Good morning and welcome to the Verizon Second Quarter 2014 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, David. Good morning and welcome to our second quarter earnings conference call. This is Mike Stefanski and I’m here with our Chief Financial Officer, Fran Shammo. We appreciate you joining us earlier than our usual time 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. 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 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. The quarterly growth rates disclosed in this presentation are on a year-over-year basis, unless otherwise noted as sequential. Before Fran takes you through the details of our quarterly performance, I would like to cover a special item that is included in our reported results on Slide 3. For the second quarter of 2014, we reported earnings of $1.01 per share on a GAAP basis. These reported results include a pre-tax gain of $707 million related to the sale of 700 megahertz A block spectrum licenses. On the after tax basis, this gain increased reported net income by $434 million or $0.10 per share. As we’ve done in the past, we’ve accounted for the gain on the sale of these licenses at the corporate level, so it is not part of our Wireless segment results. Excluding the effect of this non-operational item, adjusted earnings per share was $0.91 for the second quarter compared with $0.73 a year ago or growth of 24.7%. On a year-to-date basis, adjusted earnings per share were $1.76 compared with $1.41 last year up 24.8%. Keep in mind that the $1.76 per share first half result does not reflect full ownership of Verizon Wireless for the entire first quarter since the transaction closed on February 21st. As discussed on our first quarter call, full ownership for the quarter represents as an additional $0.07 per share of earnings. With that, I will now turn the call over to Fran.

Thanks, Mike. Good morning, everyone. We entered 2014 with the great confidence in our ability to grow the business profitably while making the necessary capital investments to position us for the future. In the first quarter, we closed the Vodafone transaction and delivered strong financial results. On our last earnings call, I indicated that we exited the first quarter with better momentum and expected that to carry forward. As you can see from our second quarter results, we delivered on what we said, producing very strong customer growth metrics and Wireless and FiOS, in driving excellent top line growth and profitability. We are competing effectively in all markets and executing our strategy which is focused on providing network reliability and a great customer experience. Over the past two and a half years, we have delivered consistent high quality earnings results with double-digit year-over-year growth and reported and adjusted earnings per share in nine of the last 10 quarters. Our adjusted earnings per share of $0.91 represented another quarter of more than 20% growth. This sustained earnings growth demonstrates our ability to execute effectively in all parts of the business in a highly competitive environment. Our consolidated revenue performance was strong with growth accelerating to 5.7%, our highest growth rate in the past six quarters. In Wireless, we had a great quarter of both growth and profitability. 4G device activations were exceptionally strong resulting in $2.3 million 4G postpaid net adds. Total postpaid net additions top $1.4 million, total operating revenue grew 7.5% with service revenue growth of 5.9% and our EBITDA service margin was 50.3%. In Wireline, we also had a good quarter with improved growth and margin expansion. Quarterly operating revenue grew 0.3% which is a milestone led by consumer growth of 5.3% as we continue to drive FiOS…

Thank you, Fran. David, we’re now ready for questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Your first question comes from Phil Cusick of JPMorgan. Please go ahead with your question. Phil Cusick – JPMorgan: Hey guys, thanks. So one in Wireless and one the Wireline, if I may. Wireless postpaid account growth reaccelerated on 2Q, what do you think drove that rebound on account growth? And you said you have some strong momentum. Can we expect to continue through the rest of the year? And then on Wireline revenue was positive for the first time in years and margins improved more than we expected. What should we look forward there going forward for both revenue and margins? Thanks.

Hi. Thanks, Phil, good morning. On the account growth, look, I think it was a number of things. I think the key to us right now is I would center around customer choice. We are giving our customers the choice to select what best fits them whether it’s the EDGE program or it’s the legacy adoption of a subsidy model. And as you can see from a service revenue growth performance, we are really centered around driving the attachment rate of devices generating more data on the individual network. So we’re attracting customers to our network based on its performance. You can tell from that a customer choice perspective, many of our customers selected to stay with the legacy subsidy model as, I as I said on my prepared remarks, our take rate was only 18% for the quarter. I know I said in the first quarter, I expected that to accelerate to 30% with the introduction of indirect channels and the competitive environment. But during the holiday season, we really stuck with our game of giving customers the choice of that Edge program, but we ran a lot of promotions around handsets related to Mother’s Day and Father’s Day. And I think that drove significant traffic to our stores. So from here, you should expect the same thing going into the third quarter that we will continue to address that marketplace. As far as our base goes, we saw great progress in our base by really reducing the churn. And as I said before, we were going to systematically address our base and take care of the customers who are coming out of contract and we felt that would churn to go somewhere else, we proactively went after those customers and made sure that they were satisfied with their…

Michael Rollins from Citi Investment Research. Please go ahead with your question. Michael Rollins – Citi Investment Research: Thanks, good morning. Fran, if I could just ask a couple of questions. First on the Wireless side, with respect to phone ad, should that a follow some of the historical, I guess, you call it seasonality that you’ve seen in the past where I think last year, you talked about increasing ad performance as you moved through each quarter? And on the strategic side, could you talk about maybe what else Verizon could consider from an asset optimization perspective and maybe just an update on how things like VDMS and connected car are doing? Thanks.

Okay. Thanks, Michael. So on the phone and net adds, obviously, again, as I said, we came out strong during the marketing periods of Mother’s Day and Father’s Day and normally, the second quarter is only better than the first quarter. I think that through this year of obviously for the back half of this year, we’re going to have several dynamic devices come to market that will certainly fuel for the industry, a lot of opportunity for growth here. So I think from our perspective, we’ll stay to our game plan. I’m not going to predict at this point what net adds will be from our phone net add for the third quarter that has a lot around that the competitive environment and customer base, but I would anticipate that you’ll see strong performance from Verizon Wireless. As far as our other strategic areas, so Verizon Digital Media Services launched their commercial service this year. We have a number of customers who are under contract and we’re actually starting to generate revenue all from that platform. It’s early stages here. There’s a lot of opportunity within that platform and we will continue to move on that strategy. As far as Telematics goes, this goes into our machine-to-machine category. And as I said in my prepared remarks here, I will tell you, this was one of the highest connection quarters we had from a machine-to-machine on a companywide basis which would include Verizon Wireless, Hughes Telematics and some of our enterprise customers. And that fueled that 50% year-over-year growth. So machine-to-machine continues to be a critical component. I would also tell you, if you have a chance to visit one of our destination stores with Verizon Wireless, you immediately walk in a store and you can visually see all of the technology around gaming and music and fitness that can be connected to our network. And these things are being sold quite substantially on a quarterly basis through our Verizon Wireless distribution stores. So again, this is a very important category, I think, not only for us but for the industry. And as we’ve continually said, we believe that machine-to-machine will be a future growth engine for us for years to come and that is consistent with our strategy. Michael Rollins – Citi Investment Research: Thank you.

Okay. David, next question please.

Your next question comes from Simon Flannery of Morgan Stanley. Please go ahead with your question. Simon Flannery – Morgan Stanley: Thanks very much, good morning. Fran, you talked about the strong cash flow in the quarter. It looks like there’s an opportunity potentially for bonus depreciation to be extended again. You had $6 billion of cash on a balance sheet here. It looks like you’re doing some refis on your balance sheet. Can you just talk about your overall financial strategy? It looked an opportunity here to delever a little bit more to refi, but there’s also spectrum auctions coming in. And how that all place into dividend and policy given the 20% plus EPS growth? Is there an opportunity here despite the leverage to maybe see faster dividend growth? Thanks.

Thanks, Simon. So in a cash flow, yes. I mean, obviously, we have a significant strong cash flow here. And obviously, we said that at the onset of acquiring Verizon Wireless that we will get 100% ownership of those cash flows. As I said at the beginning of this year, look, the strategy right now for us is to build cash on the balance sheet to prepare for the AWS-3 auction that’s coming in November and that’s the strategic initiative we had moving into this year. So we have gross debt at about the same level. Now, that’s been came down from a high of $114 billion when we closed the Vodafone transaction, that’s at $110 billion. But you see us accumulating that cash on the balance sheet to prepare for the auction. As far as the overall refinancing of long-term debt here, you’ve seen us to be very proactive in a marketplace taking the opportunity of the low interest rate market, repositioning the debt that we borrowed at the close and repositioning our towers. So we’re strategically trying to push up the long-term debt longer at a more fixed lower rate than we had. And we will continue to work those towers into the future. I really won’t talk about our future plans at this point. It would be inappropriate to do that. As far as bonus depreciation goes, look, I’m optimistic but I’m not because here we sit in July, there’s not much activity moving around us. There’s many things that the government has to deal with including the highway build that’s pertinent to us because of pensions moving that’s included in that bill. There’s also the Internet Freedom Act that has to get passed or else consumers are going to be detrimented here at the end of…

David, we’re ready for the next question.

Your next question comes from David Barden of Bank of America. Please go ahead with your question. David Barden – Bank of America: Hey, guys, good morning. Thanks for taking the question. I guess, two if I could. Just first, Fran, obviously there’s a lot of focus on wireless service margin this quarter, from the comment of last quarter that there was next vacation that we’re going to get a huge increase in the installment payment plan take rate. There was an equivalent expectation that we’re going to get a lot of upfront revenue recognition and that would have helped the margins a lot. But that obviously didn’t really take place. At 18% take rate, that probably gave you a couple of hundred million relative to street expectations. You said that the installment payment plan impact was about the same at this quarter as last quarter, but it was net of the service price discounts. Could you parse that out between the impact that you took from a cash perspective of giving lower prices versus the revenue benefit non-cash that you got from the upfront accounting related issues that going to the installment payment plan? And I guess, the second question would be more of a strategic one. I know you guys have been working on video and pushing video through the wireless network from a TV anywhere perspective buying content partnering people through the last couple of years. Could you talked a little bit about what the talk now of consolidation of the content environment, how your strategy is unfolding, how you’re working to try to bring video content into the wireless environment so you can monetize it over to 4G network? Thanks.

Good. Thanks, David. So as long – look, on the service margin, I think here’s the way I would answer this is that we produced a 50.3% margin on extremely high volume growth under a subsidy model and I think that’s the key for this quarter. So we really didn’t get much benefit from the Edge program because the take rate was only 18%. We said that the billings around Edge were $180 million, so you can do the backwards math there. But if you look at the actual EBITDA impact of Edge I said was similar to the first quarter. As far as the pricing refresh that we did in the first quarter to respond to the competitive environment, again, there is some impact there from dilution on customers that are moving and that we are as I said addressing from a churn perspective. But this is all good for us because we maintain those customers on an appropriate plan. They stay with Verizon Wireless. They’re adding tablets. They’re increasing their ARPU again. So the way I would venture to say on this one without getting to too much math on service revenue pricing and so forth, if you take the $180 million and add that to the ARPA, I think you’d come out with a number that’s significantly higher than the 4.7% from a recurring revenue standpoint if you will. So I think from a 50.3% quarter based on the growth that we had on a subsidy model, I think it’s just an outstanding quarter for us from an overall profitability on Verizon Wireless. So I’ll stand on that one and leave it at that. As far as content goes, look, I think we’ve demonstrated through our NFL agreement, some of our IndyCar agreement and some other agreements…

Okay, David, we’ll take the next question now.

Your next question comes from John Hodulik of UBS. Please go ahead with your question. John Hodulik – UBS: Great, thanks, guys. Fran, can you give us a sense of what percentage of your postpaid base takes a 10 gigabyte or larger bucket and maybe how that’s changed over time? Just trying to get a sense of the up strategy some more tablets into the base. And then on the Wireline side, that’s more of the follow up. You saw a 100 basis points year-over-year improvement in margins but you didn’t talk about somewhat that one time that drove the revenue, did that also affect the margins or is this 100 basis point improvement sort of a good run rate for what you can expect for the second half of the year? Thanks.

Thanks, John. So first, on the 10 gigabit plan, we don’t disclose where our customers sit within the bands. But what I will tell you is it that we have quarter-to-quarter over the last three quarters seen an increased in the amount of customers taking the 10 gigabit plan and pricing up. So we watched on a quarterly basis the number of customers that buy down in data bundles and buy up in data bundles and that over the last several quarters we’ve had a significant net positive in buying up in data bundles. So from that perspective the takeaway will be is that we continue to see an increase in customers buying up in their data bundles and that includes the 10 gigabit plan. As far as the Wireline margin, look, we’ve said from the beginning of this year, Lowell and I were very opportunistic on increasing the Wireline margin. Now some of this is seasonality. Second quarter is always good. Third quarter tends to have some seasonality into it. But look, overall I think you should see that we are moving the Wireline business in the right direction from a profitability standpoint. And there are a lot of things that we still need to work on obviously. As I’ve said FiOS is the big driver on the top line, copper migration continues to be an important strategic initiative for us. But I don’t want to down plate the fact that our VLSS, we’ve been at this for two years and we’re now starting to see the benefits of a lot of these projects around efficiencies and cost cutting starting to come through. So again, that is part of this, you should see us improve our productivity especially around the new Quantum TV where we can put a media server into the home and start to get some real efficiencies in the install process and we think that will happen entering in 2015. So again, I think that’s part of it. The other thing too is this that we can’t lose side of the fact that we continue to look at this portfolio and as I’ve said in my prepared remarks we did divest of a branch of our public sector business which was about $600 million of revenue that last year. You will see the impact of that going into the third quarter. So we will lose that revenue in third quarter, so that’s going to show up in our public sector business. But from an overall margin standpoint, that’s going to help the profitability of this company. And this is again looking at non-strategic businesses that are what I would say is not our niche in the business and we need to divest to them. And Lowell and I continue to look at things that we can divest of that are best for overall shareholder value. And we will continue with that. John Hodulik – UBS: Great, thanks, Fran.

David, next question please.

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

Mike, are you on mute? Mike McCormack – Jefferies LLC: Can you hear me?

Yes, now I can. Go ahead. Mike McCormack – Jefferies LLC: Sorry about that. Yes, Fran, just thinking about the net add numbers, the 2.3 million 4G LTE postpaid versus the 1.4 overall. Can you just sort of map us through that, what you’re saying as far basic and features phone sub losses or migration? You talked about migrations, but you’re saying is more pressure standpoint from the competitors. And then secondly on FiOS and these targeted MDUs more recently, what you’re saying with their expected changing video behaviors among that youth demographic, maybe just a comment on what kind of returns you guys get on a broadband only sub? Thanks.

Okay, let me start with the MDU side. So from an MDU perspective, look, these continues to be one of our strong penetration gains. And as I’ve said before, New York City is still our lowest penetrated market but it is our highest year-over-year gain. And a lot of this has to do with MDUs. But this is a – it’s a challenging business because the average tenant of an MDU in New York, I think the last time I looked was eight months. So these units change and of course the strategy, part of the strategy is to accumulate the new residence coming in to continue to use the FiOS demand. But obviously within this younger generation, a year ago, we tested the ability to have them select whether they wanted large TV bundles and lower Internet speeds or high Internet speeds and lower TV bundles. And what we saw is the majority of this said does this segment selected the highest speed that they could get and didn’t really care about how many TV stations they got because most of them are consuming their video via Internet. Again, this is just another position for us of why we’ve gone the symmetry within our broadband offers. We just launched that this week, so you will see that heading the consumer market which symmetry on all of our broadband offers. We launched it six months ago in our small business segment, so this is again another strategy which we think is important for that generation who really wants the highest speed that they can get and they want the symmetry in that speed. So that will continue to be an overall concentration for us. As far as the handsets and all, look, I think that you can probably do the backwards map here and we said that we added 2.3 million 4G, LTE phones overall. We’ve said that we had million 4G smartphones net adds for the quarter. So with the 304,000 net number the majority of those losses were basic phones and then the rest were made with 3G. So again, you can see that the basic phone category or I would consider this to lower end phone category continues to be the category that we lose but I will say that we made substantial improvement from what we saw on the first quarter with all the pricing actions, the retention tools that we put in place and some of the new pricing tools that we put in place. Overall, I think we significantly improved and that came through on the operating results of Verizon Wireless. Mike McCormack – Jefferies LLC: Hey, Fran, just a quicky on the EIP, could you just give us a sense for how that paced through the quarter? Was it accelerating throughout? And then what should we think about for the full year on the EIP uptake? What’s your expectation?

I think I would put it this way. What I saw was in our store channel, it was pretty much relatively flat. The increase came through the indirect channel when we launched that. Right now I would say that I think one important piece of information here as well is that on the front line our sales representatives make the same compensation whether they sell on Edge plan or a legacy subsidy model. There was no difference in their compensations. So again, this comes down to the important ingredient that this is truly a customer choice. The rep shows them both models and the customer chooses. So as far as going forward, look, I think that we are on pace to be somewhere between this 18% to 20% but again, when you think about all of the new phones that are coming in the back half of the year through the indirect channel, this could escalate a bit on us. The competitive environment has a lot to do with this. But right now under current course and current environment, I think that the 18% to 20% is really where we sit. Mike McCormack – Jefferies LLC: Great, thanks Fran.

David, next question please.

The next question comes from Kevin Smithen on Macquarie. Please go ahead with your question. Kevin Smithen – Macquarie: Thanks. With Edge adoption at just 18%, the fall in year-over-year seems to imply a repricing of non-Edge base. I think you said you had some churn mitigation promotions in the quarter. Can you talk a little bit about that and also where do you expect year-over-year ARPA stabilize?

Yes. So I think Kevin as I’ve said at the beginning, I think you have to do a little of backwards math here because the Edge plan if you take that 180 million billing number that I gave you and you look at ARPA, I think what you’ll see is if you calculate back in the returning monthly and equipment revenue which in essence would have been service revenue, I think your percentage increase would be relatively flat with the first quarter and some past quarters. So, again I think that the service revenue impact and the ARPA impact is really Edge-related. Now, there is some of course service pricing discounts in there and we are moving as we said proactively some of our customers who are out of contract and we think that they have a high propensity to churn. We are proactively moving them to the Edge pricing. But we’re doing this very, very systematically. And so there will be a little bit of pressure there, but I think if you do that backwards math that I gave you, I think you’ll get to the true numbers of what the ARPA growth would have been with this recurring equipment revenue in it. Kevin Smithen – Macquarie: And how should we think about the AWS refinancing? Will this be an additional capital raise or funded out of cash on-hand and how should we think about your sort of leverage targets with the spectrum auction? And it sounds like you want to be very aggressive with that.

Well I think the way you want to think about this is it is an auction. So I’m not going to talk about how we think we’re going to pay for that auction because I’m not going to give anybody information of how much I’m willing to spend for the auction. So I think we’ll just wait there. As I said, the strategy is to build cash, prepare for the auction and we’ll execute accordingly. So more to come on that in the latter back of the year. Kevin Smithen – Macquarie: Thanks.

David, next question please.

Your next question comes from Jonathan Schildkraut of Evercore. Please go ahead with your question. Jonathan Schildkraut – Evercore Partners: Oh, great, thanks. Two if I may. First, just in terms of the outlook on the top line for the remainder of the year and you guys have had a very strong first half of the year up almost 6% revenue growth year-over-year in the second quarter. And the outlook for the year is only about 4%. I’m wondering if that is just conservative stance at this point in the year or if there’s something that we should look out for in particular as we examine our back half for the year projections. And then yet another question around EIP. I’m just wondering if we could get a census to where the receivable currently stood or maybe the change in receivable over quarter-over-quarter. Thanks.

Sure. Thanks, Jonathan. So on the 4%, look, being the CFO, we generally are conservative. So I’ll stick to the guidance that we gave at the beginning of the year which was top line growth of 4% plus, so I’ll stick to that. As far as the balance sheet goes, if you look at our balance sheet, the change in the AR is directly related to the Edge program, so you can look at that change and pretty much come to your answer. Jonathan Schildkraut – Evercore Partners: Thank you for taking the questions.

Okay, last question?

Your last question today will come from Jennifer Fritzsche from Wells Fargo. Please go ahead with your question. Jennifer Fritzsche – Wells Fargo: Great, thank you for taking the question. Fran, you have mentioned a lot about the AWS-3 auction. I know there’s a lot of complications and a lot of blurriness around it. But I’ve not heard you talk openly about the broadcast or incentive auction. Your closest peer obviously made a big monetary number, put a monetary number with that. And I just was wondering your current thought as you stand here today.

Yes. So thanks, Jennifer. So look – I mean we are focused on AWS-3 auction and the reason we’re focused on that is it will start November 13th, deposits will be required. We actually know exactly what the rules are. The procedures for that auction will be announced sometime in the next coming weeks. So that’s really the focal point for us. As far as the broadcast spectrum goes, look, currently there are no final adoptive rules on this. So it’s hard for us to sit here and make a comment on something that has not been finalized. So I think that would be premature for us. I know what others have done, but look we are focused on AWS. We’ll get through that. We’ll see what the broadcast spectrum final rules are and then you’ll hear more from us when that happens. But at this point, I’m not going to make anymore comments around the broadcast.

That’s all time we have for questions for today. But before we end the call, I’d like to turn it back over to Fran.

Thanks, Mike. Just a couple of quick closing comments. So look we had an extremely strong first half of 2014 in terms of our buy-in growth and financial performance. Importantly, we closed the Vodafone transaction and now have sole ownership of the Wireless asset. To the first half of this year, we have exceeded our revenue growth targets and delivered strong earnings growth. We have great momentum heading into the second half and we are competing well in all of our key strategic areas. Our cash generation is very strong and we have great confidence in our ability to execute on our strategy and grow this business profitably while making the necessary capital investments to position us for the future. We are excited about our growth opportunities and we will continue to invest, innovate and deliver for our customers, our shareholders and our employees. Thank you so much for joining us today and have a great day.

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.