Verizon Communications 2005 Annual Report Verizon Communications With more than $75 billion in annual revenues in 2005, Verizon Communications is one of the world’s leading providers of communications services. —$22 billion in Cash Flows From Operations —Reported earnings of $2.65 per diluted share —105.3 million total customer connections (wireline, wireless and broadband) —#1 in customer satisfaction for Verizon Wireless, American Customer Satisfaction Index —Top-ranked “major communications performer” in J.D. Power Customer Satisfaction Survey —Numerous awards and “best of” lists, including Latina Style, DiversityInc, CIO Magazine, Hispanic Magazine, and Frost & Sullivan Product Innovation Awards Domestic Telecom Information Services Provider of wireline and other telecommunications Provider of print, Internet and wireless yellow pages services, including broadband directories and related shopping information — Revenues of $37.6 billion — Revenues of $3.5 billion — Serving nearly 30 million wireline households — Publishes more than 1,300 Verizon directory titles with a throughout the United States total circulation of approximately 121 million copies in the —5.1 million broadband connections U.S., and 8 million internationally — Deploying the most advanced broadband network, —Verizon SuperPages.com is an advanced Internet directory including video, in the U.S. and online shopping resource —In December 2005, Verizon announced that it is exploring Verizon Wireless divesting Verizon Information Services through a spin-off, Leading wireless services provider with the nation’s sale or other strategic transaction most reliable wireless network — Revenues of $32.3 billion International — 51.3 million customers across the United States Wireline and wireless operations and investments in the —Industry leader in customer loyalty, profitability Americas and Europe and customer growth — Revenues of $2.2 billion — Leading innovator in wireless services, including — Ownership and management interests in: broadband, video and music • Verizon Dominicana • Puerto Rico Telephone •CANTV •Vodafone Omnitel (all data as of December 31, 2005) Consolidated Revenues Cash Flow from Operations Total Debt Dividends per Share (billions) (billions) (billions) 80 2.0 20 40 60 40 1.0 10 20 20 0 0 0 0.0 2003 2004 2005 2003 2004 2005 2003 2004 2005 2003 2004 2005 In keeping with Verizon’s commitment to protecting the environment, this Annual Report is printed on recycled paper. Information about our environmental initiatives – including energy conservation, reducing greenhouse gas emissions, waste reduction and recycling – can be found on our website (www.verizon.com) by clicking on “About Verizon” and selecting “Verizon and the Environment.” VERIZON COMMUNICATIONS INC. 2005 ANNUAL REPORT putting our customers first At Verizon, we believe that the power of communications can experiences that customers are demanding from their commu- have a profound effect on people’s lives. That’s why our highly nications providers. Our long history of service and reliability skilled and dedicated workforce is motivated to put our cus- makes us the customer’s trusted guide in this new and con- tomers first by delivering all the benefits of the wireless, wireline stantly changing world of communications, and we believe that and multimedia services that consumers and businesses the best way to deliver long-term shareowner value is to first demand. We want our customers to enjoy a seamless commu- deliver a superior customer experience. nications experience, at home, in the office and on the road, Providing great service to customers is our number-one that connects them to the things that matter most – wherever priority. It’s who we are and why we exist. We come to work they are and whenever they want. every day trying to do our job better than we did yesterday. Our Verizon has 105 million customer connections – the total slogan, “we never stop working for you,” expresses the central of our switched access lines, broadband connections and wire- spirit of Verizon’s philosophy of total accountability for satisfy- less subscribers – that provide the richer, deeper and broader ing our customers. 1 delivering growth through transformation Ivan Seidenberg, Fellow shareowners: Chairman and Chief Executive Officer When we created Verizon in 2000, we had at our core a belief that investing in technology was the key to creating value in communications. As services like video, photos, data, music and games converged onto broadband networks, we knew that businesses and consumers would demand access to this surge of digital content – creating huge new markets for companies whose networks could transport all those bits and bytes, make them work together and help make customers’ lives simpler, richer and more productive. We built our company to stand at the network. Over the years, we have The good news is, customers are center of that digital marketplace. invested steadily in fiber backbones, dig- responding and our operating and finan- Verizon is investing in the technology ital switching, and higher-bandwidth cial results are strong. we need to compete and grow. We are capabilities such as DSL, which have 2005 Operating and Financial Results using that technology to expand our rev- given us a growing foothold in broad- Revenues were $75 billion in 2005, up enue base and produce real innovation band. In 2005, we took another big step 5.4 percent over 2004. In the last four for customers. Our strategy is to create to transform this business by deploying years, we have expanded our revenue our future in the digital world – and in a unique fiber architecture to the home base by $8.6 billion through our focus on 2005, we saw that strategy take root. that enables us to provide super-high- growth businesses such as wireless, con- speed Internet access and enter the Preparing to Lead in the Digital World sumer broadband and high-speed busi- video market. This fiber network now We are using technology investment to ness data products. Leading the way was passes 3 million customers, with another position each of our major businesses to Verizon Wireless, which grew revenues by 3 million targeted for 2006. benefit from the growth trends that are 16.8 percent – an extraordinary perform- The power of networks also underlies transforming our industry. ance for a business with more than $30 our approach to the business and gov- At Verizon Wireless, we moved ahead billion in revenues. We saw strong growth ernment market, where we dramatically of the rest of the industry to gain a in consumer broadband and high-speed improved our competitive position national footprint and invested early on data services in our Telecom business, through our acquisition of MCI. This in a network that gave us an edge in which is helping us manage the impact of transaction gives us the global reach, quality and efficiency. We also were a first technology substitution and competition Internet backbone, customer relation- mover in wireless broadband, launching in our traditional business. ships and product portfolio to be a truly our high-speed network ahead of the We also turned in a solid financial per- major player in this marketplace. We rest of the industry and carving out formance in 2005. Reported earnings for closed this transaction in January 2006 a premium position in the fast-growing the year were $7.4 billion, or $2.65 per and immediately launched our new markets for wireless data, video and diluted share. After adjustments for one- Verizon Business unit, which is poised to music. Our wireless broadband network time and special items, earnings grew 1.6 become one of the premier global serv- now covers half the United States. percent over 2004. Our operating busi- ice providers in the marketplace. The result of this approach is that, rather nesses generated $22 billion in cash for Verizon now has the technology base than slowing down as competition the year, which enabled us to invest $15.3 to grow the way other high-tech compa- in wireless ramps up, we have acceler- billion in capital, reduce debt by $300 mil- nies do: through innovation. We are intro- ated our momentum – gaining market lion, and pay $4.4 billion in dividends to ducing more new products in the market share, improving profitability and turning shareowners. In the last five years, we today than at any time in our history – in quarter after quarter of industry- have reduced total debt by $18.8 billion, from broadband products for every mar- leading results. making our balance sheet as strong today ket niche, to Internet voice services, to As we’ve done in wireless, we are as at any time in our history. new wireless video and music products, using technology transformation to cre- to on-line games, and more. ate competitive advantage in our wired 2 VERIZON COMMUNICATIONS INC. 2005 ANNUAL REPORT Wireless Subscribers Broadband Subscribers Revenue Growth (millions) (millions) (billions) 60 6 80 TBD TBD TBD 43.8 70 40 37.5 4 3.6 3.6 2.3 60 2.3 20 2 50 0 0 40 2003 2004 2005 2003 2004 2005 2003 2004 2005 In 2005, we added millions of new The bottom line is that we entered Putting Customers First customers across our business. Verizon 2006 in a strong financial position, with Of course, the way to make a company Wireless had another record-setting consistent revenue growth, solid margins more valuable to investors is by making it year, adding 7.5 million new customers, and cash flows, and a strong balance more valuable to customers – not just for a total of 51.3 million. We also had a sheet. through its products, but also through its record-setting year in broadband, adding Unfortunately, 2005 was a difficult people, reputation and commitment to 1.7 million customers, for a total of year for Verizon’s stock. Our total return service.