John N. Doherty - Senior Vice President of Investor Relations Francis J. Shammo - Chief Financial Officer and Executive Vice President

Jason Armstrong - Goldman Sachs Group Inc., Research Division John C. Hodulik - UBS Investment Bank, Research Division Simon Flannery - Morgan Stanley, Research Division Philip Cusick - JP Morgan Chase & Co, Research Division Michael Rollins - Citigroup Inc, Research Division David W. Barden - BofA Merrill Lynch, Research Division Timothy K. Horan - Oppenheimer & Co. Inc., Research Division Michael McCormack - Nomura Securities Co. Ltd., Research Division Brett Feldman - Deutsche Bank AG, Research Division

Good morning, and welcome to the Verizon First Quarter 2012 Earnings Conference Call. [Operator Instructions] 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. John Doherty, Senior Vice President, Investor Relations for Verizon. John N. Doherty: Thanks, Brad. Good morning, and welcome to our first quarter 2012 earnings conference call. Thanks for joining us this morning. I'm John Doherty. With me this morning is our Chief Financial Officer, Fran Shammo. Before we get started, let me remind you that our earnings release, financial and operating information, the investor quarterly and the presentation slides are available on our 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 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 also 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 also on our website. I'd like to state that all quarterly growth rates disclosed in our presentation slides and during our formal remarks are on a year-over-year basis unless otherwise noted. Also, there were no special items of nonoperational nature included in our reported results for the first quarter, of either this year or last. With that, I will now turn the call over to Fran. Francis J. Shammo: Thanks, John. Good morning, everyone. Before we get into the details, let me start with a few comments about our first quarter results. On our last earnings call in January, I talked about the confidence we have in our ability to benefit from the market opportunities we see in our key strategic growth areas. Our focus will continue to be on execution, striving to capture incremental revenue and driving operating efficiencies throughout the business. With the results of our first quarter, we continue to execute and deliver on the guidance we gave back in January of 2011 and reaffirmed earlier this year. We remain as confident in the direction of our business now as we were then, and we continue to deliver strong results. Earnings per share were $0.59, up 15.7% over first quarter last year. In Wireless, we saw a sharp acceleration of growth in retail service revenue and postpaid ARPU, driven by increased smartphone penetration and higher data device adoption, resulting in increased usage. This top line growth, combined with effective cost management, resulted in a very strong service EBITDA margin. Consumer retail revenue growth also continues to improve, driven by another solid quarter of FiOS performance. Our broadband net adds were the highest we have seen in nearly 3 years. We had an extremely strong quarter of cash generation. Free cash flow of $2.4 billion is more than 3.5x the amount generated a year ago. The first quarter is normally the lowest quarter of the year, so we expect to see increasing free cash flow levels going forward. Capital expenditures in the first quarter were down more than 18% as our disciplined approach is resulting in capital efficiency gains and an improving return on investment profile for the entire business. Let's begin our review with a look at consolidated results on Slide 4. Our consolidated results show strong growth this quarter. On the top line, our growth trends continue to be very positive, coming from all strategic areas, most notably, Wireless services. This quarter, overall revenue growth far outweighed the increase in operating expenses, resulting in double-digit operating income growth of 16.7%. Consolidated EBITDA grew to $9.2 billion, and our margin expanded to 32.7%, up 130 basis points year-over-year and 210 basis points sequentially. Let's turn now to cash flow and capital spending on Slide 5. Our free cash flow this quarter increased $1.7 billion, driven by reduced levels of capital spending and an 18% increase in cash from operations. Capital expenditures totaled $3.6 billion in the quarter, a decrease of about $800 million compared to last year. Our overall capital efficiency continued to show steady improvement. We expect our annual CapEx-to-revenue ratio to decline for the full year based on improving revenue trends and disciplined capital spending. In Wireless, capital spending in the quarter was $1.9 billion, which was lower by $850 million or 31% from the first quarter last year. You will recall that at this time last year, we were spending more to meet 3G capacity requirements in connection with our initial launch of the iPhone. As we move through the year, you will see a continued focus on migrating traffic from 3G to 4G LTE, which will drive additional improvements in our capital and operating efficiency. We will also continue to expand our 4G LTE network coverage, which is already the largest in the nation. In Wireline, capital spending was $1.5 billion this quarter, about 5% higher than the first quarter last year. This increase is due to timing, strategic spending in enterprise and some copper-to-fiber migration within our residential customer base. Our balance sheet remains very strong. You will recall that the $10 billion cash distribution from Verizon Wireless was paid this quarter. We used our proportionate share and part to pay down commercial paper and to redeem a maturing bond. As a result, total debt declined by $3.6 billion since the end of last year. Our net debt-to-adjusted EBITDA ratio was about 1.3x at the end of the quarter. Let's now move into a review of the segments, starting with Wireless on Slide 6. Our Wireless business had an impressive quarter and a strong start to the year, posting accelerated growth in service revenue and our highest retail postpaid ARPU accretion in 3 years. Total Wireless revenues of $18.3 billion grew 8.2% and now represent about 65% of Verizon's consolidated revenue. Retail service revenue growth accelerated to 8.9%, 110 basis point increase in growth from the fourth quarter and the highest growth rate we've seen since early 2009. We are seeing strong revenue growth from multiple postpaid sources: Smartphones, tablets and Internet devices. And retail prepaid revenue grew strongly again this quarter, up 17.3%. Total service revenue grew 7.7% this quarter, 130 basis points higher than the growth rate in the fourth quarter. Total data revenue of $6.6 billion grew 21.1%. Data now represents nearly 43% of total service revenue. Data revenue growth continues to be driven by web and email services, which increased to $4.3 billion in the quarter, up nearly 36%. Let's take a closer look at our connections growth on Slide 7. We continue to gain share in the retail postpaid market, driven by sustained demand for our 3G and 4G LTE handsets, tablets and Internet devices. With the unmatched service quality of the nation's largest and most reliable wireless network. We have an industry-leading $93 million retail connections, 88 million postpaid and 5 million prepaid. During the quarter, we added 734,000 new retail net connections, 501,000 postpaid and 233,000 prepaid. Before we discuss postpaid in more detail, I'd point out that within the prepaid net adds, 138,000 were tablets. About 60% of the prepaid tablets this quarter were 4G LTE. Within the retail postpaid category, gross additions were just over 3 million, down about 12% from a year ago. We believe this decline is both seasonal and a function of the timing of the new device launches last year. Our porting ratios with all carriers are favorable, and our postpaid churn metrics remain excellent. Although the first to report, we are confident that our 501,000 postpaid net adds is a strong result. Postpaid device sales, both gross adds and upgrades, totaled about 10 million this quarter with 8% of our postpaid base upgrading devices. In addition to smartphones, we are also having great success in the Internet device category, which includes tablets. This quarter, we sold 765,000 4G LTE Internet devices, which is more than last quarter. We are the market leader in this space as mobile hotspots or Jetpacks, USB modems and tablets represent 8% of our retail postpaid connections. I would also point out that 62% of our active tablet base is postpaid. Next, let's turn to Slide 8 and take a look at our smartphone and retail postpaid ARPU metrics. We had another strong quarter of smartphone sales, increasing the penetration of our retail postpaid phone base to 47%. 72% of all retail postpaid phones sold this quarter were smartphones. We sold 3.2 million Apple iPhones and sold 2.1 million 4G LTE smartphones this quarter. We sold 500,000 or 30% more 4G LTE smartphones this quarter than we did in the fourth quarter. Consistent with prior quarters, about 20% of our smartphone sales are gross adds or new to Verizon, and the rest are upgrades from our existing customer base. Within these upgrades, 42% are customers buying a smartphone for the first time, representing incremental recurring data revenue. This is a significant point of differentiation and a strength for us. Retail postpaid ARPU was $55.43 this quarter, up 3.6%. This is a big acceleration in accretion over what we experienced in 2011. Growth in retail postpaid phone ARPU accelerated to 4.9% this quarter and now exceeds $57. Postpaid Internet device ARPU was about $48 this quarter, a decline of 8.7% from last year but an improvement from an 11% year-over-year decline last quarter. Although postpaid ARPU for Internet devices is less than for phones, we are seeing double-digit year-over-year revenue growth driven by increased unit sales. We already have a majority share in this important category, and we continue to expand the market for devices, which enable higher usage. We also expect more network efficiency as an increasing percentage of data traffic moves to our 4G LTE network. Let's turn to Slide 9, as I'd like to spend a few more minutes talking about the strength of our 4G LTE leadership. We are by far the market leader in 4G LTE, which is now available in 230 markets and more than 200 million POPs, covering over 2/3 of the country. Throughout the year, we will continue expanding our 4G LTE network with the goal of having a nationwide footprint similar to our 3G network by mid-2013. We are seeing increasing customer awareness of the capabilities of 4G LTE and a growing recognition of the superior performance of smartphones, tablets and Internet devices on the Verizon 4G LTE network. Third-party comparisons of our 4G LTE network performance compared with others generally ranks us highest in terms of consistency of access, performance and speed, with better average download speeds and significantly higher average upload speed. In addition to our network deployment and coverage advantage, sales of 4G LTE products are clearly gaining momentum. In the first quarter, we sold 2.9 million postpaid smartphones and Internet devices, a 22% increase over the fourth quarter. The vast majority of devices we have for sale are 4G LTE. We now have a total of 8 million 4G LTE customer connections, representing 9% of our postpaid base. Of note, about 2/3 of these are smartphones. We remain very pleased by our 4G LTE progress. The Verizon 4G LTE network has become the destination of choice for consumer and enterprise customers, which is a very positive indicator for us looking forward. Let's conclude our Wireless segment review with a discussion about profitability on Slide 10. In the first quarter, we generated $7.1 billion of EBITDA, which is an increase of 14.2%, and expanded our service EBITDA margin by 410 basis points sequentially to 46.3%. Our margin performance is once again a testament to our ability to execute very well on our strategy of balancing growth and profitability. The combination of accelerating service revenue and ARPU growth, and intense focus on cost controls and consistently excellent churn metrics are contributing to our industry-leading margin performance. Going forward, we will continue to look at opportunities to mitigate the cost of higher equipment subsidies and commissions. We have identified $2 billion of cost saving opportunities for this year, and we are on track to capture these savings. We also announced the $30 upgrade fee, which will go into effect next week. Let's move to our Wireline segment next on Slide 11. Total Wireline revenue declined $202 million or 2% in the first quarter. About 60% of this decline is a result of targeted product rationalization actions we have taken to improve the quality of our revenue mix. Within wholesale, I'm referring to our continued exit from unprofitable international wholesale routes and contracts. In Enterprise, it is our deemphasis on selling of drop ship hardware or CPE. And the other revenue line item, the majority of the 82 million decline this quarter was from nonstrategic products, which include the former MCI mass markets business, long-distance, local wholesale and calling cards, public pay phones and directory assistance. We are exiting the calling card and public payphone businesses entirely. While the Wireline revenue decline was accentuated by these targeted actions this quarter, growth in the strategic areas continues to mitigate the more secular and cyclical declines in other parts of the business. As we have stated, we are taking a hard look at all of our product lines and rationalizing those that are not meeting our strategic and financial requirements. For example, going forward, we will no longer be selling high-speed Internet or DSL over copper in areas where FiOS is available. From a profitability perspective, first quarter EBITDA declined by $148 million year-over-year with 100 basis point decline in the EBITDA margin to 22.6%. The decline is due to several factors, revenue declines in less-strategic products and first quarter cost pressures like higher OPEB accruals, increased active benefit cost and escalators in certain content contracts. We have targeted price actions planned to help offset certain cost increases, which will contribute to our overall profitability goals this year. I remain confident that we will achieve EBITDA margin improvement for the full year, and we continue to be very focused on improving the long-term profitability of the Wireline business. Let's take a closer look at our revenue performance starting with mass markets on Slide 12. As a result of the scale of FiOS and increased penetration, consumer ARPU has continued to steadily increase and is now over $97, up 8%. In addition, our residential connections trends continued to improve. We lost 205,000 retail residential connections in the quarter, representing a 6.8% decline year-over-year compared with a loss of 289,000 or 8.6% at this time last year. In the first quarter, we delivered strong broadband growth, gaining a total of 104,000 net subscribers. With a 193,000 FiOS Internet additions, we passed the 5 million FiOS subscriber mark and increased our penetration to 36.4%. More than half our FiOS customers already use 20 megabit speed or higher. And with more devices like tablets, game consoles and smart TVs connecting to the Internet at home, demand for higher broadband speeds is on the rise. Later this year, we plan to introduce a series of higher speed packages that will further differentiate FiOS as the nation's fastest Internet service and allow us to continue to monetize our investment in the FiOS platform. In FiOS Video, we added 180,000 subscribers in the quarter, bringing our total to 4.4 million and increasing our penetration to 32.3%. Within our FiOS subscriber base, about 68% are triple-play, and our FiOS ARPU now stands that more than $148 per month. Our focus continues to be on increasing FiOS penetration, realizing additional operating and capital efficiencies and expanding margins. Let's move next to our business markets, starting with Global Enterprise. Strategic Services continue to drive the overall positive growth in Global Enterprise revenue. We continue to post double-digit growth in application services like managed network, data center, security, cloud and IT infrastructure. Within the IP layer, private IP and Ethernet services are contributing to the growth. In the first quarter, these services totaled $2 billion, up 11.6%, representing just over half of Global Enterprise revenue. As we've seen for the last several quarters, the growth in Strategic Services did outpace the decline in core Enterprise Services but not to the same degree. As you might expect, we are experiencing some short-term revenue pressure from Europe and foreign-currency. In addition, our deemphasis on sale of hardware was worth about $43 million on a year-over-year basis. Growth in services revenue was 2.3%. Looking ahead, we do expect our enterprise business to contribute more to the overall Wireline revenue growth and profitability. Our strategic repositioning of Verizon Enterprise Solutions has better aligned our strength in high-growth markets like cloud computing, machine-to-machine and advanced communications. Our acquisitions of best-in-class assets like Cybertrust, Terremark and CloudSwitch, combined with our industry-leading 4G LTE and global IP networks, gives us a unique platform of assets to provide comprehensive, integrated solutions to enterprise organizations. In Global Wholesale, revenues in the first quarter declined $181 million or 8.9% due primarily to declines in voice and local services. As I said, we continue to take targeted actions to exit unprofitable routes and contracts, to improve the quality of our revenue mix during this period of secular decline and lower volumes. Partly offsetting these declines were continued growth in certain data services, most notably, fiber-based Ethernet. Let's move now to our summary slide. Overall, we had a solid start to the year, and we remain confident in our ability to take advantage of the market opportunities we see and our key strategic growth areas. We are on track with our plans, and we expect to continue to deliver strong results going forward. Our focus will continue to be on execution, striving to capture incremental revenue and driving operating efficiencies throughout the business. Our success in stimulating top line growth and capturing cost savings will enable us to mitigate certain secular declines and cost pressures. In terms of recent news, yesterday, we announced plans to conduct an open sale process for all of our 700 megahertz A and B Spectrum licenses in order to rationalize our Spectrum holdings. We acquired these licenses as part of the FCC auction 73 in 2008. The sale of this license is contingent upon the close of the purchase of the AWS licenses from SpectrumCo, Cox and Leap Wireless. These transactions are at varying stages of review by the FCC and the Department of Justice and are expected to close by mid-summer. In closing, I'd reemphasize that we are well-positioned to capitalize on the investments we've made, further improving investment returns and creating significant shareholder value in the years to come. With that, I will now turn the call back to John so we can get to your questions. John N. Doherty: Thanks, Fran. Brad, let's open it up for questions, please.

[Operator Instructions] Our first question comes from Jason Armstrong of Goldman Sachs. Jason Armstrong - Goldman Sachs Group Inc., Research Division: Fran, a couple of questions. First on the Wireless ARPU, very healthy uptick in the retail postpaid growth rate. Can you help us think through prospects for further improvement in the rate of growth from here? And then second question just on Wireline margins, I think the reset in the first quarter was a bit larger than most of us had initially expected sort of going into the process. You talked about confidence in improvement from here. Just wondering how should we think about the pacing of this through the year? Would you expect it to be fairly linear and show up in the second quarter results or is this more back-end loaded, maybe contingent on a union contract? Francis J. Shammo: So let's start. These are 2 actually big questions, and that probably will result in larger answers than you would expect. But on Wireless ARPU, let's start out with the fact that I think as we started out in 2011, we said that we had a path to accelerate the growth of our revenue. We came out of the fourth quarter, I reiterated my confidence on that projection. And as I sit here today and I will continue to reiterate that we are confident that we will continue to accelerate our growth in this category. And it's going to come from many, many different areas. So you have to keep in mind, number one, our smartphone penetration is at 47%, which means that there are 53% of our phone customers that are still on a basic phone. So we still have a lot of roadway here from a basic to smart upgrade. And as you know, 42% of our customers this quarter went from a basic phone into a smartphone category, so that is accelerating the growth. In addition, as you heard on the script, our Internet device category is starting to stabilize a bit, and we expect that to continue to go throughout the quarter on an ARPU basis. As last year, we reset prices, we expanded the category, so the growth of that category is expanding for us, but we knew we had some short-term ARPU pressure by the price resets that we launched into the marketplace. But that set us up for our 4G LTE launches. And as you saw, we had a stellar performance on a number of devices that we moved on our 4G network this quarter. So that's a couple of things. I probably could go into a lot more detail around our data sharing plans, our commercial launch of Fusion and if we want to get to more discussion on that, we can. But we are very, very confident that we are on a path to continue to accelerate the growth of our ARPU. On Wireline margins, just a couple of things here, too, to talk to. So number one, we did have the FiOS-to-copper migration, which impacted our short-term results but we've talked that this is a strategy that we're deploying. It is better for us long-term to get most of these customers off of our copper network to our FiOS network. As you saw that we are -- stopped selling our naked DSL in FiOS covered area and we started to convert a number of customers in this quarter over to our FiOS network from a voice perspective. Now a couple of things here that this will launch, number one, we will see a long-term benefit in our repairs and maintenance decrease over time. We will also get the upsell capability to start selling these voice customers on better speeds of FiOS and better experience. And also then into the linear TV product that we have to offer. And what we're seeing is the minimum number that we converted last year during our trials, we're starting to see a 30% sale upgrade on those customers, but it does take us 3 to 6 months to convince those customers to upgrade. So this is a longer-term type strategy. In addition, going into the future, you're going to see, you may have already saw, that we are starting to do some price-ups in strategic areas. We've also started that in April but over the next 2 quarters, we're going to have several priced-ups in our FiOS packages. In addition, we're going to rebundle certain of our packages to better bundle our content in order to make it more profitable based on the Tier that you picked for us. The other thing is that there's other revenue streams coming from down the pipe like home monitoring control that will contribute to the overall ARPU of our FiOS platform. We also have a very disciplined cost structure in place. As you see that, we declined our SG&A expense year-over-year. In April, we also had another ISP [ph] to our represented employees, which we had a number of people take. So we've already taken off 1,100 people from payroll since the quarter has closed. We are taking other measures around the consolidation of our back office operations, as I've talked to in the past. You see that we are exiting some of our unprofitable or low-margin businesses, which will help us in the future. And then, of course, the union contract and we can talk more about that. But obviously, the business needs a cost restructure and that's what that is about. So I'll stop there, I'm sure we'll have some more questions here. Jason Armstrong - Goldman Sachs Group Inc., Research Division: Fran, is there any way you could quantify the copper-to-fiber sort of incremental cost in the quarter? Francis J. Shammo: At this point, we're not going to disclose that. It did result in some incremental capital for prepositioning and then it did the result in some expense for us. But actually for this quarter, it was not a big component of the quarter.

Our next question comes from John Hodulik of UBS. John C. Hodulik - UBS Investment Bank, Research Division: First, just 2 quick ones. First, on, I guess a follow-up on the Wireless side. You saw 260 basis points of annual margin improvement in the first quarter. And now talking about accelerating ARPU growth and like you said, the $30 that gets started gets tagged onto upgrades in May. I mean, is that a decent number or, I guess, why shouldn't we expect that kind of year-over-year increase in margins or maybe even better as the $30 starts to flow-through? And then, second of all, maybe on use of cash, could you remind us what your target leverage ratio is. We're at the, I guess, 1.3 now given that debt pay down. As we look out to next year and we're modeling another dividend, obviously you don't want to chat and you don't want to sort of look that far out, but I'm just trying to get a sense for the use of cash as we go forward? Francis J. Shammo: Okay, so, on the Wireless margin expansion. I guess there's a couple of things here that are important. Number one is, as you know, we have been on a 2-year track here to reduce expenses in our Wireless unit. And over the last 2 years, we've taken out about $3 billion of expense. This year, we have another target of $2 billion. So I know that everyone is focused in on the subsidy model, but as I've said, that's just one line item in our P&L, and it takes managing the entire business to be an efficient business. And I think that Wireless has done a really excellent job on reduction of cost and creating more efficiency within the model. And that's what's driving the margins, beside the ARPU increases that you see in the revenue growth. And as we stated last year coming into this year, that our goal was to get back to our third quarter level of last year's margin and then continue to grow from there, and we're putting in all those actions to do that. As far as the $30 upgrade fee, I'll remind everyone that we started back in 2010 on a strategy to start to take out some of the lucrative promotions we had around upgrades by deleting the New Every Two program, limiting the amount of early upgrades that we allowed. And now the implementation of the $30 upgrade fee, which we were the last carrier to implement. But it's important, too, for the overall profitability of the business, and the experience that we expect to have within this business. So I think there's a number of actions that Wireless is taking to continue to focus on the ARPU expansion and then the margin expansion because we like to do both at Verizon, we grow and we expand our margins. And then as far as the use of cash here, on a targeted net debt-to-EBITDA. It's more important that I think we're comfortable with our net debt-to-EBITDA ratio. This will improve over time as we continue to delever in certain areas where we think it's reasonable to do. You saw us take the proceeds of the Wireless dividend this quarter to pay down some debt that was maturing that was high-interest debt that, quite honestly, didn't make sense at this time to refinance in any perspective. So we will continue to manage our cash. Important, our dividend policy is extremely important to us, and Lowell and I have said very strongly that we will continue to the policy of our dividend. So I'll stop there, and we'll go on to the next question.

Our next question comes from Simon Flannery of Morgan Stanley. Simon Flannery - Morgan Stanley, Research Division: You talked about the Wireline margins and I think there was a question about the union contract. Could you give us an update on where you stand and the ability -- if it's just been moved forward and get progress, some agreement over the coming quarters? And then on Wireless adds, you had I'm sure the best in the industry, but overall, we expect the industry to be flat to down on postpaid. Do you sense this is just a lull post the iPhone 4S launch last quarter? Did to see a sort of a pickup sequentially through the quarter, any thoughts about how the rest of the quarters pan out in terms of Wireless versus Q1? Francis J. Shammo: So first let's talk about the union contract. So look, I think it's safe to say that as we entered into this new negotiation, we knew that this is going to be an extremely difficult negotiation. We have said very strongly that we need cost structure within the Wireline business. Obviously, if you look at the profitability of this business over the last 5 years, it has decreased. And this cost structure is not palatable going forward. So we need to some concessions, we need health care contributions. We need some pension revisions. And look, were not asking for things that have not already been given to other companies. These are not new issues. They've already been given to some of our peer companies. So we are standing strong. We need this cost restructure in order to build on the profitability of our Wireline unit. The other thing is, look, we've invested over $24 billion into this unit on the FiOS platform. And in order for us to be competitive with our competitors of cable who don't have these very lucrative benefits and average salaries of $90,000 with an incremental $50,000 of healthcare and pension on top of that, we need some cost restructure here. So look, this is a hard negotiation. It took one of our peer companies over 500 days to get to where they were, 3 years ago in some of these breakthrough issues. So we continue to negotiate. We continue to put proposals on and we'll see where we go, but we knew this was going to be a long haul. And with my comment of improvement of Wireline margins, it's all built in those comments. On the Wireless adds, I think we're extremely pleased with the growth of our Wireless business on an add basis. If you look at, though there's going to be other categories that drive the growth of Wireless in the future, as I said, we will be launching our data share plan in mid-summer this year. We believe that, that plan, the way we have it designed, will enable our customers to easily connect other devices to that plan. And I think that as we do more connections, you notice that we did not disclose total connections. As I've said that machine-to-machine is becoming a more complicated device and connection of the way the plans are built, so it's not important anymore of total connections. It's more important of our revenue increase based on the customers that we're growing. I think that if you look at our Fusion product that we just launched in certain states, our trials are going very well. The customers' experience is extremely strong. We had a target of 10 million homes that we're going to launch to in May, of this year, when we commercially launch. And that we'll build to, as we build out the 4G LTE footprint to a target of 34 million homes. We believe that's a growth engine for us in the future. Then we have tablets, we have prepaid. This is the second quarter in a row where we've grown our prepaid base with our Unleashed product. And in the next week or so, you're going to see us add in a smartphone to our prepaid product on an $80 price point with 1 gigabit of data. So there's a number of actions that we're taking. If you think about the third ecosystem and then also the cable partnership that we also just launched some new markets with Time Warner cable this past quarter, Kansas, Ohio and Carolinas. So we've continue to expand. I think we have a growth rate test to increase adds on a full year basis here, and we're on that track.

Our next question comes from Phil Cusick of JPMC. Philip Cusick - JP Morgan Chase & Co, Research Division: So 2 questions, we'll see how I do. So first on the prepaid, tablets were up little bit, and I wonder if you saw a little bit of a drag even though from the timing of the iPad launch and if things have got a little better since things -- since that's come through? And then second, we've been getting a lot of questions about your ability to control iPhone subsidies. And maybe you can help us out a little bit. It seems like the way you control costs, some [indiscernible] raising upgrade rates, some sort of pushing back on timing rather than cutting down on the actual subsidy of that device, is there a level of control you have on those subsidies over time or are you pretty much stuck with the way things are priced today? Francis J. Shammo: So first on prepaid tablets. It's a great point. We did see a slowdown in the beginning of the quarter on the anticipation of the iPad 4G LTE device coming to market. And as you know, that was only about 2, 2.5 weeks of product in the marketplace. And we saw significant volume previous to any volume that we had previously seen on tablet sales. So I think that going to the second quarter, that volume will continue. So yes, there was a little bit of a downward demand in the beginning, waiting for the new iPad to come out. So again, I think we're off to a good start. We sold 390,000 tablets in the quarter. And as we said, bulk of them were -- 60% were increase in tablet sales year-over-year. So I think going into the future, tablets will continue to be a very strategic segment of our business. On the Apple iPhone, look, I think as I've said before, we look at every individual handset, we have a broad portfolio. We manage it by handset-by-handset and manage our subsidy and again, that's just one aspect of our P&L. And this is just a nature of this business that's grown from the beginning of the industry that we subsidize handsets. I do think though it is important that there is a third ecosystem that's brought into the mix here. And we are fully supportive of that with Microsoft, and as we said that we created the Android platform from beginning. And it is an incredible platform today that we helped to create. And we're looking to do the same thing with a third ecosystem. So that's how I think that we plan to go into the future here.

Our next question comes from Michael Rollins of Citigroup. Michael Rollins - Citigroup Inc, Research Division: Real quick. Could we just get an update on the net debt at the Wireless level? And then taking a step back, could we get an update on what's happening in enterprise with the VDMS strategy that you're trying to rollout and then anything else in terms of demand that you're seeing on video and how that's helping your enterprise business? Francis J. Shammo: So on the net debt for wireless, we have gross debt of $10.9 billion, cash on hand of $4.4 billion, so net debt is $6.4 billion. On the enterprise, VDMS, think we're making great progress with the new organization and the umbrella organization that John Stratton has over both Wireless and Wireline from an enterprise perspective. We have gone very deep into verticals. We see that there is, and if you paid attention to Lowell's remarks here recently at the healthcare forum, we see a lot of healthcare opportunity and are engaging in a lot of partnerships to extend what we think is a really good product set on the reduction of overall healthcare costs in the nation, but also to deliver some really neat innovation-type ideas into the future of healthcare and how we manage that from an enterprise perspective. As far as overall growth of the segment, we did see a decline this quarter in Europe. It was not expected. Just to give you some baseline here, last year, our European market was growing on average about 13%. It contributes about $450 million of revenue per quarter. We saw that drop to flat this quarter. So there was a drastic pullback in our European market. We don't believe that, that is long-term. We think that that's more of a short-term issue. We already started to see some increased bookings here exiting the first quarter, but that probably won't turn into revenue for 3 to 6 months. As you know, this industry is a longer-term type recording from the time that you get an order. But I think this is a short-term issue for us, but it did put an impact on our overall growth. Now having said that, our cloud services and our strategic nature of our security are those portfolios are growing well. Our overall cloud portfolio grew by 17% quarter-over-quarter, year-over-year. So I think we're making progress in the area that we want to make progress in, but again, the portfolio rationalization is also creating a drag here. And as we continue down that path, we will lose some revenue in those less-profitable platforms that we really want to discontinue investing in, but it's for the betterment of us and betterment of our customers to move them to a more highly innovative platform. And then the last thing, of course, is the development and launch that we did last June of our VDMS platform, and we will be launching our next phase of that come this June, and we expect to see some growth revenue acceleration from that platform as we go here. So there's a number of things that John is implementing that I think will contribute. As I said in my script here, the -- contribute of the future growth of the overall Wireline, revenue top line and margin growth. Michael Rollins - Citigroup Inc, Research Division: And Fran, if I could follow up one more thing, what pushed Verizon Wireless over the edge to put the Spectrum up for sale? Can you just address a little bit of the background to yesterday's announcement? Francis J. Shammo: Yes, so thanks for that question and I think this is an example where people write articles where they don't have facts. So let's talk about the facts. So number one, I think Verizon Wireless has shown over time that they are very, very good stewards of Spectrum and efficient Spectrum. And we are responsible and efficient owners of the Spectrum. And as a company policy, we will not hoard the Spectrum. Now when we bought this back in 2008, obviously, we did not have the foresight to know that we would have an opportunity to acquire AWS Spectrum from the cable company. And if you look at our Spectrum holdings, we purchased the 700 megahertz, which is an extremely efficient and this is where we built our LTE platform on. And then we had the AWS spectrum in the East, which was very efficient from an overbuild perspective on capacity of our LTE platform. And now with the deal that we have with SpectrumCo, we believe that is the most efficient for us to utilize and build out our LTE platform. So hence, the lower 700 megahertz A and B does not fit as nicely into our Spectrum holdings as it may for others. But we think it's the prudent thing to do, to sell these licenses off to the rest of the industry for the benefit of their customers and to enhance their ability to build out 4G LTE. So I think we would say that we're being good stewards. This has nothing to do -- we did not just wake up yesterday and decide we were going to sell Spectrum because we ran into a roadblock at the FCC. That is continuing. We have facts that say the 180-day clock is going and that we are still very confident that we will get approval for the AWS acquisition from SpectrumCo. But just the 2 other points I want to make here is, number one, this is contingent on us getting the a getting the AWS Spectrum approved because, obviously, we would need this spectrum if that's not approved and again, we think it's the right thing for the FCC and maybe a standard for them to use in the future of how Spectrum should be allocated out and sold and efficient ownership and protocols. The other thing is I think there were some articles written that this is going to be a fire sale. This is nothing near a fire sale. We bought this Spectrum back in 2008. We've had carrying costs, and we will be prudent to our shareholders to make sure we get the return our investments. We know what the value of this Spectrum is in the free market, and obviously, we're going to an auction to allow many different parties to participate through a third-party auctioneer. And look, if we don't get the price that we think is a fair price, then we won't go through with the sale, and that's at our discretion. So I think there's some important facts and I'll stop there.

Our next question comes from David Barden of Bank of America Merrill Lynch. David W. Barden - BofA Merrill Lynch, Research Division: Just maybe a couple of follow-ups. Just first, Fran, on the AWS Spectrum approvals, is there a level of divestitures that the FCC could come up with that will be a deal breaker from your perspective or is just getting kind of any magnitude of an AWS deal done sufficient? And then with respect to the Wireless margin, you're targeting $2 billion of cost cuts, I guess, for the year. If you could kind of share with us where we wound up after the end of first quarter on that? And then the last one, if I could, is just, could you kind of give us an update on what, if any, results have you been able to generate from your partnership with the cable companies on the selling of a joint product that have been material to the business? Francis J. Shammo: So first on the AWS approval, I think that we're exactly where we expected to be. The conversations are going exactly the way we thought. I'm not going to speculate on caps or what we would do, what we wouldn't do and I think what I'll say is, look, we're exactly where we thought we would be and I think we'll close this transaction by mid-summer. On the $2 billion Wireless cost cutting ideas, I think we've shown that we are very good executioners on the cost-cutting routines of $3 billion in the last 2 years. The $2 billion is a combination of a variety of things. You saw the announcement of some call center rationalization. Obviously, part of this $2 billion is to work on the reduction of our subsidies, and you saw -- you're already seeing some of these plans go into action with our upgrade feesand some other things. So there's a wide wrath of cost-cutting initiatives that Dan, me and his team are executing on. And right now coming out of the first quarter, we're actually right on track where we expected to be. And then lastly, on the cable companies, obviously, we're still in a trial mode. We're working out the kinks. We launched a couple markets here with Comcast up in Seattle and Portland. We just launched a couple of new markets with Time Warner cable. So I think it's too early to talk about this one. The agreements are still in front of the DOJ and the FCC and we continue to cooperate with them. And we'll wait till the transaction closes and get up full to speed and then we'll talk about that.

Our next question will come from Tim Horan of Oppenheimer. Timothy K. Horan - Oppenheimer & Co. Inc., Research Division: Fran, 2 questions, if you don't mind. On the enterprise business, on the core business, could you just give us maybe a little color around -- it sounds like you're seeing volumes are fine and you haven't really seen a pickup in competition. But obviously, these peripheral legacy products are in decline. I just want to make sure that's kind of what you're saying. And maybe, did you see any seasonality in core enterprise that you see maybe lower sales in December and that's kind of picked up. I know you kind of talked about Europe a little bit, but maybe just here in the U.S.? And then I just have a CapEx follow-up. Francis J. Shammo: As far as enterprise goes, look, I think the enterprise business is in our Strategic Services area. It's steady as she goes. We're growing that portfolio. And look, any time ago through a massive restructure like John has implemented at VES with going into more of a vertical-type segment, you're going to have a little disruption within your frontline sales force and I think we saw that. But that was like a 60- to 90-day interruption and I think we're getting back on pace and we expect enterprise to start to get back on their feet here going into the second quarter and through the year. And as far as the core side goes, the core is just steady as she goes. It's a declining business. People are moving away from the legacy voice and long distance and moving more into the IP technology. And this is where we have several of our customer [indiscernible] still on the legacy core platforms that we need to move off of so that we can stop investing in those platforms and get them to something that is more innovative and more efficient for them as a company as well. And I don't think they're surprised with the conversations that we're having. So I think as we go here, this will be a steady course. And as we said before, our goal is to be a gross national product-type growth here, GDP plus type organization. So I think that's we're striving for and that's what's John is striving for as well. Timothy K. Horan - Oppenheimer & Co. Inc., Research Division: So just on enterprises, sounds like you're really trying to accelerate the conversion over. How much longer do you think that would take? Francis J. Shammo: Well, I think this is going to be some of these legacy-type platforms. This could be a 2-year transition. Timothy K. Horan - Oppenheimer & Co. Inc., Research Division: And then CapEx, is flattish a good number for the full year versus last year? I know even with a decline it was a percentage of revenue at a fairly healthy pace given what we're seeing in Wireless. Francis J. Shammo: Yes, I've said that the guidance would be -- we wouldn't give specific guidance but flat is a good guidance.

Our next question will come from Mike McCormack of Nomura Securities. Michael McCormack - Nomura Securities Co. Ltd., Research Division: Fran, could you just make a comment on the ARPU side? Obviously, pretty strong performance on the wireless ARPU. But it looked like voice, the headwind on voice sort of became less of a headwind this quarter. Pretty good improvement on the rate of decline. Is what you're seeing there, whether it's people just not pricing that down anymore or what behaviors the consumers are showing you? And then just a couple on the housecleaning side, on Wireless D&A, looks like it was down sequentially. I was just wondering if there was a change in assumption there? And then on the Wireline margin commentary, the better year-over-year I'm assuming that's on a reported basis. Francis J. Shammo: Yes, so Mike, just a couple of things here on the voice and text messaging. Our messaging revenue actually grew 4% again year-over-year. So we're not seeing what others in the international market have seen. And again, it all comes down to the way you package the bundle and we still have a majority of our customers taking a bundled package of voice and text along with their data plan. So we're starting to see that -- that starting to flatten out perspective. But look, I mean, we keep our eye on this, and with 4G LTE and VoLTE coming at the end of this year into next year, there will be additional opportunities to convert more revenue from our voice products as we launch into more, if you will, IP-type videoconferencing and so forth. As far as Verizon Wireless depreciation and amortization, look, at the beginning of every year, we have a policy that we look at our asset base and reevaluate all of our estimated lives on all of our asset bases. And sometimes make decisions to accelerate and sometimes we make decisions to reevaluate the lives that we have in a certain asset. And we've done that this year as we do every year, and in Verizon Wireless, there was a life extension on our entire EV-DO platform. But this is nothing unusual that we normally don't do. And so that's the answer to that one.

Your last question will come from Brett Feldman of Deutsche Bank. Brett Feldman - Deutsche Bank AG, Research Division: And just to come back to the CapEx statement. In order for your CapEx to be flattish over the course of the year, it would seem like the spending would have to pick up a little bit in Wireless. First of all, is that the correct conclusion? And if so, what would be behind that? And then the second question is to clarify a statement you made about margins. Fran, you mentioned sort of getting to the third quarter of last year Wireless EBITDA margin, that was just inside 48%. Is that a point you think you can achieve once again at some quarter during the year or is that actually a full year target for Verizon Wireless? Francis J. Shammo: I mean, as far as -- these are both guidance-type questions so I'm not going to get into the specifics of them. So look, we said we'll be flat at CapEx and let's leave it at that. I'm not going to get to the individual components or quarter-by-quarter. And then on the Wireless margins, I've said that, look, our goal is to get back to our 3Q margin and we'll strive to get there. John N. Doherty: That concludes our call.

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