone customers, but it goes well beyond that from a competitive standpoint. I mean, if you look at that store, we now are going after the sports and fitness with all kinds of devices, music, gamers. We have a whole home section. And of course, we have been talking about the machine-to-machine and tablets for a while now. So again, I think there is more competitiveness than just one little price plan and we will respond accordingly and aggressively and continue to do what we are doing.

Great, thanks for that color.

Evan, we can take the next question now.

Your next question comes from David Barden of Bank of America. Please go ahead with your question.

Hi guys. Good morning. Thanks for taking my questions. Just first one Fran on FiOS and the quarter was a little soft relative to the trend, but what I noticed was that the footprint path is inching up towards about 19 million, the homes marketed to looks like it’s more in the mid 15 million. Could you talk a little bit about kind of the plans for mining out the rest of the FiOS opportunity and how that might contribute to the expectations for healthy consumer growth? I guess that’s number one. And number two, if I can just follow-up on something you have talked about on the Verizon Vodafone transaction, I think Fran you have some estimates about what you thought the flow back was going to be and how it’s going to impact trading in your stock and obviously, I am sure there has been a lot of hedging and things that have moved around. If you could maybe give us a little bit of an update on what you think the movement around the stock is going to be around the transaction based on your latest data will be super helpful. Thanks.

So on FiOS yeah so let’s put it in perspective I mean we came out of the third quarter with an extremely good quarter of growth and the environment became extremely competitive and that the competition went after price and dropped pricing accordingly and we were pretty cautious on how we responded to that. We didn’t believe that we wanted to chase some of those price points in the fourth quarter because we know from our customer experience that a lot of customers do not want us intruding in their houses during the holiday season. So we were cautious on how we responded to that and obviously that led to some slower growth that we had from a net add perspective but here is what I would say is if you look at what we have done in 2013 and the concentration of the Copper to fiber migration which we believe is a more profitable customer at the end of the day. They are just voice and DSL customers. So if you look at our internet volumes we actually did over 42,000 more net adds in ’13 with internet on FiOS than we did in 2012. So that really was the concentration and we exceeded that by 30,000. So we came into the year thinking we would get 300,000 and we did 330,000 and what we’re seeing from this space is once we move them with the same price plans either by voice or DSL they are then buying up as their only voice. They are coming over to our FiOS Quantum offer and if they come over they are buying up FiOS Quantum pretty significantly which is generating ARPUs in the range of $15 to $20 over and above what they were as a Copper customer. And as you…

Evan next question please.

Your next question comes from Mike McCormack of Jefferies. Please go ahead with your question.

Maybe a couple of things, you commented regarding the Edge program. It seems like some of the competitors out there moving to EIP which you can argue is a pretty bad deal for consumer and a pretty good for carriers. You know why wouldn’t you guys just get more active in the Edge marketplace and also that subsidy back for the consumer and then secondly on the enterprise side it seems like the industry overall is pretty weak. Can you just comment like the different pushback pieces [ph] there between legacy and new migration? What is the pricing environment look like from a competitive standpoint? Are you seeing any change there? Thanks.

Look on the Edge program as I said earlier we will respond where we think we need to respond. I’m not going to get into what others have done between Edge and subsidy. I mean we had a very successful fourth quarter and what we launched in the marketplace they were receptive to that. We ran a lot of promotions in the fourth quarter and it drove a lot of growth to our business and look, I mean again we will continue to do what we do best, which is we add customers and we are profitable. On the enterprise side of the house, look I mean this is becoming a more and more struggling event here given the uncertainty of the government. Then as you now look to what is more concerned now is the President has nominated Senator Baucus, which who was leading the tax rate format. He has now been nominated to Ambassador of China, which means now that could delay some reform. Now, others are picking it up, but this just gives more room for caution as to what is going to happen in ‘14, are we going to get tax reform, what about the expenders, they haven’t talked about expenders at all. There is a large cliff that we hit here on December 31, which was we lost a lot of credits and obviously the accelerated depreciation deduction is gone. So there is a lot of things that are putting enterprise back on their heels and people are just looking for cost-cutting measures, which mean that means I take a top line decrease in order to maintain that business. From a public sector perspective, look I mean the federal government, our sector there is declining double-digits year-over-year and that is obviously putting a lot of pressure here. There are opportunities in that segment that we are exploring, but the way I would look at this is you have seen us make some moves here around EdgeCast and upLynk and video digital media services and you have seen us make some other moves in our cloud and what we have recently launched with our new cloud products in a beta test. So within security, cloud, datacenters and our advanced communications arena, we are growing revenue year-over-year, even more significantly even strategic services overall. So there are certain niches that are growing, but unfortunately have not enough to offset the other declines that we are seeing just form the public sector and some of these other pressures that we are getting from the large enterprise customers. So again, I think ‘14 will be pretty much flat with where ‘13 was. I don’t expect it to get any worse, but it will be a tough slope for ‘14.

Fran, you have talked about in the past, I think the percentage of customers just because that many years probably but percentage of customers have already moved from legacy product into IP Ethernet, is there a metric you can put around that as far as the customer base goes?

Mike, to be honest, I don’t know that off the top of my head, I am sorry.

Okay, thank you.

Evan, let’s take the next question please.

Your next question comes from John Mark Warren of Morgan Stanley. Please go ahead with your question.

Thanks. I was just wondering on FiOS Quantum, you have seen had a lot of success getting customers to upgrade from lower speeds like 10 megabits per second to 50, are you – is that typically a one-time boost or do you see customers continuing to come back for more speed?

Yes, John thanks for the question. We actually continue to see customers come back. And if you think about this, this is like when you are in your home if you have one or two wireless devices running off of that WiFi at 10 megabits and you start to put three or four devices on that, guess what, you are not getting 10 megabits to those wireless devices anymore, you are getting something significantly less than that. So the only way to compensate for that is to increase the speed into that router, so we see customers 50, 75, 100. I mean as I said, we are going to come out with a new proprietary router that’s going to even increase the speeds even more that are available for those wireless devices as people start to saturate the inside at their homes with tablets and other machine-to-machine connections. So this is an ongoing upgrade that customers are doing. We do this very seamlessly within the Verizon’s FiOS TV product or online, where we pop up things within your TV. You can just click the okay button if you want to upgrade right there and then it automatically does it. There is no phone call needed. So we make it very easy for customers to do that, but yes, we see customers coming back for the second time.

Okay. Evan, if we can take the next question that will be great.

Your next question comes from Kevin Smithen of Macquarie. Please go ahead with your question.

Thanks. We started to see a bit of a resurgence in access line M&A activity in the industry. Are there opportunities for Verizon to divest Wireline assets in 2014 or 2015 in order to increase the Wireless mix and de-leverage the balance sheet and if Wireline is a third of revenue today, where would you like to see that in three years?

Well, thanks for the question Kevin. It’s pretty little foresight there on divestitures, but look I think Lowell and I have always said, we will always look at opportunities for anything. And if we feel that we can get an adequate return on our – for our shareholders based on the investments we have and the properties we have, then we will execute on that. So look I guess, I would say we always have an open mind but at this point there is nothing on the table for us around that. The properties we have are performing extremely well and we will continue to execute on that. As far as the three year view I guess I will talk maybe a little bit more of that when we get to the end of the first quarter call but again I’m not going to give anymore further guidance. But look I think we’re very satisfied with the asset portfolio we have and with the acquisition of Verizon Wireless and only 100% of that asset you’re going to see us do more things around converged solution. So the wireline assets in my view will actually become more valuable over the longer term here with our footprint. So at this point I would say we’re open but nothing on the table at this point in time.

And you mentioned the loss some of the tax credits for bonus appreciation et cetera. When you think about your capital budget for the year you know are you going to continue to spend (indiscernible) you spend last year for wireless given some of the spectrum and strong subscriber growth or are there risk to the CapEx number to fund some of the tax prior to cash taxes that are likely?

No because I think look we gave guidance on CapEx, it's 15.5 billion to 17 billion. As I said before obviously wireless won't take a higher percentage of that CapEx spend and on the other areas of the business will take a lower portion of that CapEx spend especially as the FiOS builds continues to slow here. But no there is no strategic change in the way we view our investments and I don’t do investments based on tax law. I didn’t accelerate CapEx spending when the accelerated depreciation went into effect. I don’t anticipate on the slow capital spending because it's not there anymore. So I think we will just continue to drive and execute on what we have from a cash tax standpoint as I said before obviously our cash taxes will go up with the acquisition of the 45% of wireless. I guided for next year when we announce the acquisition that we would be somewhere in 35% to 36% ETR. So I think at this point that’s where we will keep it and I will give you more color once we come out of the first quarter.

Evan let’s take another question please.

Your next question comes from Joe Mastrogiovanni of Credit Suisse. Please go ahead with your question.

Fran you have potentially some spectrum opportunities in the secondary market and ten you’ve a couple of spectrum options coming up. How should we think about the way you prioritize the low band spectrum versus maybe the mid and high band spectrum.

Well look I mean it's obviously I think we have shown that we have made the secondary market a very viable market. We have done a number of swaps with Leap, T-Mobile. Sales with T-Mobile and AT&T and some swaps even with AT&T in that key sale that we did. As far as our portfolio obviously we like the 700 megahertz for the coverage of LTE that we did. AWS is our sweet spot at this point in time which is the spectrum that we have been swapping for. So we have a very efficient portfolio of spectrum and I think we have shown through the years that we are very efficient on how we use spectrum. Keep in mind that as I said we will participate in the auctions because we will need more spectrum but right now our current position is with the AWS we have and that we’re launching in markets that you know in New York and San Francisco, Chicago. We’re lighting that spectrum up. It's pretty much completed in New York. We will continue to add to that but keep in mind though too that we will also reappropriate our 3G spectrum to 4G. We will take that PCS spectrum that’s been running in our 3G network as the (indiscernible) of the volume of that network continues to decrease as we move more 3G phones to 4G. We will reappropriate that spectrum over to the 4G LTE. So again you know 3 to 4 years we’re in a very good space from a spectrum holding position but we will participate in the upcoming auctions.

Evan next question please.

Your next question comes from Jonathan Chaplin of New Street Research. Please go ahead with your question.

I wonder if I can just follow-up on that last question. So I think the next lot [ph] of spectrum is going to come on to be on to the market as AWS-3. So two questions around that, first of all do you see that as a valuable spectrum block that you really want to be a part of or is there enough opportunity within repurposing some of your 3G spectrum for 4G that that’s not critical and then in terms of deploying that spectrum as it is valuable to you, does it require you to put more equipment on the tower or because it’s contiguous to existing spectrum that you are deploying, can you do it with all existing equipment? Thanks.

Yes. So Jonathan on this one, look we will participate in the options that are coming up whether it’s the AWS-3 or if it’s the broadcast or whatever the FCC is going to auction here in the future. We have to build our portfolio for the next 10 years out. So as we have done in the past and we have shown that when auctions come up, it’s opportunistic they only come up one time, so you need to participate. And that’s what we showed when we won our 700 megahertz and we won the A and the B blocks a while ago and now we have repositioned that portfolio. We have launched the 700 megahertz in the AWS that we have. So AWS-3 is pleasing to us. Some of the higher frequencies is pleasing to us. So again, I won’t get into – I am not an engineer, so I am not quite sure what happens to have it within the network in order to enable these spectrums, but don’t think it’s much based on what we have done with AWS. So we will participate in upcoming auction.

Great, thank you very much.

Okay, Evan last question and then we’ll wrap up.

Your last question comes from Jennifer Fritzsche of Wells Fargo. Please go ahead with your question.

Great, thanks. Fran, I just wanted to see if you could give us a little quantify this what I’d call the smart to smartphone device upgrade opportunity, you said you are seeing ARPA lift there, but between the 3G and 4G, I know there is more usage, but is there a way to quantify that kind of ARPA lift you are seeing with these smart to smart movers?

Yes. Look, I am probably not going to give you that, Jennifer. Look, if you look at a 3G usage moving to a 4G, we know that and we have seen it in our base that as soon as you get on the 4G with video consumption and the quality of video, your usage goes up. So obviously, it’s hard for us to quantify this, because with our Share Everything Plan, you are obviously buying a bundle of minutes that you can share among all devices. But as you can see from our service revenue growth, our ARPA lift, our increasing connections, it’s all coming together as to how these plans were designed. And as I said, we still have a lot of 3G customers and a lot of basic customers for ‘14 that give us a lot of opportunity. So I think I will leave it there and the numbers will speak for itself.

Thanks, Fran.

Thank you for your questions today. Before we end the call, I’d like to turn it back over to Fran.

Okay, thanks Mike. Look, our industry has a very healthy competitive environment and we are forecasting continued strong demand for video and broadband across multiple networks. As I said, Verizon will compete aggressively in all of our markets. We will focus on delivering a superior customer experience, one of the best networks in the world. Our customer value proposition and the efficiency delivery of our services will generate growth and profitability. This focus on profitable growth will create value for our shareholders, provide the earnings and cash flow necessary to reinvest in our networks and platforms for future growth and innovation. We are very excited about the future. We will continue to invest, innovate around solutions deliver for our customers, our shareholders and our Verizon employees. So again, Happy New Year everyone and thank you for joining our call this morning.

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.