Verizon Communications Inc. · NYSE:VZ
Verizon Communications — Investor Day (September 2006)
53 slides from Verizon Communications's investor day presentation, Sep 28, 2006
Slide 1: FiOS Briefing Session
Verizon Communications Inc. FiOS Briefing Session September 27, 2006 Exhibit 99.2
Slide 2: Welcome
FiOS Briefing Session FiOS Briefing Session Welcome Welcome Ron Lataille Ron Lataille Senior VP – Senior VP – Investor Relations Investor Relations
Slide 3: Safe Harbor Statement
“Safe Harbor” Statement NOTE: This presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Pri
Slide 4: Agenda
Agenda Doreen Toben EVP & CFO - Verizon Virginia Ruesterholz President - Verizon Telecom Bob Mudge EVP & COO - Verizon Telecom Doreen Toben EVP & CFO - Verizon Overview Executing the Strategy & Revenue Opportunities Transforming the Network & Creating a Unique Service Experience Fiber Economics & De
Slide 5: Overview
Overview Overview Doreen Toben Doreen Toben EVP & Chief Financial Officer EVP & Chief Financial Officer
Slide 6: Overview
Overview Positioned to win Innovation drives new market opportunities Focused on operational excellence Significant cost reduction opportunities Ensuring value creation
Slide 7: Executing the Strategy and Revenue Opportunities
Executing the Strategy and Executing the Strategy and Revenue Opportunities Revenue Opportunities Virginia Ruesterholz Virginia Ruesterholz President – President – Verizon Telecom Verizon Telecom
Slide 8: Seizing Growth Opportunities
Seizing Growth Opportunities Growing data, evolving video, and mature voice markets Opportunities to gain share in broadband and video Verizon opportunity: – 33M households & 3.6M businesses – $50B voice/data/video market Driving growth and increasing wallet share
Slide 9: Operating Structure
Operating Structure Drive shareholder value through transformation of network, systems, and workforce Regions: Local marketing & sales tactics Operational excellence Outstanding service Competitive cost structure Revenue and margin accountability National Organizations: Speed to market Innovation Dr
Slide 10: Fiber Deployment
Fiber Deployment 2Q’06 Deployment Status: 4.4M premises passed in 16 states 3.1M premises open for sale 2006 Deployment Objectives: Pass 6M premises 5M premises open for sale 2010 Deployment Objectives Pass 18M premises by 2010 Over 50% of households FTTP Deployed Regions executing on plans, build o
Slide 11: Strong FiOS Internet Results
Strong FiOS Internet Results 1Q'05 2Q'05 3Q'05 4Q'05 1Q'06 2Q'06 Target Subscribers Penetration 375K 12% 725K 15% 70% of subscribers are new to Verizon broadband 2Q’06 Results: Average penetration in wire centers open for sales – 6 months = 8% – 9 months = 12% – 12 months = 15% Monthly churn less th
Slide 12: Broadband Product Line-up
Broadband Product Line-up Revenue opportunities beyond access Premium support services Support CPE that leverages FiOS Devices Leverage portals to drive revenues Advertising Deliver differentiated content and applications, i.e. gaming, security, etc. Applications Unsurpassed speeds Access Revenue Dr
Slide 13: FiOS TV Deployment
FiOS TV Deployment Serving Office Serving Office Hub Office Super Headend Broadcast Video Voice, Data, IP TV Voice, Data, IP TV Super Headend Serving Office Splitter Fiber Aggressively deploying video 2006 Deployment Objectives: 2 national super headends 9 video hub offices 292 video serving offices
Slide 14: Cities eager to bring competition to market
Cities eager to bring competition to market Franchise Status 0.9 3.3 6.1 Statewide legislation passed or local franchises granted Number of Franchises Households with Franchises (M) 4Q’05 Current 2006 Projected 4Q’05 Current 2006 Projected
Slide 15: Strong FiOS TV Results
Strong FiOS TV Results 4Q'05 1Q'06 2Q'06 YE Target Verizon FiOS TV Subscribers Monthly Churn less than 1.5% 99.4% subscribe to Premier Tier 60% have HD and/or DVR 37% subscribe to movie or sports package 12% of gross sales have included Home Media DVR FiOS TV Subscribers 175K About two-third of subs
Slide 16: Enhancing the customer experience
Enhancing the customer experience FiOS TV Differentiators Today’s Service Today’s Service Picture Quality Overall Value Proposition Category Leadership – Video On Demand – High Definition – Multicultural Enhanced Features – Widgets – Multi-room DVR 2007 Enhancements 2007 Enhancements FiOS TV Portal
Slide 17: Strong Demand for Bundles
9% 11% Triple Play 79% FiOS TV Customer Base Strong Demand for Bundles 99% of FiOS base has 2nd product Bundled line churn is 50% lower than voice-only lines 56% of FiOS TV sales include FiOS Internet Increasing customer wallet share FiOS TV+ Voice FiOS TV + Data FiOS TV Only
Slide 18: The FiOS Advantage
TODAY: ENHANCED PERSONALIZATION & CONTROL Home Media DVR, Media Manager, Widgets FUTURE: INTERACTIVITY AND CONVERGENCE Verizon One, Intelligent media search, Interactive Advertising, Personal Broadcasting, HD on demand, Wireless The FiOS Advantage FTTP NETWORK Reliability, performance, & cost Conver
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Slide 20: Summary
Summary New market opportunities Innovative technology and products Locally focused structure Executing on FiOS build Improving operational efficiencies Strong momentum in the marketplace Delivering results
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Slide 22: Transforming the Network & Creating a Unique Service Experience
Transforming the Network & Transforming the Network & Creating a Unique Service Creating a Unique Service Experience Experience Bob Mudge Bob Mudge EVP & COO – EVP & COO – Verizon Telecom Verizon Telecom
Slide 23: Transforming the Access Network
Transforming the Access Network $1,021 $850 $873 YE 05 YTD Aug 06 YE 06 Target Cost Per Premises Passed Lower material cost New & improved technology Innovations Training & productivity Terminal Distribution Legend: GPON -- Gigabit Passive Optical Network OLT -- Optical Line terminal
Slide 24: Transforming the Home
Transforming the Home Today 2007 and Beyond New wiring Existing wiring Cost Per Premises Connected Simplified in-home network - no new wires Enhanced customer experience & customer interaction Simplified installation process Evolution toward remote service activation and maintenance New wiring Exist
Slide 25: Transforming the Maintenance Process
Transforming the Maintenance Process 1.01 0.20 Voice & DSL FiOS Network Report Rate Outside Plant 80% Total field maintenance dispatches and OSP-related dispatches are already showing solid declines
Slide 26: Transforming our People & Processes
Transforming our People & Processes Designed our service processes to provide personalized service Rigorous employee selection process Targeted training experience Team FiOS Sell One More Teamwork/collaboration on key issues for a unique customer service experience WOW our Customers with expert, per
Slide 27: Delivering Excellent Service
Delivering Excellent Service 84% 69% 76% DSL Voice FiOS FiOS installation experience is leading the industry Excellent churn rate of less than 1.5% Percent of customers who rate installation process better than satisfactory YTD 2006
Slide 28: Customers Are Passionate About Our Service
Six Month Rating Customers Are Passionate About Our Service “I was blazing along at the ordered 20/5 speed tier. Finally, something that works as promised.” Fabian21 broadbandreports.com, 9/1/06 Pre Sales Information: Install Coordination: Connection Reliability: Tech Support: Value for Money: “If y
Slide 29: Summary
Summary Transform the network Transform cost Transform the customer’s experience Transform Our People
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Slide 31: Fiber Economics and Delivering Value
Fiber Economics and Fiber Economics and Delivering Value Delivering Value Doreen Toben Doreen Toben EVP & Chief Financial Officer EVP & Chief Financial Officer
Slide 32: The FiOS Financial Plan
The FiOS Financial Plan Revenue Take-rates Churn Retention Pricing Capital Infrastructure costs Success based costs Avg cost per premise Operating Expense OpEx savings Maintenance expense Customer related expense Project Economics Single market example Total project outlook
Slide 33: Gaining market share in a growing broadband market
Gaining market share in a growing broadband market 2006 Target 2010 Target 2006 Target 2010 Target Penetration – FiOS Data Open for Sale 17M 725K 5M Subscribers/ Penetration % 15% 35-40% 6M – 7M 55% market share by 2010
Slide 34: Early success indicates customer preference for choice
Early success indicates customer preference for choice 2006 Target 2010 Target 2006 Target 2010 Target Penetration – FiOS Video Open for Sale 15M 175K 1.8M Subscribers/ Penetration % 3M – 4M 10% 20-25% 26% market share by 2010
Slide 35: FiOS Churn
FiOS Churn Current results better than expected 79% of video customers are triple play subscribers Retain 40-50% of lines otherwise lost to competition <1.5% FiOS Churn FiOS increases customer loyalty and retention
Slide 36: Differentiated product at competitive prices
+ Differentiated product at competitive prices FiOS Pricing Premium Add-ons Movies: 45 channels $11.95 Sports: 15 channels $5.95 HBO, Cinemax, Others: 27 channels $14.95 International: 20+ channels Prices Vary Standard Def Set Top Box $3.95 High Def Set Top Box $9.95 Digital Video Recorder $12.95 Fi
Slide 37: CapEx Components
CapEx Components Cost to Pass Fiber cable Distribution hubs/terminal GPON OLT Cost to Connect Drop/Buried service ONT equipment Placement and activation of ONT Network & Support Video network – Video head-ends – Video serving offices Data backbone – Routers Switching IT systems/software Trucks, trai
Slide 38: CapEx – Passed and Connected
CapEx – Passed and Connected $1,400 $850 $700 $1,021 Target Target Gross Capital Cost per Home Passed $1,200 $880 $1,163 $650 Target Target Gross Capital Cost per Home Connected Declining cost trends to pass and connect homes
Slide 39: CapEx Requirements
CapEx Requirements Cost to Pass $ 14.7B $ 817 $ 10.3B $ 572 $1,451 Video/Network & Support $ 3.1B $ 172 $ 2.6B $ 144 $ 366 Cost to Connect $ 5.1B $ 718 $ 5.1B $ $ 718 $22.9B $1,707 $18.0B $1,434 $2,535 Gross CapEx Net CapEx Per Home Total Total Per Home Net CapEx Per Home Connected
Slide 40: Return on Investment
Return on Investment $28 $35 $39 $42 $32 $0 $10 $20 $30 $40 $50 $60 $70 8% 9% 10% 11% 12% Return on Investment Successfully achieving profitable growth Data and video New services Convergence opportunities Incremental EBITDA per Month Voice retention OpEx savings
Slide 41: Return on Investment
Return on Investment The determination of incremental EBITDA per month required to generate returns ranging from 8% to 12% as used in the previous slide was calculated as follows: Successfully achieving profitable growth $ 42 $ 39 $ 35 $ 32 $ 28 Monthly Return Requirement (Incremental EBITDA per Mon
Slide 42: OpEx – Savings
OpEx - Savings 50%-60% of network expense addressed by FTTP build by 2010 Opportunities for annual net savings of $110 per line Installation & Maintenance 80% Annual Network Expense $6B 20% Other $1B of annual OpEx savings opportunity
Slide 43: OpEx – Customer Related
OpEx – Customer Related Programming expense – No upfront cost to obtain contract – Per subscriber model – 3-5 year contracts Franchise Fees – 5% of gross video revenues – PEG channels provided – Consistent with typical cable franchise requirements Subscriber acquisition costs – Includes marketing, s
Slide 44: Financial Plan Summary
Financial Plan Summary Achievable customer take-rates Reasonable pricing levels Conservative retention and churn benefit Declining cost trends to pass and connect homes Significant operating expense savings Excludes revenue opportunities from advertising, personal broadcasting, etc. Sound assumption
Slide 45: Single Market Model Overview
Single Market Model Overview 25K line central office 50/50 mix of aerial and buried plant Average market characteristics (HH’s, income, competition, etc.) Exclude one-time start-up costs No proactive migration of voice-only customers Assumes build starts at current cost
Slide 46: Single Market Model – CapEx
Single Market Model – CapEx Year 1 Video/Network & Support Success Based CapEx Cost to Pass Annual Gross CapEx ($M) $15.8 $11.8 $10.8 $3.8 $3.2 Average Gross CapEx per Home Cost to pass $812 Cost to connect Total $1,525 $45M of Gross CapEx
Slide 47: Single Market Model – Customer Metrics
Single Market Model – Customer Metrics Year 1 Data Subscribers 37% Penetration Year 1 Video Subscribers 24% Penetration More than 70% of subscribers acquired within three years 9,200 8,250 7,000 3,400 5,900 5,350 4,800 3,200
Slide 48: Single Market Model – Summary
Single Market Model – Summary EBITDA positive by year 3 Operating income positive by year 4 $14.9 $0.2 $2.7 $9.1 $12.9 Year 1 Financial Forecast ($M) EBITDA Revenue Operating Income Positive economic returns
Slide 49: Total FiOS Model Summary
Total FiOS Model Summary EBITDA positive in 2008 Operating income positive in 2009 Revenue EBITDA Operating Income FiOS generates financial benefits for Verizon
Slide 50: Positioned to Win
Positioned to Win Platform for the future Local focus Value pricing Brand advantage Significant market opportunity Interactive capabilities Innovative CPE Enhanced personalization Convergence opportunities
Slide 51: Driving Operational Excellence
Driving Operational Excellence Transforming the home and customer experience Transforming our people Significantly reducing the cost to maintain the network Declining cost trends in both homes passed and connected Increasing customer loyalty Outstanding customer service ratings Cost reduction opport
Slide 52: Summary
Summary Confident in our ability to achieve plan of record Achievable targets and reasonable assumptions Positive economic returns from new investments Strong track record of reducing costs Significant value creation
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