Good morning and welcome to the fourth quarter 2015 earnings conference call. At this time, all participants have been placed in a listen-only mode, and the floor will be open for questions following the presentation. To ask a question, press star, one on your touchtone phone. If at any point your question has been answered, you may remove yourself by pressing star, Q. 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 Carlos. Good morning and welcome to our fourth quarter earnings conference call. This is Mike Stefanski, and I’m here with our Chief Financial Officer, Fran Shammo. Thank you for joining us this morning. As a reminder, our earnings release, financial and operating information, the investor quarterly and the presentation slides are available on the investor relations website. A replay and a transcript of this call will also be made available on our website. Before we get started, I’d like to draw your attention to our Safe Harbor statement on Slide 2. Information in this presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Discussion of factors that may affect future results is contained in Verizon’s filings with the SEC, which are available on our website. This presentation contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the financial materials we have posted on our website. 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 goes through our results, I’d like to highlight a few items. For the fourth quarter of 2015, we reported earnings of $1.32 per share on a GAAP basis. These reported results include a few non-operational items that I’d like to highlight. Our year-end mark-to-market adjustment of pension and OPEB liabilities included a pre-tax $3.2 billion credit which decreased our pension and OPEB liability. This adjustment, which was primarily non-cash, was caused by an increase in the discount rate, the adoption of new mortality assumption tables, and the execution of a new prescription drug contract during 2015. We also incurred pre-tax expenses of $613 million primarily related to…

Thanks Mike. Good morning everyone and happy new year. Entering 2016, we are confident in our three-tier strategy of leading at the network connectivity level in the markets we serve, developing new business models through global platforms in video and Internet of Things, and creating certain opportunities and applications and content for incremental monetization. Our execution model enables us to compete effectively in every market condition and build our capabilities for future growth and profitability as an innovator in the digital-first mobile world in 2016 and beyond. As we reflect back on 2015, we demonstrated a balanced performance in a dynamic competitive environment. We delivered quality growth and strong financial performance in our operating segments while improving our strategic position and returning value to our shareholders. Overall, our full-year adjusted earnings per share grew 19.1% and free cash flow increased to $18.8 billion, excluding tower proceeds, which enabled us to invest and return value to our shareholders. Fundamental execution on our strategies is the priority within our segments. In wireless, we posted another quarter of quality connections growth and profitability with sequential improvements in postpaid growth and net adds, as well as net phone additions. Postpaid net adds totaled 1.5 million for the quarter and 4.5 million for the year, excluding wholesale and Internet of Things connections. Net phone additions were 449,000 for the quarter and 1.1 million for the year. Customer retention was also a highlight with postpaid churn of 0.96%, down 18 basis points for the quarter. For the year, churn was also 0.96%, which improved 8 basis points from prior year. Total wireless revenue grew 4.6% for the year and our EBITDA margin expanded. Our wire line quarterly results were highlighted by Fios revenue and customer growth. Additional enterprise and wholesale revenue slightly improved sequentially while we…

Fran, thank you. We also recognize that there might have been some delay in posting our materials to our website. The issue, I think, is resolved, so we appreciate your patience. Carlos, if you can open us up now for questions.

[Operator instructions] Your first question comes from Mr. David Barden of Bank of America Merrill Lynch. Please go ahead with your question.

Carlos, if David’s not there, then we can just move on and pick David up next.

Thank you, one moment, sir.

Can you hear me now?

Yes, go ahead, David.

There you go. Thanks for taking the questions. Fran, just as a housekeeping item with respect to the notion of a, quote-unquote, plateau, could you kind of band that for people? Are you trying to put a plus or minus 1 or 2% around the $3.99? Are you trying to say $3.99 or better for 2016, just so the Street can kind of get a sense as to where the real midpoint there is? Second, obviously we had an extension in bonus tax depreciation last year. It’s been something you’ve been benefiting from. Could you kind of scope the size of the benefit you’re going to get this year? And if I could, just one last one. You’ve talked about how cord shaving has been important for the new customers coming into the Fios space. Could you talk about if at all you’re seeing some kind of transition in the existing base to these skinnier bundles? Thanks.

All right, thanks David. So on earnings per share, we started this back, I think midyear in 2015 when Lowell and I started to talk about the plateau and the level comparable to 2015 adjusted earnings. The way to think about this is we ended 2015 at $3.99. There is $0.13 of depreciation benefit because of the Frontier assets being held for sale, so that really is a level set of $3.86. When we talk about plateauing, we’re referring to the $3.99, so when you think about this, you’re going from $3.86 from a jump-off point to $3.99, so the way I think about it is we’re actually growing earnings in low single digits from 2015 to 2016 when you make that one-time adjustment, so we will grow through the benefit of the deprecation this year. Some of the reasons for that, as I said on the last quarterly call, some of this is just math - moving the wireless transformation from the subsidy model to the device payment model, and of course the ramping of our new businesses which I’ve been very clear in the beginning. These are like start-up businesses, and as with most start-up businesses, you have very large losses in the beginning until you can grow the customer bases and start to generate the profitability. Moving into the bonus depreciation, yes, we will get a substantial benefit next year, but I want to be clear that you should not anticipate that our cash tax payments will decrease in ’16. They will actually increase, even with this benefit, and a piece of that is because the profitability from a pre-tax income perspective will continue to increase. We’re also still eating through the reversal of prior year bonus depreciations, so from a cash tax perspective you should expect our cash tax percentage to continue to increase closer to our effective tax rate. Now, not to the extent of the 35 to 36 guidance that I gave you, but it certainly will move from the low 20% we realized in ’15 to the upper 20% in ’16. On the cord shaving piece, as we said in our prepared remarks, we are starting to see more and more customers coming into Fios on a broadband-only basis, so just a single play strictly with broadband. As far as our current base goes, we see a little bit of trending but not much. Most customers are depleting the voice side of the product and keeping the broadband and video side of the product at this point. David, hopefully that answers your question. Let’s move to the next one.

Thanks.

Carlos, we’re ready for the next question.

Thank you. Our next question will be coming from Simon Flannery from Morgan Stanley. Please go ahead with your question.

Thanks very much. Good morning, Fran. You touched briefly on the auction in your commentary. I know in the past, you’ve made some of your interest contingent on some of the rules, which we have now. Maybe you could just think about how we should be thinking about sizing your potential participation, what you need here. There’s been a lot of stories about potential asset sales over the months, most recently about data centers. Perhaps you could just talk about your philosophy now that you’ve done the towers, you’re doing the Frontier assets. Should we expect, or are you considering doing other significant asset sales over the coming year or two? Thanks.

Okay, thanks Simon. So on the auction, let’s just--I’ll keep this one short on the incentive auction because of a lot of rules around what I can and can’t say at this point. We will participate in the auction, and I’ll leave it at that. Thinking about spectrum overall, I think we have to think about the 600 megahertz, which I’ve talked about previously and how that fits to our portfolio. We think ahead to 5G - as we said, we’ll be at the forefront and we are currently at the forefront globally talking about standards. We will be the first company to roll 5G out in the United States, and we’re currently preparing for those field trials. The other thing I would say about 5G is we would hope that the FCC moves quickly to adopt the rules to facilitate 5G deployment. Think about 5G - it may not just be about mobility. It may be about other use cases, not just about mobility. Then when we think about the unlicensed opportunity, if you studied the Consumer Electronics Show this past two weeks, there were multiple manufacturers who were running side-by-side comparisons of unlicensed, if you will, LTE or unlicensed spectrum utilized by an LTE carrier right next to WiFi, and it absolutely showed no interference, which is some of the rhetoric out there. It actually showed that the comparability is it improves the WiFi performance by having a managed unlicensed within the LTE carrier. So again, this just goes to continuing to work with the FCC and having them see through the release and usage of unlicensed for the LTE carriers. Then of course, we will continue to utilize the secondary market, as we do quarter in and quarter out, utilizing swaps which we just completed this past quarter. We’re working on another swap that we’ll complete in the first quarter, and also minimal buys in the marketplace with smaller holders. So that’s how we think about the whole spectrum asset perspective. On the sale of assets, as Lowell and I have continually stated, we will always look for opportunities. The data centers is an exploratory exercise to see if the asset is more valuable inside or outside the portfolio. I view that asset similar to the way we view towers - is there a way to monetize this asset that contributes value to our shareholders and gives us the capability to move that capital into higher returning assets for Verizon. There is no decision that has been made. This is an exploratory, and as we explore, if the numbers come out like it did on towers, then we’ll execute on a transaction. If it doesn’t, then we won’t. So at this point, again, we will always look at opportunities to monetize the portfolio to the benefit of our shareholders. Thank you, Simon.

Thank you.

Carlos, next question, please.

Thank you. Our next question will be coming from the line of John Hodulik from UBS. Your line is now open, sir.

Thanks. Fran, I think the churn below 1% was obviously a bright spot for the quarter. Is that a level that you think you can maintain as you look out into 2016, given the competitive environment? Then you mentioned some continued pressure on the service revenues looking out. Can you talk a little bit about the components driving that and when you expect to see an inflection in that metric? Thanks.

Sure, thanks John. So one the churn rate, if you recall when we sat here a year ago and we entered 2015, we said a concentration of ’15 will be to protect our customer base. That’s exactly what we executed on throughout 2015, and the execution of that will continue in 2016. The focus will be customer satisfaction and satisfying our customer base so they stay with us, and I think that’s proven through our very low churn rate this fourth quarter, even with the rhetoric from some outsiders about how they’re stealing customers. The churn rate does not reflect that, and port outs are down year-over-year. So we are doing what we said we would do around the loyalty. Customer satisfaction comes in here around our simplicity and being simple with customers so they understand what they’re getting, and this goes to our loyalty base. On the service revenue side, I guess the thing I would say on this is, again, this is really to math - math of shifting from the subsidy model with higher service revenue to a device payment model, where you get a break in service revenue but you pay full price for the handset model. As we said, we are through 40% of our customers. We’re slightly higher than 40% who are now on that new pricing, so you’ve already seen the impact of that. As I said last call, we believe the inflection point will happen at 50%, which we believe we will attain midyear. Coming out of the fourth quarter, though, we did see a slowdown in the take rate of installment sale, but we do believe that that take rate will accelerate back up above 70% for the fourth quarter, and we’re going to announce some differences here, a shortcoming that will drive some of that behavior towards that. As you know, we continue to allow our current base customers who upgrade to select whether they take device payment or subsidy, and what we saw in the fourth quarter was we had a higher percentage of our base stay on the subsidy model, which caused pressure on the P&L of wireless because of the subsidy take. So having said that, John, I think as we go through the year, we’ll be able to give you more clarity here. The other thing I would ask you to take a look at is the [IARPA] metric, which if you look at third quarter, it went up by 0.2% and then the fourth quarter went up 0.9%, so you’re already starting to see some of the underlying metrics starting to absorb some of the repricing. So I’ll leave it at that for ’16, but I’ll come back to you as we break through the 50%.

Great, thanks Fran.

Next question, Carlos.

Thank you. Our next question will be coming from the line of Phil Cusick from JP Morgan. Please go ahead with your question.

Hey guys, thanks. So Fran, first just following up on John’s question, with the current asset mix, and not just in ’16 but beyond, is this still a business that can grow well above GDP, and how far do you think above? Second on custom TV, you’ve said in the past that you’re sort of pushing toward your minimums on some of your contracts. How should we think about that potentially impacting custom TV, or do you think you could reopen some of those contracts to let that percent go higher? Thanks.

Okay, thanks Phil. So the answer to the question is yes, absolutely, and I think we have to go back and start at the beginning on the whole top line growth story. So first and foremost, I think the foundation is our network, our strategy in densification, the use of fiber. Fiber is going to be critical with the densification, dark fiber. Ninety-two percent of our cell sites are already fiber-enabled, the other 8% are microwave, which probably won’t get fiber. So when you look at it, almost 100% of our cell sites are fiber enabled and every small cell, 100% of every small cell we deployed is fiber backed. So this is in preparation of some of the future products and services that we are looking at in conjunction with both what Marnie has under IOT, Go90, but also for 5G. If you look at customer satisfaction, this goes to a big component of the low churn and how we start to increase the value to the customer so that they are willing to pay us more for increased value. The quality base also goes to this. So when you look at wireless, they grew 1.2% here in the fourth quarter. If you look at volume overall year-over-year, gross adds and upgrades were down 1.9 million, so if you just do the backwards math on that, that’s in excess of a billion dollars of revenue that wasn’t there this year, that was there last year. So when you look at it, the foundation of Verizon wireless is still very strong, and we believe that we can continue to grow the Verizon wireless revenue streams. On wire line, Fios is still the foundation. It’s now 80% of the overall wire line revenue. When you look at what we’re doing, broadband,…

Is there a hearing that needs to happen at some point this year, or a trial?

Relating to ESPN?

Yes.

Look - this will go its course. They're a great partner of ours. We’ll continue to work with them, and I’m not going to speak to the actual lawsuit.

Thanks.

Next question Carlos, please.

Thank you. The next question will be coming from Mike McCormack from Jefferies. Please go ahead with your question.

Hey guys, thanks. Fran, maybe just a quick follow-up on the [IARPA] question. How fast do you think equivalent revenue starts to ramp up here? I guess just thinking about the percentage of those customers making payments versus those that are on non-subsidized plans, is that gap--and there’s probably some retention built into that, but I assume that gap can close over time? Just your thoughts around that, and then just a quick other question regarding towers. We’ve heard a couple of your competitors sort of downplaying future tower needs and trying to bypass some of that cost. Just trying to get a sense for what you think as far as your needs for towers goes.

Okay, thanks. So in the [IARPA], keep in mind only 29% of our customers currently today are on a device payment plan, so they’re actually taking the installment plan and paying us full price for the equipment, but 40% of our customers who fulfilled their subsidy contract have moved over to that pricing, so they are getting the discount, so we’re absorbing that. As I’ve said, once you get to that 50%, you should see that inflection point start to occur, and you’re already starting to see some of that in the [IARPA] type metric. So it’s hard for me to forecast exactly what will happen here, but the forecast that I have is at 50%, you start to see an inflection point, and we’ll talk more about that as we go through the quarters. As far as towers go, look - I mean, we continue to build macro towers but at a much slower rate than historically. Our focus is really around small cells, densified antenna systems in-building, but keep in mind that each of those small cells in-building and antenna systems all give fiber back to a main macro cell, so the macro cells still have an important role in how you deliver traffic into those small cells. So as far as building and creating new towers, that’s at a much slower rate but the importance of the tower is still there.

Great, thanks Fran.

Sure.

Carlos, next question, please.

Thank you. The next question will be coming from Brett Feldman from Goldman Sachs. Your line is open.

Thanks for taking the question. Fran, you had noted had churn in upgrades, they were all lower year-on-year. It seems that across the sector, activity levels have been lighter than we might have thought, whether it’s churn or gross adds or upgrades. Why do you think that is? Do you think that this is a temporary factor or do you think it’s the new normal? Really, I guess the question is what do you think is going to happen in 2016?

Okay, thanks Brett. So look - 2014 was a unique year. You have a very different form factor come out from Apple, which drove a lot of traffic to that iconic device. You continue to have innovation from Samsung and LG, but we didn’t have that huge change in the handset this year that we saw a year ago, so that, I think, affected some of the upgrade model. But you know, when you look at it, we still did about 1.5 million more upgrades in the fourth quarter than we did in the third quarter, so the volume of upgrades still increased, it just wasn’t what it was a year ago. If you remember, I said coming into this way back in the second quarter, I said I did not anticipate that the fourth quarter this year would be in similar volume to the fourth quarter of last year, but if you go back to the previous years, I think you’ll see similar lower volume years and then you’ll have iconic devices come out, and it stimulates some usage case there. So for ’16, it’s too early to tell yet, but I would think that we’ll see similar trends that we did in ’15.

Are you seeing any evidence that as customers move to installment plans, they actually keep their devices longer?

Well, for our base it’s too early to tell because the first generation of them are just starting to mature. Until I get some real factual data on that, it’s hard for me to answer. My own personal opinion here is that if you look at history, a third of your customer base upgrades every year. I don’t see that changing, regardless of what plan the customer is on.

Great. Thanks for taking the question.

Carlos, next question please.

Thank you. The next question will be coming from Mike Rollins from Citigroup. Please go ahead with your question.

Hi, thanks for the opportunity. Just two questions, if I could. First Fran, if you could just talk about what Verizon was able to accomplish on cost-cutting in 2015, and how investors should think about that relative size in 2016. Second, as you look across your different business segments, are you seeing any changes in the macroeconomic backdrop or a risk of a recession? Thanks.

Okay, thanks Mike. So on the cost cutting, look - I think the last three to four years, we’ve talked about this and we’re an extremely disciplined corporation as far as costs go. With the launch of our Verizon Lean Six Sigma program three years ago, that continues to maintain momentum. We took out almost 30 million calls down from a year ago, so there’s a lot of progress being made on self-serve. There’s a lot of progress being made within our logistics system - I mean, this year alone we generated working capital benefits from how we handle our phone inventory. So you saw the wireless restructure this year, was the first restructure we had really since the inception of Verizon wireless. So as we go into ’16, you saw us take that severance charge, and I would tell you most of that severance charge was related to headcount that is already completed in the fourth quarter, so entering into 2016 we continue on the path that we were on. We will continue to look at customer satisfaction, more self-serve options that reduce the amount of calls that we have to take from customers. So there is still a lot of work to be done around our cost structure, and if you look at wire line, as we came into this year, Lowell and I said we would improve the profitability of wire line. That came from all the cost reductions that John and his team achieved. So we will continue on that path, and I feel good about that. As far as overall economics, I’m not really seeing much of anything in the consumer spaces that we drive. I look at what everybody else looks at, and we’ll have to wait to see what 2016 comes out, but I’m certainly not going to predict any negativism there.

Thank you.

Carlos, next question.

Thank you. The next question will be coming from Craig Moffett from MoffettNathanson. Your line is open.

Hi, good morning guys. Two questions, if I might. First, on Go90, can you update us a little bit on what the early results are and what learnings you’ve had from Go90? Just given your comments about the roughly flat year-over-year EPS and the impact that Go90 might have on that, I think a lot of us have concluded that there’s likely to be something significantly bigger coming this year with respect to marketing and content. Can you at least give us a timeline for when we might see those kinds of developments on Go90?

Sure, thanks Craig. So when I think about the whole portfolio - Go90, Verizon digital media services and AOL, obviously we just launched all these products, so there’s a start-up. It was the first fourth quarter that we advertised these types of launches. You’re going to see that continue through the four quarters of ’16, which was not there in ’15, so there will be pressure from these start-up companies. Our learnings on Go90 are very simple - we’re looking at how many times individuals revisit the platform in one day, and we’re starting to see some positives there where people will come in multiple times during the day, and that’s important because that’s what’s viable to the advertising community. So the whole basis here is we have to ramp viewership. I will tell you, internally we have surpassed what we thought we would have at this point in time. We have set higher targets for ’16 because we need to build the viewership in a much quicker fashion. I think what you’re seeing here from AOL is a very strong fourth quarter. Now, there is seasonality to that, but as I mentioned, I’m looking for them to grow substantially in 2016. So I think when you put this together, I think the top line will start to reflect some of the things that we’re looking for, but it will create bottom line pressure. These will not, especially Go90 will not be profitable product probably within a one to two-year horizon right now. When we launched it, we said two to three, but it’s probably two years before that will become a profit contributor to the enterprise, but it will certainly build on the top line perspective. Right now, we’re focused on viewership, not necessarily the profitability of the product. So I’ll stop there. As I said, we will come in with much more detail probably midyear and start to give you some viewership into exactly some of the results of Go90 and AOL.

And Fran, related to that question, if I could, on AOL, now that you’ve had AOL for a while, there was some talk - and I think you directly spoke to the possibility of a Yahoo! or something like that, are there other assets that now that you’ve had AOL for a while, you think make sense to expand that part of your business with?

Well, look - I think we’ve been pretty open since we acquired AOL. We said that we would continue to add to that portfolio. We acquired Millennial, which we talked about. So yes, there are things that we continue to look at for fill-ins, if you will. The other one that you brought up, it’s intriguing but there’s really nothing to respond to at this point on that. So, look - we will continue to look at all of our options, as Lowell and I said. We will continue to look at opportunities externally and look at opportunities internally, and if they make sense for the shareholder, then we’ll execute on those opportunities.

Okay, thanks Fran.

Okay Carlos, time for one last question.

Thank you. Your last question will be coming from Amir Rozwadowski from Barclays. Please go ahead with your question.

Thank you very much. Fran, you had mentioned that you continue to look to monetize your handset receivables. I think in your prepared remarks, you had mentioned that you were looking at other alternatives. Perhaps you might be able to elaborate. We’ve obviously seen your competitors look to other means and funding strategies to support their businesses, so any thoughts on the potential options you are considering would be most appreciated.

Sure, thank you, Amir. So just to refresh, we monetized or securitized $9.4 billion of receivables. We received gross cash of $7.2 billion. We obviously paid off some of those securitizations, so about a $5.9 billion net cash. So when you think about that, we absorbed about $3.5 billion within our working capital this year from the switch to the device payment model. I will tell you that we have been talking to the rating agencies about different types of financing, and I will probably leave it at that at this point. But we will be looking at potential public markets as well as private markets, but we will stay with the securitization model as well. So we’re just looking at very different alternatives to support the program going forward, because we do believe it will continue to grow in 2016. More to say on that when we come to a conclusion on that one, Amir.

And then if I may, just one follow-up. You folks seem to be taking the lead with discussing a number of new bandwidth enhancing technologies, and you had alluded to this sort of on your prepared remarks around 5G developments and unlicensed spectrum. How should we think about your ability to bolster the carrier’s capacity moving forward utilizing these types of developments, and ultimately do you believe there is a path to improving your capacity without actually having to broadly expand your spectrum portfolio at this point?

The answer to the question is yes. If you look at some of the small cell technology and also some of the technology that can be utilized at the cell site, I know there’s a fancy name for it but I’m not the engineer here, but it gives you the capability to be able to tilt antennas and turn antennas to where the capacity is. So if you think about football game Sundays and college games, we have the capability to utilize our current resources to increase capacity without any spectrum capacity. So there is a number of technologies that are coming. Obviously when we launched 4G, we said it would be five times more efficient than 3G. 5G is too early, but my suspicion is that we’re going to see some similar benefits there from a capacity standpoint, which is one of the benefits of 5G. So yes, I think that if you look at spectrum, we are in a very, very good spectrum holding, as we said, with all my other comments around spectrum and how we utilize unlicensed along with what we bought in AWS and the repositioning of what we currently have on 3G over to 4G. So utilizing all of these items, we feel that we are in very, very good shape from a capacity standpoint.

Thank you very much for the incremental color.

Okay, thank you for your questions. Before we end the call, I’ll just turn it back to Fran for a few remarks.

Okay, thanks Mike. So look - 2015 was a year of significant change at Verizon, and even with all that change, we delivered a strong financial year, continued to invest in growing our customer base, invested in our networks, developed and expanded new businesses, and returned value to our shareholders in the form of dividends and share repurchase. 2016 will continue what we started in 2015. We will focus on execution and growth with our three-tier strategy and heritage. We will continue to build on a strong network and customer foundation. With our foundation, we will compete effectively in this dynamic marketplace. We will bring new products and services to market and continue to be the leader in the digital first mobile world. We look forward to maintaining our positive momentum to create value for our customers and our shareholders, and I’d like to thank you for joining Verizon today. Have a great day.

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