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F I N A L T R A N S C R I P T

VZ - Q4 2008 Verizon Earnings Conference Call

Event Date/Time: Jan. 27. 2009 / 8:30AM ET

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C O R P O R A T E P A R T I C I P A N T S

Ron LatailleVerizon - SVP, IR

Ivan SeidenbergVerizon - Chairman & CEO

Denny StriglVerizon - President & COO

Doreen TobenVerizon - EVP & CFO

C O N F E R E N C E C A L L P A R T I C I P A N T S

Tom SeitzBarclays - Analyst

John HodulikUBS - Analyst

Mike McCormackJPMorgan - Analyst

David BardenBank of America - Analyst

Simon FlanneryMorgan Stanley - Analyst

Mike RollinsCiti Investment Research - Analyst

Jason ArmstrongGoldman Sachs - Analyst

Tim HoranOppenheimer - Analyst

Chris KingStifel Nicolaus - Analyst

Philip CusickMacquarie - Analyst

P R E S E N T A T I O N

Operator

Good morning and welcome to the Verizon fourth-quarter 2008 earnings conference call. (Operator Instructions). Today'sconference is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to turn the callover to your host, Mr. Ron Lataille, Senior Vice President Investor Relations of Verizon.

Ron Lataille - Verizon - SVP, IR

Thank you. Good morning, everyone, and welcome to our fourth-quarter 2008 earnings conference call. Thanks for joining usthis morning, and I'm Ron Lataille.

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Jan. 27. 2009 / 8:30AM, VZ - Q4 2008 Verizon Earnings Conference Call



With me this morning are Ivan Seidenberg, our Chairman and Chief Executive Officer; Denny Strigl, our President and ChiefOperating Officer, and Doreen Toben, our Chief Financial Officer.

Before we get started, let me remind you that our earnings release, financial statements, the investor quarterly publication andthe presentation slides are on the Investor Relations website. This call is being webcast. If you would like to listen to a replay,you can do so from our website.

I would also like to draw your attention to our Safe Harbor statement. Information in this presentation contains statementsabout expected future events and financial results that are forward-looking and subject to risks and uncertainties. Discussionof factors that may affect future results is contained in Verizon's filings with the SEC, which, of course, are available on ourwebsite.

This presentation also contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the mostdirectly comparable GAAP measures are also on our website.

I would like to very quickly cover the differences between reported and adjusted earnings for the fourth quarter. Reportedearnings per diluted share were $0.43. Adjusted earnings per share before the effects of special items were $0.61. We areexcluding the following special items from adjusted results.

The first is an after-tax charge of $424 million or $0.15 per share for severance and other related expenses. Included in thischarge are pension settlement losses for employees receiving lump sum distributions resulting from our previous separationplans, as well as charges associated with additional employee severance in 2009.

We're also excluding an after-tax charge of $35 million or $0.01 per share for merger integration costs, as well as a charge of$31 million after-tax or $0.01 per share related to an "other-than-temporary" decline in the fair value of our investments incertain marketable securities.

And with that, I will now turn the call over to Ivan for some opening remarks. Ivan?

Ivan Seidenberg - Verizon - Chairman & CEO

Thank you, Ron, and good morning, everyone. Before Doreen presents a full financial review of the quarter's results, Denny andI would like to provide a few opening comments.

To state the obvious, 2008 was a difficult economic environment, and there was more than the usual uncertainty as we try toplan for 2009. It is pleasing to report, however, that throughout 2008 we stayed focused on our strategic business model andmade progress in delivering value to both customers and shareholders. We were able to grow earnings more than 7%, increasethe dividend by 7% and grow free cash flow before dividends by about 14%. We feel confident that we took the right stepsduring the year to maximize growth and potential returns of the business going forward.

For example, we improved our spectrum position with the purchase of nationwide 700 megahertz licenses. We acquired theRural Cellular and Alltel properties, and we spun off some wireline properties in Northern New England. We passed more than3 million additional homes with fiber, opened 3.3 million homes for sale of our FiOS TV service and expanded FiOS availabilityin big city markets like New York.

We also reached long-term agreements with our labor unions, the CWA and IBEW and very aggressively put that issue behindus and as we expanded our worldwide reach, product and service portfolio and customer support capabilities for our largeenterprise customers served by Verizon Business.







Our strategic investments are driving innovation and allow us to have better products and services and, therefore, be a veryformidable competitor in every market we serve. As a result, we were able to effectively gain share and at the same time growrevenues by 5% and increase ARPUs, the key metrics for our success.

Denny and Doreen will review many of the operating numbers with you, but I think the results reflect solid execution by eachbusiness unit and in the context of 2009 indicate that we clearly have the potential to continue to perform well both absolutelyand relatively in this very challenging market.

So with that, I would like to ask Denny now to provide us with some additional comments on our operational performance.

Denny Strigl - Verizon - President & COO

Thank you. Good morning, everyone. I share Ivan's confidence. Our business will continue to compete effectively, and we thinkit will do so in any environment. Within each of our businesses, that means we must continue to innovate and be leaders in themarketplace. And I think we can demonstrate that leadership in each of our strategic areas in 2008. I would like to give yousome examples.

So in wireless, we launched a total of 36 new devices in 2008, more than one-third of which were PDAs or smart phones, andwe already have about two dozen new devices scheduled to launch in the first half of 2009. We were the first to introducenationwide unlimited plan aimed at the high-end of the market and the first to introduce megabyte pricing for data usage.

Our Open Development initiative is another platform for innovation, and we made solid progress partnering with developersthis past year with 29 approved open development devices. We were again recognized by industry organizations and publicationsin 2008 for providing the highest level of satisfaction and setting the standard in customer service for the wireless industry. Andjust last week our focus on providing customers with the most reliable network service paid off at the presidential inugarationwhen our service held up under the strain of significantly higher than normal usage while others struggled.

FiOS was also a market leader in 2008. In terms of speed, we expanded our industry-leading consumer broadband connectionspeeds of up to 50 megabits downstream and 20 megabits upstream to our entire FiOS footprint. We expanded our high-definitionoffer to include over 100 HD channels. We continued to add features, enhancements and upgrades that no other provider hasmatched in our home media DVR, our interactive media guide, our content search and our interactive widgets. And FiOS hasbeen recognized by various publications and surveys as being a superior best-in-class service. And in Verizon Business, wecontinued to expand our capabilities as a leading provider of advanced communications and IT solutions to governments andbusinesses throughout the world. Nearly 70% of our customers have or are in the process of transitioning to private IP services.

As in our other businesses, industry experts and partners gave us recognition for our capabilities throughout the year.

Although the environment continues to be challenging from both a competitive and economic perspective, our strategic focushas not changed. We will continue to focus on growing revenue, taking share and at the same time, improving profitability. Sofrom our perspective, the fourth quarter demonstrates that our business continues to perform well both operationally andfinancially.

If you look at the fourth quarter in absolute terms or relative to our historic growth, it was a good quarter. We deliveredyear-over-year revenue growth in all strategic areas, over 12% in wireless, nearly 37% in broadband and video, and over 8% inthe key strategic services offered by Verizon Business.

In addition, ARPU grew 1.4% in wireless and over 14% in consumer. Customer growth was also good this quarter -- 1.4 millionwireless net adds, record net adds for FiOS with over 300,000 new TV subscribers and 282,000 new FiOS Internet customers.We also saw some sequential improvement in retail residence primary line losses and DSL.







We were also focused on productivity, of course, and improving productivity throughout 2008. Wireless once again showedimprovements in our already industry-leading cash cost per subscriber metrics, and we remain the industry leader in margins.

In FiOS we reduced install times by 15%. In addition, the telco group reduced force by over 10,000 last year and, by the way,over 22,000 in the last three years. So, as we said in the third quarter, Verizon Business also saw some increasing competitivepricing pressures and some upfront costs related to new contract wins that affected our margins.

This quarter some volume declines tied to a weakening economy increased the pressures on margins.

So in summary, we made progress, but we can do more, and we will stay operationally flexible and look for ways to simplify thebusiness and manage the cost structure for a long-term margin improvement.

Doreen, I will now turn it over to you for a review of the details of the quarter.

Doreen Toben - Verizon - EVP & CFO

Thanks, Denny. Turning to slide five, consolidated revenues grew nearly $1.1 billion or 4.6% in the fourth quarter, finishing theyear at $97.1 billion representing topline growth of 5.1% in 2008. Our margins also expanded in the fourth quarter and full year.Operating income grew 6.6% in the fourth quarter and 9.2% for the year with full-year margin expansion of 70 basis points.EBITDA grew 5.4% in the fourth quarter and 6.2% for the full year with the 2008 EBITDA margin increasing to 33.5%.

Finally, we ended the year with earnings from continuing operations of $2.54 per share, up 7.6%.

Turning next to cash flows and the balance sheet, we ended the year with $26.6 billion in cash flows from continuing operations.As we expected, total capital spending declined $300 million year-over-year to $17.2 billion. Our ratio of CapEx to revenueimproved 120 basis points to finish the year at 17.8%.

In 2008 we also returned value to shareowners, paying $5 billion in dividends and repurchasing approximately $1.4 billion ofour stock. Our balance sheet metrics remained strong with net debt of $42.2 billion, including more than $9 billion in cash heldin anticipation of the Alltel closing and net debt to EBITDA of about 1.3 times at the end of 2008.

With regard to the financing for the Alltel transaction, we used the combination of Verizon Wireless and Alltel cash, proceedsfrom pre-fundings and a $12.35 billion bank bridge loan to fund the acquisition.

Looking ahead, we anticipate that the bridge loan will be paid off with Verizon Wireless free cash flow, proceeds from therequired asset divestitures and term-out financing, which we estimate will be somewhere between $6 billion and $7 billion.

Now let's look at our segments, beginning with wireless. Wireless had a strong quarter of high-quality retail customer growth,capping a year in which we added 5.8 million organic net new retail customers. Excluding divestitures, total net adds for thefourth quarter were 1.4 million. All of these were retail, and 93% were postpaid.

We divested a net 122,000 customers, primarily in Rural Cellular markets, as part of a previously announced exchange agreementwith another carrier. We ended the year with a total customer base of 72.1 million, 67 million of which were retail postpaid. Wehave just over 3 million prepaid customers and only 2 million customers from resellers.

Retail gross adds in the fourth quarter were essentially flat both sequentially and year-over-year. On an annual basis, retail grossadds were up 3.5%.







Churn was up 2 basis points sequentially, and on a year-over-year basis, total churn was up 15 basis points to 1.35%, and retailpostpaid churn was up 11 basis points to 1.05%.

We also maintained strong wireless revenue performance, delivering double-digit revenue growth for the quarter and for theyear. Total revenue grew 12.3% in the fourth quarter and 12.4% for the full year, and service revenue grew by 12% on both aquarterly and annual basis. Total service ARPU increased 1.4% in the quarter and 1.2% for the full year, making this 11 consecutivequarters of year-over-year growth in ARPU.

As we have seen all year, about 70% of service revenue growth is driven by wireless data. Wireless data represented 26.8% oftotal service revenue in the fourth quarter. Data revenue is now in excess of $10 billion annually, up 44% in 2008. Total dataARPU in the fourth quarter grew by $3.02 or nearly 28% year-over-year.

The main drivers of this growth continue to be broadband access and usage, e-mail and messaging. Revenue from non-messagingdata services represents more than half of the total wireless data revenue. Non-messaging data revenues grew 52% in the fourthquarter and 53% for the year.

The fact is we are still in the early stages of non-messaging services with relatively modest adoption rates so far. So we continueto see plenty of upside potential as we further penetrate the customer base and as the proliferation of new devices stimulatedemand for more and more wireless data usage.

Smart phone sales continue to accelerate, representing more than 37% of the retail devices sold in the fourth quarter, up from30% last quarter. Obviously we expect that the ARPU, particularly the data component, will be significantly higher from thesedevices.

With our enhanced spectrum position, 4G plans with LTE, and our open development initiative, we are well-positioned tocompete for future wireless data growth. As it is today, our focus will be on driving revenue growth, increasing ARPU andgenerating cash flow.

We also enhanced our growth opportunities through the acquisition of Alltel. This acquisition has many compelling long-termstrategic benefits. It expands our network to cover nearly the entire United States population, improves our revenue mix byincreasing the wireless portion to about 55% of total Verizon, and makes us the largest US carrier in terms of total customers,which will be in excess of 80 million following the required divestitures.

In addition, the Alltel merger also provides us with significant synergy opportunities. To refresh your memory, we identifiedsaving opportunities with a net present value in excess of $9 billion. Our estimates for cost synergies, both capital and expense,as well as the estimates for integration costs to achieve those synergies, are unchanged from our announcement last June.

Having just closed the transaction, we are still reviewing the Alltel financials to determine our opening balance sheet.Higher-than-expected financing and interest costs will impact earnings accretion in the short-term; however, this is clearly avalue-creating transaction.

So to summarize, Verizon Wireless continues to demonstrate success in achieving both strong growth and profitability.

Chart 10 displays an impressive list of metrics for 2008. Our continued focus on increasing retail market share, retaining customersand improving operational efficiency has resulted in sustained double-digit revenue growth, increasing ARPU, industry-leadingmargins and substantial cash flow.

The EBITDA margin on service revenue was 47.2% in the fourth quarter and 45.5% for the full year. We had some favorableimpacts in the fourth quarter, which resulted in higher profitability than normal. Absent these items, the fourth quarter andfull-year margin would have been in the 45% plus range. Going forward you should continue to expect us to maintain EBITDA







margins within the previously stated range of 43% to 45%. Wireless capital spending for the year was $6.5 billion, and the CapExto revenue ratio was 13.2% at year-end, an annual improvement of 160 basis points.

Let's next move to wireline, starting with the consumer market. Our FiOS results this quarter demonstrate the power of ourtriple-play offer and show the resilience of our value proposition even in a slowing economy. We had our best FiOS quarter everwith record net adds for both TV and Internet. And while we remain pleased with our progress in New York City, I will onceagain say that it was only one factor in a strong result across the board.

During the fourth quarter, we added 303,000 new FiOS TV customers, ending the year with just over 1.9 million subscribers anda penetration rate of 21%. So during 2008, we more than doubled our TV subscriber base, adding 975,000 customers andincreased our penetration by roughly 500 basis points.

At the same time, we also significantly expanded the availability of the FiOS triple-play, ending 2008 with 9.2 million homesopen for sale for FiOS TV and a 57% increase in market availability in just one year.

More than 2.2 million of these homes opened for sale during the third and fourth quarters, and earlier this month we passedthe 1 million mark for premises open for sale in the multi-dwelling units or MDU category.

So we're clearly building momentum and gaining critical mass. And, as we've previously said, there is a strong correlationbetween homes open for sale and customer growth in subsequent quarters.

On the broadband side, we added 214,000 net new subscribers in the fourth quarter, a 66% sequential improvement. We addeda record number of new FiOS Internet customers with 282,000, and we saw some sequential improvement in DSL. We ended2008 with 2.5 million FiOS Internet subscribers, adding 956,000 customers during the year for an increase of 63%.

We also saw our penetration rate increase by about 400 basis points to 25%.

From a FiOS deployment perspective, we passed 12.7 million homes as of the end of 2008, so we are a bit ahead of our plannedrollout schedule of 3 million homes per year. Fiber to the home now passes about 40% of the total households in our land linefootprint, and 93% of the 10 million FiOS data homes open for sale can purchase a triple-play, up from 80% a year ago. We willcontinue to expand FiOS triple-play availability as we further expand existing markets and enter new urban markets later thisyear.

On the traditional access line side of the business, we saw some sequential improvement in retail, residential primary lines,which were down 460,000. Total switched access lines declined by 911,000. We continue to see an increasing correlation betweenour triple-play availability and line retention.

In the past we've referenced an average improvement in line retention of about 250 basis points when we look at video marketsopen for sale for more than six months compared with markets with no fiber to the home. By the end of the year, we weretracking average improvements of about 400 basis points.

As FiOS continues to scale and we expand triple-play coverage, we are optimistic that this correlation will strengthen, and wesee a more meaningful improvement in overall line loss trends.

FiOS remains at the center of our consumer strategy as our broadband and video services continue to drive consumer revenuegrowth. Legacy consumer revenues grew by 2.9% in the fourth quarter and were up 1.7% for the full year. Broadband and videorevenue totaled $1.2 billion in the fourth quarter, up 42% and totaled more than $4.2 billion for the full year.

We are also seeing consistently strong growth in consumer retail ARPU, which increased 14.3% from fourth quarter a year ago.About 80% of this increase is attributable to new services we have introduced within the past few years.







Our overall FiOS ARPU continues to grow and now stands over $133 per month, and the FiOS triple-play ARPU is even higher.

Now let's take a look at Verizon Business. Total revenues in the fourth quarter declined $124 million or 2.3% year-over-year.We're starting to see some revenue softness that we believe is cyclical and economy-related due to an a combination of delayeddecision-making on the part of the CIOs and lower volumes tied to rising unemployment. With the strengthening of the dollar,the negative FX impacts this quarter were also significant.

As we said all along, there continues to be a shift within enterprise customer spending towards strategic services like privateIP, managed services and security. Our strategic services now comprise 30% of the total Verizon Business revenues. Revenuesfrom these services continue to grow, up 8.4% in the quarter.

Looking ahead, you can expect us to continue to be disciplined and balance new sales and profitability, and we are focused onincreasing the range of our professional consulting services and improving our competitive position in this area.

In summarizing wireline, I would emphasize that we have made good progress in improving our revenue mix and competitivepositioning. Broadband and video services now comprise more than 31% of legacy consumer revenue. FiOS is on plan bothfinancially and operationally and will continue to provide us great opportunity to drive customer growth and revenue growth.

We are also very focused on continuing to improve capital and operational efficiency. In Verizon Business the continued shiftto services like private IP resulted in strategic services revenue growth in excess of 16% in 2008. So we are well-positioned tocompete in all the strategic growth areas of the Company.

As you can see, wireline EBITDA margin in the fourth quarter fell below the 27% we experienced in the first three quarters. Therewere several reasons for this.

First, pressure on Verizon Business as significant increases in non-farm unemployment late in the fourth quarter resulted involume declines in higher margin services, as well as lower volumes from small-business customers.

In addition, there were some timing issues related to force reductions and organizational realignments, as well as increases inbad debt, marketing and some information system contracts.

So to wrap up, from a financial perspective, in 2008 we were able to continue growing revenues in the mid single digits, deliverbottom-line earnings growth, generating solid cash flow growth and return value to shareowners through dividends and sharerepurchases, and we were able to arrange the necessary financing to fund the $28 billion acquisition of Alltel. All things considered,solid performance.

Our balance sheet is healthy, and we are in a strong financial position. Our investments are clearly paying off, driving volumesand revenues in our key strategic areas, and the capital efficiency of the business continues to improve.

In terms of net pension and other post-retirement benefits expense, we're estimating an incremental negative impact onearnings per share of between $0.09 and $0.11 in 2009. And from a funding perspective, we estimate a $300 million fundingrequirement in 2009 for our qualified pension trust, which is slightly less than last year.

For 2009 we're targeting capital spending, excluding amounts related to the Alltel acquisition to be less than the 2008 total of$17.2 billion. We have indicated that, as a cautionary measure, we intend to start out the year at a lower annual run-rate andramp up as we move through the year as appropriate, and we expect that our ratio of CapEx to revenue will continue to improve.

And finally, we have confidence in our ability to generate cash, invest for growth, and return value to shareowners.

And with that, I will turn it back to you, Ron.








Thank you, Doreen. Stacey, Ivan, Denny and Doreen are now available today questions.

Q U E S T I O N S A N D A N S W E R S

Operator

(Operator Instructions). Tom Seitz, Barclays.

Tom Seitz - Barclays - Analyst

Thanks for taking the question. Can you describe the economic forecast that underpins your view that you're going to be ableto grow earnings this year? I think you previously said that. Are you assuming current trends will hold throughout the year, ordoes growing earnings require some improvement in the economy?

And then secondly, we're just through the election. Can you give us some early insight into whether or not you think the moreradical net neutrality proposals might start popping up? Thanks.


Ivan here. I don't think we have any magic economic forecast that we have looked at. But here is a theory of the case.

When we look at '09, our view is we stay focused on our strategic innovation, our capital investments and the execution on thepart of any of this team. We obviously layer in things like the Alltel transaction, and our view is that, as I said earlier, we havethe potential to continue to perform well absolutely and relatively. So I don't think we have any specific forecast. I think Doreenwill reaffirm this, but the idea is that visibility into 2009 is less clear than it has been in other years. But the thesis here for us isclear, focus on outperforming our competitors in the market and doing well relatively.

On the election I think the new administration has been very responsible. They have been reaching out. There's lots of dialogue.I think they recognize that the most important issues they have right now are to focus on the balance of the stimulus packagebetween tax benefits versus grant approaches to things, you know stimulus pending versus tax.

There's lots of meetings going on. The business round table is focused on this issue. We have been working with the administration.

Net neutrality, I have not heard anybody ask me about it in the last couple of weeks, but I'm sure it is out there someplace. Buteven some of the players within net neutrality have already modified their position on it, so I do not view that as an issue thatwill dominate the headlines for a while.

Operator

John Hodulik, UBS.







John Hodulik - UBS - Analyst

If we could talk about margins real quick, just both on the wireless and the wireline side. On the wireless side, very strong.Obviously above longer-term corporate guidance. Can you just talk about some of the drivers there? And then as we sort oflook out into how the competitive environment keeps evolving, is that sort of what we can expect going forward?

And then on the wireline side, obviously very different than your longer-term guidance. Is this the sort of level or in this rangeis what we can expect while the economy remains weak? It sounded like a lot of the drivers that you talked about in the preparedremarks were really driven by the economy, and obviously it could be some time before things improved. Plus, this sector isgenerally thought of as something of a lagging indicator. Is this sort of the right level, say, for going forward in 2009?


I will start with the wireless margin. I think as I said, every time I meet with investors, there can always be a quarter that willbump up over the 43 to 45. Clearly if you want to miss, you want to miss on the upside.

So this quarter there were some onetime, having to do with vendor credits, some other systems pieces. So I would look at thisas more of a onetime, and we will go back to the 43% to 45%. So nothing earth shattering that happened, just a lot of movingpieces this particular quarter.


Can you maybe quantify some of that, or were there just a lot of little nits and nats that you do not want to break out?


Well, mostly nits and nats. I'm not going to give you the vendor credit number because that is not something that we disclose,but it was more significant than it typically is in the Q. And the rest I think were nits and nats that added up to a number thatbumped over the 45.


Okay, got you.


On the wireline margin, I would make several comments on this. First of all, FiOS is on plan and healthy, EBITDA positive for thefull year in '08, and as we look at FiOS, the strategic transformation has gone very well for us. And, of course, there is always alag in the margin when you go through a transformation like we have on FiOS.

FiOS productivity is improving. On the line loss side, as you have heard, there is no change there. We continue to reduce forcein areas that are not growing, and we are in the process of consolidating our wireline telecom and business network organizations.We expect that that will generate some efficiency and productivity improvements in the network planning area, engineering,the maintenance functions, and we have a number of ongoing initiatives in the areas of customer self-service, process automation,flowthrough, backoffice productivity and so forth. Longer-term our guidance on wireline margins really has not changed.








Thank you.


The additional comment I would add is I did give the guidance of pension and OPEB between $0.09 and $0.11. You should thinkof that as almost exclusively wireline, which will hit obviously in '09. So that will certainly be an impact for next year.

Operator

Mike McCormack, JPMorgan.

Mike McCormack - JPMorgan - Analyst

On the wireless side, can you just give us a little more data on -- you talked about non-messaging data revenue being anopportunity, but maybe comment just on the impact of the economy, headcount reductions, the use of BlackBerrys and alsovery the AirCard business.

Secondly, on the enterprise side, can you just give us some sense for the impact of FX on the international side because itcertainly looked like it rolled over pretty hard on growth rates? Thanks.


I will start on the FX, and Denny, you wanted to go. Actually the impact was the largest impact that we have seen ever to thetune of, say, $110 million to $120 million sequentially. We have a very sizable international portfolio, so it was, in fact, a very bignumber sequentially.


So, Mike, on the wireless question, I guess the underlying question there is, is there a slowdown in wireless, or what has changedin wireless? And I think you need to look at a number of factors.

Service revenue grew 12%. ARPU increased 1.4%. Data revenues for us continued to grow about 41%, as Doreen had said. Andnon-messaging revenue, that is non-messaging revenue increased 52%. So we are selling more smart phones that Doreenmentioned in her comments, about 37% of the retail devices that have been sold. We are increasing our focus on the businesssegment where we have relatively lower share. So our growth drivers are clearly performing for us.

So we are the first to report, but I don't think that we lost share this quarter. Our porting ratio actually improved. We have noevidence of slowing or customers trading down either on plans or features. Our churn did pick up a bit compared to the prioryear, and I think you saw about 11 basis points increase on postpaid churn, and I can give you specifically where we see mostof that.

About 5 basis points from access cards, and that probably reflects the employment issue, the layoffs in many businesses. About4 basis points on third and fourth line disconnects, and we see no porting evidence that they are going to other providers. SoI think that is economy-related, and I would just conclude by I think we're well-positioned to compete, and we will continue tohave strong financial performance in our wireless companies.








As you look in at '09 with the Boost and Leap and Metro entering your markets, is there anything you guys are going to dodifferently?


Mike, no. We're going to do nothing differently, and this always comes up two, three times a year. So if you look at Sprint, Boost,Leap and Metro, I think as you know, that is not our primary focus. Our primary focus is on the retail postpaid market. So thatis not something that we're going after strongly. I don't see having any impact or at least a negligible impact to date. So I don'tthink there is any need for us to respond.


Do you feel the same way on the wireline business just from a replacement standpoint?


Yes, we do. Yes, we do.

Operator

David Barden, Bank of America.

David Barden - Bank of America - Analyst

Just a couple if I could. Number one, if you could just share how the Qwest relationship impacted net adds reporting in thequarter. Obviously we're expecting you guys to kind of see an acceleration in that, bringing adds over to your base over thecourse of the year.

And then just second, maybe, Doreen, on enterprise, obviously incremental to the currencies. Could you talk a little bit aboutthe financial sector and some of the consolidation we are seeing there and kind of what impact you think that might haveincremental to the stand-alone currency impacts we saw year-to-date?


So, David, let me start with your Qwest question, and frankly, I do not have much to tell you there. Qwest started selling VerizonWireless service to new customers in the fourth quarter. These are -- they are Verizon customers. It is not, I think as you know,a reseller agreement.

Notification of Qwest's Sprint customers will occur starting this quarter. So no specifics to give you, but we expect Qwest to beoverall a very good distribution partner.








David, I think we saw an impact in both the financial and the retail sectors and particularly in LD minutes. After you started tosee the November and December unemployment and the job losses is where we really saw it kick in.

Verizon Business is probably the hardest visibility for next year. You saw the job announcements yesterday. So trying to determinewhat impact that is going to have on the different sectors has been difficult. But one thing, it has been financial and retail thatwe have seen the biggest changes in to date.

David Barden - Bank of America - Analyst

And if I could follow up real quick, Doreen, just on CapEx you guys have been talking about slowing it up a little bit at thebeginning of the year, trying to come in lower than last year. Is this more of a containing wireline to rightsize the business? Isthis maybe holding off on LTE deployments to see how the year unfolds? Where are the savings going to be emerging in thisbusiness?


I would say it is not a containment. It is really to start out slow, see what we need to do. So we don't get ahead of ourselves inputting in capacity that we don't need.

Operator

Simon Flannery, Morgan Stanley.

Simon Flannery - Morgan Stanley - Analyst

I wonder if you could expand a bit on the open development initiative? You talked about 29 devices approved. Now are wegoing to see those coming online in the next month or two, or is that somewhat longer-term?

Also, on LTE if you could just update us on the timeline of what we might see in the next -- in sort of the remainder of '09 andinto 2010? Thanks.


We're planning on the LTE piece to do our market trials later this year. So they are scheduled for '09. We are working with ourmanufacturers, very good cooperation in that regard. Commercial availability in 2010. Our goal is within the first half of 2010.

On the ODI, those devices will come online as we roll out our LTE initiative. So in conjunction with that. But the 29 devices, someof them are actually ready to go on our existing 3G network. So I think it is positioned very well. Obviously machine to machineis the focus of our ODI, and I think we have got a good start in that regard.

Simon Flannery - Morgan Stanley - Analyst

And a delay on the cutover of digital TV should not cause a problem there?








No, it should not. We're trying to work through that issue. But certainly later in the year had been our plan on the trials, andwe're trying to work through whether even with the DTV delay whether we could use some of that spectrum to work out thetrial.


The bill, as we understand it, allows certain programmers to cut over sooner if they are ready, and it gives us a chance to usethat spectrum where it is available for testing and to move forward.

So I think the way the bill is currently constructed, the potential for further delay beyond the June 12 date is probably very low.

Operator

Mike Rollins, Citi Investment Research.

Mike Rollins - Citi Investment Research - Analyst

Just to follow up on the wireless side, as growth in the industry slows and potentially more of the growth comes from data andupselling customers, why would not margins improve above the guidance that you have had of 43%, 45% over time just as thatmarketing could be scaled across the slower adds but better revenue from existing users?


This is sort of the age-old question, and it is the same answer. We continue to balance growth and margins, and so we want tomake sure as the growth is available to us, we do not slow down the growth enough to impact the margins. But so it is really agrowth in margin, and we just think that continues to be the right balance.

Operator

Jason Armstrong, Goldman Sachs.

Jason Armstrong - Goldman Sachs - Analyst

A couple of questions. Maybe just first, sorry, one more on the wireless margin outlook maybe from a different angle. You know,43% to 45% range that we have talked about. The Alltel deal synergy targets get you somewhere in the range of 150 to 200basis points of margin enhancement.

So I guess the question is, what keeps us at the 43% to 45% in the context of the Alltel enhancement? Because what it implies,if you stay there, is that you intend to reinvest those synergies back into the business.

And then the second question on enterprise, you have obviously flagged the pricing pressure. There is the FX headwinds. Denny,you mentioned volume slowing down. Can you give us the outlook for this business? I think a lot of us we sort of look at aframework of the last cycle where enterprise was down in double digits. Can you just help us think through that?








I guess if I start on the Alltel, I don't know that I agree that it should kick us up above 45%. There clearly is reinvestment thatwe're doing. If you think about the handsets that need to be replaced for Alltel to enable us to get more data revenue growth,that is probably a short-term piece. So I just feel -- I still think 43% to 45% is all right and will not bump us up above that on anongoing basis.


So on the enterprise side, let me cover just a number of things that hopefully will help here. We did see, of course, specificallyweakness in financial services and in the retail sectors. I think we are seeing a correlation between the significant force reductions.Certainly Doreen had mentioned this, and the force reductions are causing lower volumes. LD usage dropped from quarterfrom quarter and was at the lowest level in at least two years. So we expect the layoffs and consolidations will probably continueto have an impact in 2009. Certainly as Doreen indicated, the announcements that you heard yesterday will have an impact.For our part though, we're still focused on driving growth where we can, and we're enhancing our long-term growth opportunities.

Long-term enterprise customers we think will seek more bandwidth capabilities, add new applications, buy our managedservices, and we're well positioned to deliver in all of those areas. And, of course, we continue to manage the cost side of thebusiness.

Now I might mention here, too, that we continued to look for ways to partner. You will soon see a formal press release thatVerizon and Accenture have reached agreement on a strategic partnership that leverages our complementary assets andcapabilities. We will do joint marketing, sales initiatives, which will be launched first in the United States, and then we will expandglobally as opportunities arise. And again, you can expect to see a formal press release in that regard shortly.

Jason Armstrong - Goldman Sachs - Analyst

On the enterprise side, as we think about how we could bottom out this cycle versus how we bottomed out last cycle, peoplethink sort of puts and takes, the positive is that you have got a heck of a lot more pricing discipline this cycle relative to lastlifecycle. The negative is this cycle is a heck of a lot more broad-based across enterprise. So as people look at the framework ofdown in high singles, low double digits, is it better or worse this time?


This is Ivan. I think we all have an opinion. Let me just make a couple of points.

First of all, we have a much better industry structure than we had the last time. So we are more consolidated. We are morefocused. We have better products. I think we have much better products to sell into the market once the market starts to pickup. So my guess is there are some positives there, and you are correct it is broader so you have some issues on that side. Butthis is where I think Denny has talked about productivity and cost and doing partnerships.

So net net to me the industry is healthier this time around. So I think we should bottom out differently, and we should see theupside in a much better way.

Operator

Tim Horan, Oppenheimer.







Tim Horan - Oppenheimer - Analyst

Just back on the enterprise front again, can you talk about maybe what percentage of revenues are more usage-based correlatedthere? And then secondly, maybe where you think some of the pricing pressure is coming from because clearly the industrystructure is a lot better than we saw last time?


The biggest usage base is LD. I don't have at the tip of my tongue what percentage of it is really LD, to be honest.


Sure.


We can get that.


So Ron has it here. So he thinks it is about 20%, 25% is -- so that would be the usage piece.

And I am sorry and the second part of your question?


Where do you think the pricing, price competition is coming from? Is it driven by customers? Because it does not seem like youhave a lot of -- an awful lot of competitors right now.


It is driven by contract renewals. So every time we see a customer, you know, a three-year, four-year contract expiring, there isvery heavy price competition, and essentially that is where you see it. It is price takedowns on renewals.


I think then one last one going on the FiOS side, as you do all your puts and takes, it looks like the mass markets revenue shouldturn positive here in '09. I am not looking for kind of guidance on it, but do you think access lines have peaked, or how are youfeeling about those trends in terms of overall mass markets, if not maybe this year when you think that turns positive?


The consumer revenue is positive this quarter, right? So if you take out -- when we have mass market, we have, if you will, theold MCI long distance, which is national. So you have already seen consumer be positive this quarter. So obviously FiOS, it justgets better from here.







Operator

Chris King, Stifel Nicolaus.

Chris King - Stifel Nicolaus - Analyst

Two quick questions for you. First of all, I was just wondering if you had any broad commentary on the broadband stimulusproposals that have been flying around Washington over the course of the last couple of weeks? What you were looking for,what you would not like to see in any of those plans?

Secondly, I just was wondering you guys are evidently selling a femtocell now over the course of the last couple of days, reallyis just a kind of a signal enhancer it appears at this point. Any kind of longer-term plans for that product offering? Thanks.


So I will take the stimulus issue. Look, I think we are part of the process. We appreciate it. To give you sort of a benchmark, whatwe like are things like depreciation and tax policy. What we probably don't like are grants that have a lot of government conditionson them. So given those two benchmarks, so far the dialogue has been pretty good, and we will continue to comment on that.But I think as you look at our Company, we have made a lot of investments in broadband, and what we don't want to see isadditional government regulation on any new broadband that would have any sort of backward looking impact on the Company.

Now femtocell, as you know, is the secret weapon of the century. So you will I'm sure after one day of sales, we can tell you thatit is the next millennium secret weapon. You know -- (multiple speakers)


I do think it has opened some good opportunity for us, and for those of you that have not followed this closely, it is a signalenhancing device for both homes and businesses where we have weak signal. We just see a good opportunity here, particularlyas more and more customers begin to use broadband applications in the home and in the business and want to be portablewith those devices. But nothing specific to tell you at this point.

Operator

Philip Cusick, Macquarie.

Philip Cusick - Macquarie - Analyst

Working capital management was really good this quarter. In particular, inventories were down 16% sequentially, which is notwhat typically happens. Can you talk about was that an effort by you guys, and do you expect that to come down further goingforward, or how are you thinking about it?


Yes, I think one of the biggest changes that we had in the quarter were set-top boxes, and it was a concerted effort on our partto manage that process better. And so that was really the biggest change to tell you the truth, and we are very focused onset-top box management going forward.







Also to some extent handsets. We had some handsets in the third quarter that we needed to work on and move those through,which we did. So those are the two biggest changes that we will continue to work on all through '09.

Philip Cusick - Macquarie - Analyst

Okay. Do you expect that inventory to come down further going forward?


The absolute inventory number in the balance sheet I'm not sure. Do I expect the inventory and the set-top boxes to comedown, yes.


Stacey, I would like to now turn the call over to Ivan for some concluding remarks.


Okay. Ron, thank you, and thank you all. We are exhausted from all these questions here. So we appreciate all your interest andyour interest in probing in the business.

Just a couple of comments. We think we had a very solid quarter. We had an excellent year, and we think that we have builtsolid momentum as we head into 2009. Hopefully you think of us in 2009 as having built a solid foundation on execution, greatfinancial discipline, innovation. So we see no reason why the momentum we have developed in terms of our progress in themarketplace should not continue in some way.

Like all of you, we do not have perfect visibility into the economy. So the level of success we will have will be tempered somewhatby what the economy gives us. But at this point, our view is that we will continue to perform well absolutely and perform wellrelatively, and we are looking to continue to be a formidable player in the markets we serve.

As the year unfolds, we will obviously have more insights to offer you as we start to build the track record in 2009. Thank you.


Okay. Thank you, Ivan. Stacey, that concludes our call today, and once again, I would like to thank everybody for joining us andsee you next quarter.

Operator

This concludes today's conference. You may now disconnect at this time. Thank you for participating in today's conference call.







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