Chairman’s Letter to Shareowners:

At Verizon, our business model is based on a few core beliefs. We believe our superior networks differentiate us and provide great communications experiences to customers. We believe our focus on the fundamentals of running a good business – operating excellence, financial discipline and strong values – gives us the ability to plan our future and manage through all economic conditions.

We believe that investing for growth is the key to creating value for our shareowners. And we believe that the communications products and services we deliver are, and will continue to be, hugely important in the lives of our customers, our communities and our world.

By staying focused on this basic business model, Verizon has remained a source of relative stability in a tumultuous market. Our performance in 2008 bears this out and shows the fundamental strength of our company.

Our main growth engines are wireless voice and data; high-speed consumer broadband and video services; and Internet Protocol (IP) networks, applications and professional services for global businesses. Each of these gained market share and attracted new customers in 2008.

As a result of this strong performance in our strategic businesses, Verizon delivered growth in revenues, earnings and cash flow in 2008. Operating revenues for the year were $97.4 billion, an increase of 4.2 percent or 5.1 percent on an adjusted basis. Adjusted operating income was $18.1 billion, up 9.2 percent for the year. Operating cash flows from continuing operations totaled $26.6 billion, up 1.2 percent from 2007. Adjusted earnings from continuing operations were $2.54 per share, up 7.6 percent.

By way of comparison, only three companies in the Dow Jones 30 generated more cash from operations than Verizon. Because of our strong financial position, we were able to invest $17.2 billion in networks, pay $5 billion in dividends and repurchase $1.4 billion of Verizon stock. In September, we increased our quarterly dividend by 7 percent, to $.46 per share – an expression of our Board’s confidence in our future and commitment to returning value to shareowners.

In 2008, we remained focused on building and creating the premier assets in our industry and continued to shift our center of gravity toward the growing wireless and broadband markets.

For example, we expanded our wireless footprint by acquiring Rural Cellular and by winning extremely valuable wireless spectrum in the FCC auction, which positions us strongly for the next phase of growth in the wireless market. Also, in a transaction that closed in January 2009, we acquired the nation’s number-five wireless company, Alltel Corporation, making us the U.S. leader in wireless customers and revenues.

At a time when even healthy companies found it difficult to tap into the credit markets, our ability to finance and execute a transaction of this magnitude affirms our financial solidity and healthy balance sheet. We also spun off some of our telephone properties in northern New England and merged them with Fairpoint Communications, a leading provider of local exchange services.

We continued to invest in the superior network technologies that are Verizon’s hallmark. Our purchase of spectrum in the FCC auction expanded our inventory by 60 percent, which gives us additional capacity to accommodate the rapid growth of wireless data services such as text messaging, e-mail and Internet access.

We passed more than 3 million additional homes with our industry-leading fiber-optic network, FiOS, and are now beginning to expand into big city markets like New York City, Philadelphia and Washington, D.C. Our fiber network now passes 12.7 million homes, or about 40 percent of the households in our footprint, putting us two-thirds of the way to our target of passing 18 million homes by 2010.

In the business market, our high-speed networks provide a sophisticated communications and computing platform for multinationals and government customers, and in 2008 we added to the security and robustness of our network infrastructure in the U.S., Europe and the Asia-Pacific region. We also led a consortium that built a high-speed submarine fiber link connecting China, South Korea, Taiwan and the United States.

Our philosophy is that by investing in the best networks, we can offer the best and most innovative services and enhance our competitiveness across the board. That proved true in 2008.

We saw solid revenue growth in all our strategic businesses in 2008: 12.4 percent in wireless, 42 percent in broadband and video, and 16 percent in strategic business services. We added more than 6 million new wireless customers, 956,000 FiOS Internet customers and 975,000 customers for FiOS TV. Rising monthly average-revenue-per-user for wireless and broadband shows that our customers are finding these products more and more vital and useful in their daily lives. And in the business market, nearly 70 percent of our customers have or are in the process of transitioning to private IP networks, making this service the fastest growing in this business.

In wireless, we launched 36 new devices in 2008. More than one-third of them were smart phones, which reflects the evolution of wireless from a voice-only product to a full-service platform that allows customers to surf the Internet, check e-mail, watch video, exchange pictures and more. This growing array of data services now generates nearly 27 percent of wireless service revenues. Going forward, we believe that wireless growth will increasingly be driven by mobile connections built into a wide variety of products such as cameras, energy systems, vehicles, buildings and appliances. To accommodate these new services, we are preparing to launch our fourth-generation wireless network, which we believe will make Verizon’s wireless network the on-ramp for innovation in the next phase of this dynamic industry.

With FiOS, we are redefining the consumer telecom business as a broadband and video business. FiOS delivers ultra-fast Internet speeds and more high-definition video channels than any cable provider in the market today. These features have helped us achieve 25 percent market share for FiOS Internet and 21 percent for FiOS TV in four short years. We are well-positioned for the next wave of innovation in telecom, which will be driven by high-definition teleconferencing, three-dimensional video and other advanced services requiring the unique speed and capacity advantages of our all-fiber network.

In the global enterprise market, customers are looking for communications companies that can provide them with a full range of strategic capabilities – from security, professional services, information technology solutions, and private IP services to global networking. Verizon is one of the world’s premier providers of all these capabilities.

We are also building relationships with world-class partners like Accenture to leverage our complementary capabilities and provide customers with superior solutions for their businesses. Looking ahead, we expect companies to look for ways to use communications to run their businesses more efficiently, reduce travel expenses, save energy costs and connect their increasingly global workforces and supply chains.

With our global reach and networking expertise, we have a great opportunity to be a strategic partner in helping our major customers achieve these goals.

Once again in 2008, our products earned Verizon top marks for quality and customer satisfaction. Consumer Reports ranked us number-one among wireless companies in customer satisfaction in 87 percent of the cities it studied. (By the way, Alltel was number-one in the other 13 percent.) PCMag.com named FiOS Internet the fastest and most satisfying service in the U.S. and listed FiOS as one of its 100 best products of 2008. Industry analysts such as Gartner and Forrester have recognized Verizon Business as a leader for global networks and services.

What this shows is that the market is responding to Verizon’s record of innovation. So we feel confident about our long-range growth opportunities. This is not to say we are unaffected by the economic slowdown or by the ongoing structural changes in the communications market. The traditional fixed-line telephone business continues to decline as customers disconnect their wired phones and shift to wireless, cable and other newer technologies.

In addition, the faltering economy depressed volumes in the large-business market in the fourth quarter, as businesses began to curtail their spending and unemployment rose.

But all in all, 2008 was another year of operational excellence and strategic gains for our company. As for our stock performance, Verizon’s total return for 2008 was down 18 percent, as compared with declines of 32 percent for the Dow Jones Industrial Average and 37 percent for the Standard & Poor’s 500. If there’s a silver lining in these numbers, it’s that, on a relative basis, Verizon’s performance was in the top one-third of both the S&P and the Dow 30, which says that the market recognizes our earnings and dividend stability. A longer-term view of our performance over the period from 2006 to 2008 shows Verizon’s total return growing by 35 percent, as compared with a decline of 23 percent for the Standard & Poor’s 500.

In other words, Verizon has outperformed the market on a relative basis over the past year and has generated attractive returns on an absolute basis over three years. This is cold comfort to investors suffering through the current market crisis. You can be assured that the leaders of our company are focused on what we control – productivity, innovation, customer service, and a strong dividend – to translate the strength of our company into excellence for our customers and value for our investors.

I want to express my appreciation to our employees for their rock-solid dedication to our customers and sterling record of ethical management, diversity and volunteerism. In 2008, they volunteered 600,000 hours, contributed tens of millions of dollars to charities and community organizations, and responded with tremendous skill when ice storms, hurricanes and other emergencies threatened our customers’ vital communications lines. Their adherence to our values continues in bad times as well as good and is one of the major reasons I’m optimistic about our future, despite the challenges of the current economic environment.

I also would like to cite our Board of Directors, whose forethought and steadfastness in pursuing our strategic goals has been critical to our success. Special thanks go to longtime board member Robert Storey, who retired in 2008 with 23 years of service.

Finally, all Verizon shareowners owe a debt of gratitude to two executives who have put their mark on our company and our industry. William Barr retired at the end of 2008, having served as Verizon’s general counsel since our inception. Bill paved the way for a growing, competitive communications marketplace by leading the charge to reform the way our industry is regulated.

He set the standard for what it means to be a superior general counsel. Our chief financial officer, Doreen Toben, will retire this year with decades of service to our company, the last seven as CFO. Doreen’s contributions to Verizon are profound. You can see her imprint on our culture of financial discipline, our strong balance sheet, our diversified asset base, and our passion for execution. Her influence will be visible for many years to come.

For all the challenges in our environment, we approach the future with confidence. In fact, I believe Verizon will be one of the companies that will help put our economy back on the path to prosperity and growth. Our products and services are indispensable in the lives of millions of customers. Our services will be key tools for businesses looking to work smarter and faster. Our technologies can help solve the big social challenges of our time such as energy efficiency and health care reform. We have the financial strength to grow and invest in the future. And we have great people, who want to do right by our customers, our company, our communities and our country. I couldn’t be more proud of their performance.

Last year in this space, I said Verizon’s goal was to be the best company in the communications sector, period. To achieve that kind of sustained leadership requires several things. You need the right ideas about where the market is going and what differentiates your company in your industry. You need the right values to create the relationships on which long-term success is built. And you need the right culture of accountability to turn those ideas, beliefs and values into action and results.

That’s how we run our business. Our idea of the future, our values, and our commitment to accountability will keep us focused on our pursuit of excellence, regardless of how rocky the road ahead.

Tough times give us the opportunity to lead. I am confident that we will rise to the challenge of delivering value for our shareowners and customers in 2009.
Ivan Seidenberg
Chairman and Chief Executive Officer

Download Verizon Communications 2008 Annual Report

PDF format, 1.6MB, 76Pages.

Verizon Communications Inc.
140 West Street
New York, New York 10007
212 395-1000
verizon.com

Corporate Highlights
> 5.1% consolidated revenue growth
> 9.2% operating income growth
> 7.6% EPS growth
> 7% annual dividend increase
> $1.4 billion in share repurchases

Verizon Communications Inc., (Verizon or the Company) is one of the world’s leading providers of communications services. Our domestic wireless business, operating as Verizon Wireless, provides wireless voice and data products and services across the United States (U.S.) using one of the most extensive and reliable wireless networks.

Our wireline business provides communications services, including voice, broadband data and video services, network access, nationwide long-distance and other communications products and services, and also owns and operates one of the most expansive end-to-end global Internet Protocol (IP) networks. Stressing diversity and commitment to the communities in which we operate, we have a highly diverse workforce of approximately 223,900 employees.

In the sections that follow we provide information about the important aspects of our operations and investments, both at the consolidated and segment levels, and discuss our results of operations, financial position and sources and uses of cash. In addition, we highlight key trends and uncertainties to the extent practicable.

The content and organization of the financial and non-financial data presented in these sections are consistent with information used by our chief operating decision makers for, among other purposes, evaluating performance and allocating resources.

We also monitor several key economic indicators as well as the state of the economy in general, primarily in the United States where the majority of our operations are located, in evaluating our operating results and assessing the potential impacts of these trends on our businesses.

While most key economic indicators, including gross domestic product, affect our operations to some degree, we historically have noted higher correlations to non-farm employment, personal consumption expenditures and capital spending, as well as more general economic indicators such as inflationary or recessionary trends and housing starts.

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