Management’s Discussion and Analysis of Financial Condition and Results of Operations continued 2018 Connection Trends In our Wireless segment, we expect to continue to attract and maintain the loyalty of high-quality retail postpaid customers, capitalizing on demand for data services and bringing our customers new ways of using wireless services in their daily lives. We expect that future connection growth will be driven by smartphones, tablets and other connected devices such as wearables. We believe the overall customer experience of matching the unlimited plan with our high- quality network continues to attract and retain higher value retail postpaid connections, contributes to continued increases in the penetration of data services and helps us remain competitive with other wireless carriers. We expect to manage churn by providing a consistent, reliable experience on our wireless network and focusing on improving the customer experience through simplified pricing and better execution in our distribution channels. In our Wireline segment, we have experienced continuing access line losses as customers have disconnected both primary and secondary lines and switched to alternative technologies such as wireless, VoIP and cable for voice and data services. We expect to continue to experience access line losses as customers continue to switch to alternate technologies. We expect to continue to grow our Fios Internet connections as we seek to increase our penetration rates within our Fios service areas. In Fios video, the business continues to face ongoing pressure as observed throughout the linear television market. We expect to expand our existing business through initiatives such as One Fiber, our multi-use fiber deployment. 2018 Operating Revenue Trends In our Wireless segment, we expect to see a continuation of the service revenue trends that started in 2017 as the migration to unsubsidized pricing is largely behind us and as we gain momentum in new account formation driven by the introduction of new pricing structures in 2016 and 2017 and the use of promotions. Equipment revenues are largely dependent on wireless device sales volumes, the mix of devices, promotions and upgrade cycles, which are subject to device lifecycles, iconic device launches and competition within the wireless industry. In our Wireline segment, we expect segment revenue growth driven primarily by revenue growth in Consumer Markets, offset by revenue declines in Partner Solutions. We expect Consumer Markets revenue growth to be driven by growth in our Fios broadband subscriber base, offset by continuing declines related to retail voice and legacy broadband connection losses. We expect a continued decline in core revenues for our Business Markets, Enterprise Solutions and Partner Solutions customer offerings however, we expect revenue growth from advanced business and fiber-based services, including the expansion of our fiber footprint, to partially, and in some cases fully, mitigate these declines for the customer groups. Due to the implementation of Accounting Standard Codification (ASC) Topic 606 on January 1, 2018, we estimate the overall impact from the opening balance sheet adjustment and ongoing impact from new contracts to result in an insignificant change to consolidated revenue for the full year 2018, based on currently available information, as the expected increase to wireless equipment revenue will be offset by an expected decrease to wireless service revenue. We expect initiatives to develop platforms, content and applications in the media and IoT space will have a long- term positive impact on revenues, drive usage on our network and monetize our investments. 2018 Operating Expense and Cash Flow from Operations Trends We expect our consolidated operating income margin and adjusted consolidated EBITDA margin to remain strong as we continue to undertake initiatives to reduce our overall cost structure by improving productivity and gaining efficiency in our operations throughout the business in 2018 and beyond. We have deployed a zero-based budgeting initiative to take $10 billion of cumulative cash outflows out of the business over the next four years. As part of this initiative, we will focus on both operating expenses and capital expenditures. Every area of the business will be examined with significant areas of focus being network costs, distribution and customer care. Expenses related to newly acquired businesses are expected to apply offsetting pressure to our margins. Due to the implementation of ASC Topic 606, we estimate the overall impact from the opening balance sheet adjustment and ongoing impact from new contracts to result in a net decrease, ranging from $0.9 billion to $1.2 billion, to operating expenses primarily related to wireless and wireline commission expenses for the full year 2018, based on currently available information. We expect that the Tax Cuts and Jobs Act will have a positive impact to Verizon’s cash flow from operations in 2018 of approximately $3.5 billion to $4.0 billion. We create value for our shareowners by investing the cash flows generated by our business in opportunities and transactions that support continued profitable growth, thereby increasing customer satisfaction and usage of our products and services. In addition, we have used our cash flows to maintain and grow our dividend payout to shareowners. Verizon’s Board of Directors increased the Company’s quarterly dividend by 2.2% during 2017, making this the eleventh consecutive year in which we have raised our dividend. 28
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