Management’s Discussion and Analysis of Financial Condition and Results of Operations continued Impact of Tax Reform During the fourth quarter of 2017, we recorded a one-time corporate tax reduction of approximately $16.8 billion in Benefit (provision) for income taxes on our consolidated statement of income for the year ended December 31, 2017. Operating Environment and Trends The industries that we operate in are highly competitive, which we expect to continue particularly as traditional, non- traditional and emerging service providers seek increased market share. We believe that our high-quality customer base and networks differentiate us from our competitors and give us the ability to plan and manage through changing economic and competitive conditions. We remain focused on executing on the fundamentals of the business: maintaining a high-quality customer base, delivering strong financial and operating results and generating strong free cash flows. We will continue to invest for growth, which we believe is the key to creating value for our shareowners. We are investing in innovative technologies, such as 5G and high-speed fiber, as well as the platforms that will position us to capture incremental profitable growth in new areas, like media and telematics, to position ourselves at the center of growth trends of the future. The U.S. wireless market has achieved a high penetration of smartphones which reduces the opportunity for new phone connection growth for the industry. We expect future revenue growth in the industry to be driven by monetization of usage through new ecosystems, and penetration increases in other connected devices including tablets and IoT devices. Current and potential competitors in the U.S. wireless market include other national wireless service providers, various regional wireless service providers, wireless resellers, cable companies, as well as other communications and technology companies providing wireless products and services. Service and equipment pricing continues to play an important role in the wireless competitive landscape. We compete in this area by offering our customers services and devices that we believe they will regard as the best available value for the price. As the demand for wireless data services continues to grow, we and many other wireless service providers offer service plans at competitive prices that include unlimited data usage (subject to certain restrictions). We and other wireless service providers also offer service plans that provide a specific amount of data access in varying megabyte or gigabyte sizes and, in some cases, the ability to carry over unused data allowances. These service offerings will vary from time to time as part of promotional offers or in response to the competitive environment. Many wireless service providers, as well as equipment manufacturers, offer payment options, such as device payment plans, which provide customers with the ability to pay for their device over a period of time, and device leasing arrangements. Historically, wireless service providers offered customers wireless plans whereby, in exchange for the customer entering into a fixed-term service agreement, the wireless service providers significantly, and in some cases fully, subsidized the customer’s device purchase. We and many other wireless providers have limited or discontinued this form of device subsidy. As a result, we have experienced significant growth in the percentage of activations on device payment plans and the number of customers on plans with unsubsidized service pricing however, the migration is approaching steady state. We expect future service revenue growth opportunities to arise from increased access revenue and also new account formation. Future service revenue growth opportunities will be dependent on expanding the penetration of our services and increasing the number of ways that our customers can connect with our network and services and the development of new ecosystems. Current and potential competitors to our Wireline businesses include cable companies, wireless service providers, domestic and foreign telecommunications providers, satellite television companies, Internet service providers, over the top providers and other companies that offer network services and managed enterprise solutions. In addition, companies with a global presence increasingly compete with our Wireline businesses. A relatively small number of telecommunications and integrated service providers with global operations serve customers in the global enterprise and, to a lesser extent, the global wholesale markets. We compete with these full or near-full service providers for large contracts to provide integrated services to global enterprises. Many of these companies have strong market presence, brand recognition, and existing customer relationships, all of which contribute to intensifying competition that may affect our future revenue growth. Despite this challenging environment, we expect that we will be able to grow key aspects of our Wireline segment by providing network reliability, offering consumers product bundles that include broadband Internet access, digital television and local and long distance voice services, offering business and government customers more robust IP products and services, and accelerating our IoT strategies. We will also continue to focus on cost efficiencies to attempt to offset adverse impacts from unfavorable economic conditions and competitive pressures. 2017 Annual Report | Verizon Communications Inc. and Subsidiaries 27
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