T e l e c o m m u n i c a T i o n s i n d u s T r y o v e r v i e w

Telecommunications Industry Overview

T e l e c o m m u n i c a T i o n s i n d u s T r y o v e r v i e w

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Telecommunications Industry Overview

While the telecommunications industry is more than 100 years old, the industry today finds itself at the beginning of a new communica-tions revolution as broadband and wireless technologies radically transform the industry. In the United States:

• By2004thenumberoflong-distancecallsmadeoverwirelessnetworksexceededthosemadeoverwirelinenetworks.Wirelessminutesofuseexceeded1trillionin2004andhavemorethandoubled,to2.1trillion,by2007.NationwidewirelessnetworksandInternet-basedcommunications have changed traditional distinctions between “local“ and “long-distance“ services.

• ThenumberofAmericanwirelesscustomersnowexceeds250million,apenetrationrateofmorethan80percent.Onegovernmentsur-veyreportsthatoneoutofeveryeightAmericanhomeshadonlywirelesstelephonesduringthefirsthalfof2007.

• Oneindependentsurveynotedthatin2007,forthefirsttime,moreadultAmericanswouldfindithardertogiveuptheircellphonethantheirlandlinephoneservice.

• Businessesinthewirelessindustryinvested$24billionin2007ininfrastructure,employ3.5millionAmericansandproduceanunparal-leledpaceofinnovationinthehigh-techindustry.

• Instantmessageshaveoutnumberede-mailsforseveralyears,andarenotonlybecomingtheprincipalmeansofcommunicationforyoungpeople,butalsohaveevolvedbeyondtexttovoiceandvideo.

• AccordingtotheFederalCommunicationsCommission(FCC),high-speedwirelineInternetconnectionsincreasedbymorethan61per-centduringthe12-monthperiodthroughyear-end2006,to82.5millionlines.

• HalfofallAmericansnowhavewireline-basedbroadbandserviceathome,accordingtothePewInternetProject’sSeptember2007sur-vey,markingthefirsttimethatasmanyas50percentofrespondentssaytheyhavehigh-speedinternetconnectionsathome.

Themega-trendsintelecommunications—theshiftsfromanalogtodigitaltechnology,fromwiredtowirelessplatforms,andfromnar-rowbandtobroadbandservices—havefundamentallychangedthewaypeoplecommunicate.Thisisasocialphenomenonthatisalreadyshapingthetelecommunicationsindustryofthefuture.Aroundtheworld,traditionaltelephonecompaniesareevolvingintoprovidersoffull-servicecommunicationsnetworksthatdeliverhigh-speed,mobileconnectivitytocustomerswherevertheyare.

Global Markets

Globally,telecommunicationswirelineandwirelessrevenuestotaledanestimated$1.65trillionin2007,withindustryprojectionsofsingle-digitpercentagegrowthoverthenextfiveyears.Growthisexpectedtobedominatedbywirelessandbroadband,whichestimatessuggestmaytotaltwo-thirdsofanestimated$2.27trillionmarketby2012.

High-growthtelecommunicationsmarketsoutsideoftheU.S.includeChinaandIndia,aswellasLatinAmericaanddevelopingregionsthathavepreviouslyhadanunder-penetrationoftelecomservicesrelativetootherregions.Ofnote,regardinggrowthinbroadbandaccessservices,thecountrieswiththefastest-growingonlinepopulationsintheworldtodayareBrazil,Russia,IndiaandChina.ChinahasalreadypassedtheU.S.inthenumberofInternetusers.Atcurrentgrowthrates,inthreeyearsmorethan40percentoftheInternetusersintheworldwillresideinAsia.

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Global Wireline and Wireless Revenue(intrillionsofdollars)

2007 - 2012 CAGR 6.6%

2007 Market Size

$1.65trillion

Dial-up 3%

Broadband 8%

Wireline 42%

Wireless 47%

Projected 2012 Market Size

$2.27trillion

Dial-up 2%

Broadband 11%

Wireline 31%

Wireless 56%

The U.S. Market

TheU.S.is,andwillcontinuetobe,thelargestglobaltelecommunicationsmarketintermsofrevenues.In2007,analystsestimatedthattheU.S.telecommunicationsmarketgeneratedapproximately$568billioninrevenuesandthatthiswillrisetoapproximately$710bil-lionby2012.

Theserevenuesaregeneratedfromavarietyofproductsandservices:wirelineandwirelessvoiceanddataservices,plusotherareassuch as online advertising, video, and content.

Segmentedbymarkets,theoverallU.S.revenuepictureshowsthatmorethanhalfoftelecommunicationsspendingisstillintheConsumermarketsegment,althoughtheGeneralBusinessandEnterprise(large-businessandgovernment)marketscontinuetogrow.

IntheU.S.,anumberofincumbentandemergingcompetitorsoffersomeoralloftheseproductsandservices.Someoftheselabelsnolongeraccuratelydescribethepresent-daycompaniestheyareappliedto:

• IncumbentLocalExchangeCarriers(ILECs)—Verizon,AT&T,Qwest

• CableOperators(MSOs,or“multi-systemoperators“)—Comcast,TimeWarnerCable,Cablevision,Cox

• WirelessCarriers—VerizonWireless(ajointventureofVerizonandVodafone),AT&TWireless,T-Mobile,SprintNextel

• CompetitiveLocalExchangeCarrier(CLEC)andVoIP(VoiceoverInternetProtocol)Provider—Vonage

• EquipmentProviders—Alcatel-Lucent,Nortel,QUALCOMM

Source:SD&PInternalAnalysis

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Case Study: VerizonThechangesintheindustrycanbeillustratedbyamoredetailedlookatoneofthelargestU.S.telecommunicationscompanies.Verizon,afull-servicecommunicationsprovider,generated2007revenuesof$93.5billion.

Abellwetherfortheindustry(addedtotheDowJonesIndustrialAveragein2004),Verizonhasanationwidepresenceinwirelineandwire-lessmarkets,withanestimated100millionormoreAmericansconnectingtoaVerizonnetworkdaily.

Changing Revenue Mix

AlookatVerizon’srevenuesdemonstratesthechangeindemandfortelecommunicationsservicesintheU.S.overthepastseveralyears.WirelessservicesarebecomingalargerpartofVerizon’srevenuemix,whiletraditionallocalwirelineservicesareshrinkingasapercentageofVerizon’stotalrevenue.Withinthewirelinemarket,however,Verizonhasseengrowthinrevenuesfromdataandbroadbandservices(includ-ingDSL/DigitalSubscriberLinesandnewfiber-optic-basedservicesmarketedunderthebrandnameFiOS).

Atyear-end2002,Verizonreportedannualoperatingrevenuesof$67.6billion—withwirelineservicesgenerating$40.7billionandwire-lessservicesgenerating$19.3billion(directorypublishingandinternationaloperationspredominantlyaccountedfortheremainderofrevenues).Fiveyearslater,atyear-end2007,Verizonreportedannualoperatingrevenuesof$93.5billion—withwirelineservicesgenerat-ing$50.3billion(includingrevenuesforanewVerizonBusinessunitformedafterthe2006acquisitionofMCI,Inc.)andwirelessservicesgenerating$43.9billion.

Growth Markets

ThegrowthbusinessesforVerizonhaveevolvedastheindustryhasevolved.Morethanfiveyearsago,long-distanceservicesprovidedrev-enuegrowthinwirelinemarkets,evenassomecustomersbeganmigratingawayfromtraditionallandlinephoneservices.Long-distancehadbeenamaturemarketfortraditionallong-distancecarriers(sometimescalledInterexchangeCarriers,orIXCs).Verizonanditspeers(anachronisticallycalledRegionalBellOperatingCompanies,orRBOCs)werepreventedfromofferinglong-distanceservicesatthe1984divestitureofAT&T.

2007 - 2012 CAGR 4.6%

Source:SD&PInternalAnalysis

U.S. Telecommunications Market(inbillionsofdollars)

2007 Market Size

$568billion

Wireline Voice 19%

Online Advertising 4%

Video & Content 19%

Professional Services 7%

Wireline Data 17%

Business CPE 7%

Wireless Data 4%

Wireless Voice 23%

Projected 2012 Market Size

$710billion

Wireline Voice 13%

Online Advertising 6%

Video & Content 22%

Professional Services 7%

Wireline Data 19%

Business CPE 6%

Wireless Data 7%

Wireless Voice 20%

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TheTelecommunicationsActof1996pavedthewayforRBOCstobeginofferinglong-distanceservices,andVerizonbenefitedfrombeinganearlyinsurgentinthemarket.Itwasthefirstofitspeerstore-enterthelong-distancemarketinJanuary2000.VerizonalsobenefitedbecauseinJune2000itspredecessorcompany,BellAtlantic,mergedwiththenation’slargestindependenttelecommunicationscompany,GTE,whichwasalreadyofferinglong-distanceservices.After2000,Verizonbecameoneofthelargestlong-distancecarriersinthenation.

However,technologywasbeginningtohaveadramaticimpactonwirelinemarketsatthebeginningofthedecade,andInternetaccessservicesprovidedthepotentialforgreaterfuturegrowththantraditionaltelephoneservices.ForVerizon,thesebroadbandwirelineservicesincludebothDSLandFiOSservices.Thetechnologicallymore-matureDSLserviceisbasedoncopperwireconnectionstocustomers’homes.NewerFiOSbroadbandservice,whichisbasedonfiber-opticconnectionstocustomers’homes,isgrowingatamorerapidpaceinrecentyears.Verizonaddedmorethan1.25millionwirelinebroadbandconnectionsin2007,andthisnumberincludedmorethan850,000newFiOSInternetconnections.

ThegreatercapacityoffiberopticsalsogaveVerizontheopportunitytoofferFiOSTVinadditiontoFiOSInternet,andbyearly2008Verizonalreadyhadmorethan1millionFiOSTVcustomers—agrowthmarketthatdidn’tevenexistforthecompanyalittlemorethantwoyearsearlier.

Tofurtheraccelerategrowthbyfocusingoncorenetworkassets,in2006and2007Verizontookseveraladditionalsteps:

• Thespin-offofwirelinebusinessesinthreeNewEnglandstates,announcedin2007andcompletedearlyin2008.

• Thesaleofnon-strategicinternationalassetsinLatinAmericaandtheCaribbean,completedin2007.

• Thespin-offofVerizon’sdirectoriespublishingbusinessintoanew,separatecompanycalledIdearc,whichbeganoperationsinlate2006.

• ThecompletionofVerizon’smergerwiththeformerMCI,whichearlyin2006createdVerizonBusiness,aleadingproviderofadvancedcommunicationsandinformationtechnology(IT)solutionstolargebusinessandgovernmentcustomersworldwide.

Verizon Wireless

Verizon’smostdramaticgrowthinrecentyearshasoccurredinthewirelessmarket.

Ingeneral,U.S.wirelesspenetrationhasshownsteadygrowththroughoutthedecadeandismorethan80percenttoday,withcontinuedgrowthprojectedfortheforeseeablefuture.

Forallwirelesscarriers,thisgrowthisoccurringinanevolvingcompetitivelandscape.Inlate2003underaprogramcalledLocalNumberPortability(LNP),wirelesscustomersforthefirsttimewereabletochangecarriersandkeeptheirexistingwirelessphonenumber.Also,wirelesscarriersarecontinuingtoimprovetheirspectrumpositionsthroughacquisitions,swapsandleasing.Inthefirstquarterof2008,theFCCcompletedtheauctionofmorethan1,000licensesinthe700MHzband.“Auction73“raisedatotalof$19.1billioninwinningbids.

NowherehaswirelessgrowthandmarketexpansionbeenmoreevidentthanatVerizonWireless.Thecompanygained7.7millionnetnewwirelesscustomersin2007.Onereasonforthismarket-sharegainisthatVerizonWirelessoperatesthemostreliablewirelessnetworkinthecountry.TheVerizonWirelessnetworkhasbeenrankedhighestinnetworkqualityperformanceamongthelargestwirelessprovidersbyanationalresearchorganizationoverthepastseveralyears.Intotal,overthepast10yearsthroughyear-end2007,theVerizonWirelesscustomerbasehasgrownfromabout6milliontoalmost66million.

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WhilethetotalnumberofcustomersforVerizonWirelesshasgrown,monthlyservicerevenueperuser(sometimescalledARPU,for“averagerevenueperuser“)hasalsogrownforVerizonWireless—evenastheretailpriceforvoicewirelessservicehasdecreasedovertime.

Thisisbecausethewirelessindustryisevolvingrapidlyfromvoicetodata—anddatauseishavingasignificantpositiveimpactonwirelessrevenues.During2003SMS(shortmessagingservice)wasthemajornon-voicecontributortorevenues,butby2004downloadsandpicturemessaginghadbeguntocontributeagreaterpercentage.Inthefirstquarterof2008,VerizonWirelessreportedthatitscustomersalonesentmorethan58billiontextmessagesand1.1billionpictureandvideomessages.Thiscompareswith2.1billiontextmessagesand21millionpicturemessages(videomessagesweren’tavailable)inthefirstquarterof2004.

Thedeploymentofbroadbandwirelessnetworkcapabilitieshasacceleratedthedevelopmentanduseofwirelessdataservices.VerizonWirelesswasthefirstcarriertobuildanationalwirelessbroadbandnetwork.In2003,VerizonWirelesslaunchedBroadbandAccess,anultra-high-speedwide-areabroadbandnetworkandservice,givingcustomerswirelessaccesstotheInternet,intranets,e-mailandotherapplicationsatbroadbandspeeds.ThiswasbasedonEV-DO(Evolution-DataOptimized)technologyandwasquicklydeployednationwide.Inearly2007,VerizonWirelesslauncheditsnext-generationhigh-speedwirelessbroadbandnetwork,basedonEV-DORevisionA(Rev.A)technology,givingcustomerstheabilitytouploadfileseighttoninetimesfasterthanbeforeandgivingthemfasterInternetande-mailaccess.Rev.AtechnologyhasbeenmadeavailablethroughouttheentireEV-DOnetworkandatyear-end2007coveredmorethan240mil-lionpeople.

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10

20

30

40

50

60

70

80

29.432.5

37.5

43.8

51.3

59.1

65.7

Verizon Wireless Subscribers (inmillions)

2001 2002 2003 2004 2005 2006 2007

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BroadbandAccesscustomersinenhancedbroadbandwirelesscoverageareascanexpectaveragedownloadspeedsof600kilobitspersec-ond(kbps)to1.4megabitsandaverageuploadspeedsof500-800kbps.VerizonalsooffersVCASTservices,basedonEV-DOtechnology.VCASTisthenation’sfirstconsumerwirelessbroadbandmultimediaservice,bringinghigh-qualityvideo,3Dgamesandmusicstraighttocellphones.VerizonWirelessintroducedofwirelessvideoservicesinearly2005andmusicservicesinearly2006.

Conventional Penetration

Today

Conventional Penetration

Future Opportunity

M2M+

Digital Lifestyle+

Auto and Telemetry

+???????

84%

More than 400%

Penetration to Connections

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In2008,VerizonWirelessmadetwoannouncementsthatwillenableitsnetworktoprovideevenmorerobustdatacapabilities.First,thecompanyannounceditsOpenDevelopmentInitiative,sometimescalledthe“anyapps,anydevice“initiative.Thegoalistogivecustomerstheabilitytousethewirelessdevice,softwareandapplicationsoftheirchoiceontheVerizonWirelessnetwork.Subjectonlytomeetingminimumtechnicalstandards,anydevicewillwork—andanyapplicationcanbedownloaded.

Second,VerizonWirelessannouncedtheroadmaptoanevenfasterandmoreconvenientwirelessbroadbandexperience.Thecompanyisembracingatechnologycalled“LTE“(Long-TermEvolution)foritsnext-generationwirelessnetwork.ThegoalisforLTEtoachievemorethan100mbpsupstreamandmorethan50mbpsdownstream,andbothVerizonanditsoverseaspartner,Vodafone,havechosentodevelopapplicationsonthiscommonplatform.

Global Standard

• Technology of choice

• Supported by the largest wireless

carriers in the world

Global Partnerships

• Leverage relationship with Vodafone

• Global roaming

Significant Throughput

Increase

• Low-latency, IP-based service

platform

• Media-rich capabilities

Scale Economies

• Device and infrastructure

efficiencies

• Simplified architecture

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Network EvolutionOnthewirelineside,severalfactorsinvolvingtheevolutionofVerizon’scorenetworkshavepositionedthecompanywellingrowthmarkets:ubiquityandreliability,commitmenttoinvestment,andadvancedtechnologydeployment.

1. Ubiquity and Reliability.

Verizon’snetworkplaysakeyroleintheconvergenceofalltelecomnetworks.Verizonanditspeersownandmaintaintheirnetworks,pro-videafullrangeofservicesand,perhapsmostimportantly,providelast-mileaccesstocustomers.In2007alone,VerizonWirelineoperatedwholesalebusinessesgenerating$11.4billioninannualrevenue,asothertelecommunicationscompaniesusedtheVerizonnetworktocon-necttocustomers’homesandbusinesses.

Asofyear-end2007—beforethespin-offofNewEnglandaccesslines—Verizon’snetworkincluded41.4millionwirelineaccesslines.Accesslinesareconnectionsfromacustomer’spremisestotheVerizonnetwork.Evenaftertherecentspin-off,Verizonprovideswirelineaccesslinesin25statesinvirtuallyallareasofthecountry.Over1.2billionphonecallsandtrillionsofbitsofdataarecarriedoverthisnationwidenetworkonanaveragebusinessday,withareliabilityfactorofover99.99percent.Verizon’sU.S.wirelinenetworkalsoincludesmillionsofmilesoflocal,inter-cityandlong-distancefiber-opticsystemstohelpcarrycallsanddataforcustomersaroundthecountry.That’senoughtocircletheEarthmorethan500times.

Meanwhile,Verizon’swirelessnetworkoperatesinnearlyalltopU.S.markets(49states)andreachesmorethan260millionAmericans.Verizon’swirelessnetworkis100percentdigital,withmorethan175switchingfacilitiesnationwide.Likethecompany’swirelinenetwork,thewirelessnetworkisbuiltforreliabilityinemergencies,withindustry-leadingredundancyandmaintenancemeasures.

2. Commitment to Investment.

Overthefive-yearperiodfrom2003-2007,Verizonhasinvestedmorethan$74billion—morethananyothertelecomorcable companyinAmerica—tomaintain,upgradeandexpanditstechnologyinfrastructure.Thisincludesnearly$30billiononthe VerizonWirelessnetworkalone.

Buoyedbythesesignificantnetworkinvestments,VerizonWirelesshasbecomethenation’sleadingwirelessprovideraccordingtomanyimportantindustrymeasures—customersatisfaction,innovation,networkreliabilityandcashflowgeneration.

Inresponsetoageneralindustrydeclineintheearlypartofthedecade,mostothertelecommunicationscompaniessharplyreducedcapitalspendingonnetworkinfrastructure.Duringthistime,Verizonemphasizedoverallexpensecontrolasnewertechnologiesmadenetworksandoperationsmoreefficient.Verizonalsosoldnon-strategicassets,bothdomesticallyandinternationally,andthecompanymaintainedstrong,consistentcashflowsfromoperatingactivities($26.3billionin2007).Thishasenabledthecompany,unlikeitspeers,tomaintainahealthylevelofnetworkspendingingrowthareas—investingmoreinwirelessandbroadbandthananyoneelseintheindustry.

Earlierinthedecade,Verizon,likeotherpeercompanies,alsousedmuchofitscashflowtoreducecorporatedebtlevels—althoughatagreaterrate.InVerizonscase,thecompanyreducedcorporatedebtbynearly$20billion,orbynearlyathird,overatwo-yearperiod endingin2004.

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3. Advanced Technology Deployment.

Verizonhasuseditsinfrastructureinvestmentstotransformitswirelessandwirelinenetworksaroundnewtechnologiesandnewmarkets.

Inadditiontotheinvestmentinwirelessbroadbandmentionedearlier,VerizoninMay2004begananevenmoreambitiousproject:thefirst-everlarge-scaledeploymentoffiber-optictechnologytoindividualhomesandbusinesses,replacingthecopperwiresthatconnectcustomerstotheVerizonnetwork.Calledfibertothepremises,orFTTP,thenewtechnologydeliversunprecedentedspeedandanewbroad-bandexperience.ItprovidesthebandwidthandspeedtomakeavailableanarrayofnewFiOSservices:super-fast,high-speedInternetaccess;crystal-clearvoice,andafullsuiteofvideoservicesthataresuperiortocableTVofferings.

Bythefallof2006,Verizonreportedthat:

• FiOSInternetserviceswasgainingmarketshareinagrowingbroadbandmarket.

• EarlyFiOSTVsuccessesindicatedastrongcustomerpreferenceforchoiceamongvideoproviders.

• InnovativeservicesweredifferentiatingFiOSfromcompetitiveservicesanddrivingnewmarketopportunities.

• Thecompany’sfiberdeploymentwasalreadyreducingnetworkcostsandpositioningsignificant,ongoingsavingsinoperatingexpenses.

ConclusionsVerizon’splan,then,istoinvestinsuperior,high-technetworkstoprovidecustomerswithservicesthatwilldifferentiatethecompanyinacompetitive,high-stakesmarketplace:

• VerizonWirelessoperatesthemostreliablewirelessnetworkandthemostwidelyavailablewirelessbroadbandnetworkinthecountry.

• VerizonTelecom’sfiber-to-the-premisesnetwork,whichtakesfiberallthewaytocustomers’homesandbusinesses,isthemostadvancedbroadbandnetworkbeingdeployedinAmericatoday.

• VerizonBusinesshastheindustry’smostadvancedglobalnetwork,themostexpansiveInternetbackboneanddeepexpertiseinprovid-ingInternetProtocol(IP)services.

Inalargercontext,thisadvancedtechnologydeploymentalsopromisesbenefitsintermsofproductinnovation,economicgrowthandjobcreation.IntestimonytotheU.S.SenateCommitteeonCommerce,ScienceandTransportationin2004(theyearVerizonbeganitsFiOSdeployment),Verizon’sChairmanandCEOIvanSeidenbergsaidthatdelivering100megabitsofcapacitytopeoplewherevertheyare—athome,atwork,onthego—shouldbethelong-termgoalforthecommunicationsandhigh-techindustries.Thesekindsofnetworkswillcreateaplatformfornewapplications,servicesandcommunicationstechnologies,givingAmericansevenmorechoicesintheelectroniccommunicationsmarketplace.

Morerecently,a2008studybyConnectedNationfoundthata7percentincreaseinbroadbandadoptionintheU.S.wouldcreate2.4millionjobsand$134billionineconomicgrowth.

U.S. Industry Developments and TrendsWhilerevenuesandaccesslinesinthetraditional,narrowbandwirelinetelephonebusinessaredeclining,othercommunicationsmarketsareexpanding,providingAmericanswithmanynetworksandmanyservicesfromwhichtochoose.

Theemergingbroadbandindustryismadeupofsuper-fast,multi-megabitnetworksthatcandelivervideo,dataandvoiceinentirelynewways.First-generationbroadbandconnections—whetherDSLorcablemodems—werejusttheinitialstep.Trulyhigh-speed,multi-megabitnetworksgobeyondfasterdownloadsorcheaperphonecallstoenablemulti-mediacapabilitiesthathavebeguntorevolutionizecommunicationsingeneral,andholdthepromiseforinteractiveservicesthatcanrevolutionizecommerce,educationandhealthcare.

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Consumer Markets

Withwidespreadadoptionofbroadbandandwirelessservices,thefollowingtrendsareemerginginU.S.consumermarkets:

• Socialnetworking,Internetvideoanduser-generatedcontentplayingamoreimportantroleinthecommunicationsexperience,especiallyamongyoungeragegroups.

• Onlineandmobilecontentacceleratinggrowth,resultinginincreasingdemandfornetworkoperatorstoprovidemorebandwidthandhigherspeeds.

• Portals,contentprovidersandequipmentdevicemakerscompetingwithnetworkoperatorstoallowusersmoredirectaccesstocontentand services.

• Opennetworksanddeviceschangingtheroleoftraditionalnetworkproviders.

Business Markets

TheU.S.Enterprisemarket,servinglarge-businessandgovernmentcustomers,hasconsolidatedinrecentyears,resultingintheemergenceoftwomajorplayers—AT&TandVerizon—aswellasothersmallerCLECplayers.Twolargemergersfirstannouncedin2005—SBC’spurchaseofAT&T,andVerizon’spurchaseofMCI—areresponsibleformostoftheconsolidationintheU.S.SBCrevivedtheAT&Tbrandafteritspurchasewascomplete.

InthecaseofVerizon/MCI,themerger—completedinearly2006—addednewstrengthtothetelecommunicationsservicesbothcompa-niesprovided.ItensuredthatconsumersandbusinesseshadasupplierwiththefinancialstrengthtomaintainandimproveMCI’sInternetbackbonenetwork.ThetransactionalsoenhancedVerizon’sabilitytocompeteforandservelarge-businessandgovernmentcustomerswithacompleterangeofservices,includingwirelessandthemostsophisticatedIP-basedservices.

TheEnterprisemarketincludestraditionalvoiceanddataservicesandcustomerpremisesequipment(CPE).Hosting,storageandprofessionalservicesaregrowthareasforproviders.LegacyservicessuchaswirelinevoicewillcontinuetodecreaseasanincreasingnumberofenterprisesmigratetoVoIP.Virtualprivatenetworks(VPNs)willgraduallygainsharefromlegacydataproducts,suchasATM(AsynchronousTransferMode)andframerelay,butthiswilllikelybeamulti-yeartransition.

MajortrendsemergingintheEnterprisesectorinclude:

• GreaterconvergenceofbusinesscommunicationsservicesandIT/computingservicesdrivenbyanaccelerationandgreatermigrationtoIPnetworkplatforms.

• Increasedsystemcomplexityrequiringagreaterneedformanagednetworks,security,hostingandstoragesolutionsleadingtomoreout-sourcingbyEnterprisecustomers.

• Growthofonlinemediausedbyenterprisesexpectedtosupportcontinuingdemandformorecontentandapplicationsdeliverynetworkservices.

• MorewirelessmobilityutilizedbyEnterprisecustomersdrivenbytheneedtomanageremoteworkforcerequirementswithnewdevicesandapplications.

Inthesmall-andmedium-business(SMB)market,anumberofkeytrendsaredeveloping:

• CableMSOswillaggressivelytargettheSMBmarketoverthenextfewyears.

• AnewgenerationofCLECshaveemerged,offeringSMBsafullrangeofIPproductsandservicesinselectgeographicalmarkets.

• NewtechnologiesandservicessimilartothoseusedbyEnterprisecustomerswillbeincreasinglyadoptedbySMBs.

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SummaryThecommunicationsindustrycoversawidespectrumofservices,rangingfromwirelineandwirelessvoicecommunicationsanddataaccess,tovideoandcontentdelivery.Worldwidedemandfortheseservicesgeneratedanestimated$1.65trillioninrevenuesin2007,withmorethanone-thirdofthisintheU.S.market.

Whiletheindustryexperiencedturbulenceearlierinthedecade,keyplayerssuchasVerizonhavemaintainedfocusonpursuingnewgrowthopportunitiestotransformtheirbusinesses.Industrygrowthwillbedriveninparticularbydemandforbroadbanddata,wirelessandEnterpriseservices.

IntheU.S.,thisgrowthisdependentondevelopmentsinseveralareas:increasedcustomerdemand,successfulindustryconsolidationandcontinuedimprovedregulation.Thepaceofdemandwillplayalargeroleintelecommunicationsgrowth.

Rapidadvancesintechnology,includingthedeploymentofIP,FTTPandwirelessbroadband,continuetotransformthenatureoftheindus-tryandaddfunctionalityforcustomers.Verizon,withitsrobustwirelineandwirelessassetbase,iswellpositionedtoretainitsstatusasaglobal leader in communications services.

AboutthisDocument:ThisdocumentwaspreparedbyVerizonCommunicationsasanindustryperspectiveforinvestors,potentialinvestorsand researchers.

May20,2008

©2008Verizon.Allrightsreserved.