Telecommunications has transformed from a simple method of voice communication to one of the most important methods that our society uses to connect. In particular the cell phone and its wireless descendants like the Smartphone have come to dominate this realm of technology. One of the companies leading the change in wireless devices and technology is Verizon. The purpose of this report is to analyze the internal and external aspects of Verizon Corporation and propose solutions to maintain their dominance in this industry. The internal analysis will include the history, objectives, value chain analysis, current strategies, market, financial performance, and relevant information regarding the internal factors of the firm. The external analysis will include overview of the industry and the general environment. We will also discuss the issues we found with Verizon Communications and suggest solutions they should consider implementing.
The Bell Atlantic-NYNEX wireless partnership marked the beginnings of Verizon Wireless. “Verizon Wireless” was introduced in April 2000 and on June 30, 2000 Verizon Wireless Incorporated was formed. Verizon’s mission statement reflects on the importance of their customer base and business practices:
As a leader in communications, Verizon’s mission is to enable people and businesses to communicate with each other. They are also committed to providing full and open communication with their customers, employees and investors. Verizon’s value statement keys on their fundamental beliefs, such as putting customers first, integrity, respect, performance excellence, and accountability (verizon.com 2011).
Verizon’s objective is to create the future of communications by ushering in a new era in wire line and wireless broadband connectivity. They are transforming their networks, products and services to provide their customers with the best possible communications experience at home, work or on-the-go. Verizon’s strategic investments have created the nation’s most reliable wireless voice network, delivered a portfolio of innovative mobile products and produced over 43 million loyal customers. They are also transforming their wire line networks to deliver superior broadband services. Because of their commitment to innovation and investment, their customers are better informed, better entertained and better connected to the things that matter most to them. Verizon is transforming their revenue base around the growth markets of the future and positioning themselves to compete for an increasing share of the new markets being created by broadband and wireless technologies.
One of Verizon’s array of strengths is that they are the largest provider of wireless and broadband communication in America. In America, it is available in twenty eight states and has a customer base of 49.3 million. Verizon added value to their human capital with the merger of the companies, thus gaining individuals with invaluable experience. Another strength, is that the company has four business segments; Domestic Wireless, Domestic Telecom, Information Services and International. From these four segments the company generates annual revenues reported to be more than $106 million (finance.yahoo.com). The diversification of technology found at Verizon Communications is also one of its strengths.
Although Verizon has its strengths, they also recognize their weaknesses. As mentioned before, Verizon was formed due to a merger. The two merging companies had different cultures resulting in conflicts of beliefs, norms and philosophies. The dominance of the diverse cultures has resulted in mixed practices being followed in different areas of the company. One of the major weaknesses affecting Verizon is that the company has been in debt for long term. However; Verizon is working on building their profitability to recover from this long-term debt.
To solidify their status as a leader in the industry, Verizon must identify their opportunities and pursue them. Verizon has been serving as a local exchange carrier in many areas, which gives them a strong position in comparison with their competitors. Growing needs for communication has resulted in potential markets for the company to enter, which include local, global, business, government and residential markets. Brand recognition has given Verizon opportunity to launch new services and products in the future, such as the Apple iPhone.
The threats that Verizon faces include the decline in the use of landlines since wireless networks have been on the rise. Landlines demand is considerably being decreased in the 21st Century. Many wireless and wire line services are now being offered by local as well as global companies. The competition is harsh and customers have a wide variety of available substitutes. Due to the economic recession all over the world, customers are cutting down their expenses to reduce their telecommunications services.
In terms of the legal/political segment of the macro-environment, Verizon has to keep watch of laws that relate to cell phone usage within school zones and cell phone driving laws in general. For example, in San Antonio it is now illegal for drivers to use cell phones without hands-free devices in school zones. In addition, there are laws in Texas which prohibit drivers under the age of eighteen from using “wireless communications devices”, they also say that those who hold learners permits are prohibited from using hand-held cell phones in the first six months of driving and that school bus operators are prohibited from using cell phones while driving if children are present (http://handsfreeinfo.com/texas-cell-phone-laws-legislation). Verizon should keep these laws in mind when developing new products; in particular any cell phones that they make should be compatible with hands-free devices in order to keep up with their demand as these types of laws continue to increase across the country and around the world.Verizon must also keep a watchful eye over the recent Middle East protests which have resulted in some of the governments in countries such as Egypt blocking cell phone and Twitter use (http://www.guardian.co.uk/world/blog/2011/jan/26/egypt-protests).
In regards to the technological segment of the macro-environment, new innovations have developed such as the iPhone, iPad and others which blur the line between cell phones and computers. For example, new wireless standards such as 4G LTE will allow consumers to download data at speeds up to 12 mbps (http://news.vzw.com/news/2011/03/pr2011-03-22c.html). In addition, there are developments in hardware technology such as touch-less gesture interface where users are able to control their cell phones by waving their arms or moving their hands, which “could be useful for controlling a cell phone while in a car” (http://reviews.cnet.com/8301-13970_7-20032732-78.html?tag=mncol;posts) . This would be relevant, considering what was stated above in the legal and political segment of the macro-environment.
In terms of the Global segment of the macro-environment, the number of cell phone subscriptions will continue to rise along with demand for mobile access to the Internet, even in developing countries with regards to health care and banking. According to an article from cnet, the International Telecommunication Union (ITU) says that, the number of cell phone subscriptions across the globe will hit 5 billion in 2010 and that the number of broadband subscriptions will surpass 1 billion around the world this year. The organization also predicts that within the next five years, more people will hop onto the Web from laptops and mobile gadgets than from desktop computers (http://reviews.cnet.com/8301-13970_7-10454065-78.html). This is an important issue because it shows that Verizon must be able to meet the coming demand that comes with increasing cell phone usage around the world and that they must also pay attention to the various cultural nuances that exist in the developing countries that they would be catering to as a result.
The demographics of the telecommunication industry have changed over the years, as mobile devices have become an essential element of the American lifestyle. “Nine in ten U.S. adults today use at least one mobile device” (Kats), making it almost impossible to find an American that does not own at least one mobile device. “Adults under age 50 are the most likely to be mobile users with 93% owning a mobile phone today”. The cell phone trend is most definitely apparent with the younger generations, not excluding the older generation. According to the article, over 78% of adults over the age of 60 are now mobile. Mobile devices have begun to appeal to all different ages, so the target market has expanded, but now Verizon must concentrate on what users use them the most and what they use them to do. “Generation Yers (ages 18 to 30) are the most active mobile usersâ€¦” (Anderson). In order to remain one of the top leaders in this industry, Verizon Wireless must make sure they appeal to those who utilize their mobile devices.
In order to ensure that they set their products and services at an appropriate price, Verizon must examine the economic conditions. The state of the current economy is a major factor in this industry, since some do perceive Verizon’s products and services as luxury items and not essential items to everyday living. The current economic state has played a factor in how Verizon prices their products and services. Verizon must continue to examine the unemployment rates and the current recession. According to Experian Simmons, 35 % of mobile phone users pay $100 a month or more for service. Verizon must make certain that they always offer competitive service at a competitive price.
Verizon’s degree of rivalry with the competition is relatively high compared with other industries. Electronic communications, such as email, voice, data, and messaging are growing quickly especially within the cell and Smartphone technology segments. Competitors in the communications industry have made switching costs fairly high with contracts and hardware exclusive devices. For example, in order to switch from Verizon to another network consumers would have to wait for their contract to expire or pay to break it, purchase a new cellular device that works on that network, spend time searching to determine who has the best prices to meet their needs, and negotiate a new contract for that service. Additionally, most people heavily consider how many family and friends they have with a network before making a switch. If a majority of their contacts are with Verizon Wireless, their chances of switching to one of their competitor are much smaller. Another major benefit Verizon has going for them is their brand identity, setting themselves in a class of only a few by becoming differentiators and competing on better customer service and a stronger network. For example, most people comparing a new cell phone carrier will review Verizon’s offerings while few may look at Pocket and Cricket. Finally, exit costs are relatively high for telecommunications as there are a large number of cell tower contracts, trunk lines, and a high inventory of devices with limited shelf life.
At this point in the industry the threat of new entrants is relatively low. While large companies like AT&T and Verizon were simply competing with each other, new carriers such as Pocket and Cricket entered the market and took a low cost leader approach to the service, leading several companies competing for a piece of the pie. With the larger companies competing on strong differentiation strategies and smaller companies taking a cost approach there is not much room for new entrants to snag a foothold. While expected retaliation would be low, access to inputs, ensuring they are meeting governmental policy and controls, economies of scale, high capital requirements, proprietary product lines, and switching costs will make it difficult for aspiring competitors to enter the market successfully.
Verizon has a low threat of substitutes, since their Internet packages and offers make them competitors in email, instant messaging, and Voice Over Internet Protocol (VOiP) the only real substitute to their communication business is snail mail. While switching costs to snail mail would be relatively low it is not a realistic substitute. The necessity of high speed communication, low price-performance trade off, and little buyer inclination to substitute don’t make this a viable alternative.
The buyer power that is used by Verizon Wireless is relatively high due to competition. The way Verizon Wireless is trying to reduce this buyer power is by creating a competitive advantage that will attract more customers thanks to the quality and innovation of their services as well as products and features such as GPS systems offered in cell phones. Verizon Wireless is also improving their customer service and providing a high network quality through new technologies like EV-DO, which improves data transmission rates and creates a competitive advantage in this buyer powered industry.
Verizon Wireless has many suppliers that provide different varieties of wireless telephones and devices such as Smartphones and PDAs’. Main suppliers are Samsung, LG, Blackberry, Motorola, Nokia and Palm. Each one of them offers a distinct range of colors, sizes and innovative technologies, which are geared towards a wide range of targeted users. Therefore, the supplier power is low as the customers have many choices to go with. The suppliers are evaluated on their ability to deliver on five key components: technologies, practices, quality, service and total cost. Using a strategic sourcing process, the election is run on a competitive bid process to find the best compared to the market place. The bid process allows them to find the best proposal, and the best match based on economic value, quality and innovation (Verizon Supplier Diversity).
Verizon Wireless utilizes numerous valuable resources to set itself apart in such a competitive market. One of the resources is strong Research and Development department, a very valuable asset for Verizon Wireless to have. They compete in an industry that demands a very high level of technology. It is essential to have a Research and Development department that can meet the demands of our market. It is rare for a company to have such a superb Research and Development department because it is extremely expensive to imitate a department such as Verizon’s. This in turn, leads to them having a sustained competitive advantage against their competitors. They have witnessed and will continue to witness above average returns with this resource. Another resource that their company embraces is its brand name awareness. Verizon Wireless is the largest mobile telecommunications network and wireless phone provider in the United States. They have a very well known brand name and logo, a resource that is both very valuable and rare, making it impossible for another company to come an imitate them. Americans want to be part of the Verizon Wireless network. Their brand name gives them a sustained advantage, which in return gives them above average returns. Their network coverage is another resource that they take advantage of. They provide their customers with outstanding network coverage. They out number all of their competitors in the amount of cell towers they provide to their customers. It is no secret that Verizon Wireless has far more network coverage than even its number one competitor, AT&T. Their network coverage could easily be their most valuable asset. It is extremely costly for any of their competitors to try and imitate their network coverage and since there is no substitute for this resource, it gives them a sustained competitive advantage. They can definitely expect above average normal returns with this resource.
Verizon Wireless uses a value chain analysis to understand the parts of their operations that create value and those who do not. It is important because they will only earn above average returns if the value it creates is greater than the costs incurred to create that value. A firm’s value chain is segmented into primary and support activities. Some of the primary activities they perform are inbound logistics, customer service, operations, marketing and sales, and after sales service. All of these are monitored in a different way.
First and foremost, they must make certain to have the products that customers demand. They need to have excellent inventory control. They have bar code scanners that keep track of what comes in the stores and what goes out the stores. They make sure that new shipments of products are being shipped to the necessary stores to meet the demand. Next, they use customer surveys and secret shoppers, so they can know exactly what their customers think of the customer service they receive. They receive feedback directly from their customers on what they need to improve upon and what they are satisfied with. Furthermore, they have many operations to handle on a daily basis. Two of their most important operations is billing and collecting. They want to ensure that they are billing all of their customers the correct amount and receiving the correct payments from their customers. They have multiple billing and payment options, including online. They also have the option of online retail to satisfy their customers after store hours. In addition, marketing and sales play a major role in the success of Verizon Wireless. They conduct market research to better understand their customers’ needs and wants, and then they use various pricing strategies, promotions, and advertising to get through to their customers. Verizon can compare their strategies to their competitors by comparing their number of subscribers to their competitor’s, analyzing opportunities and areas for improvement. Additionally, it is imperative that they not only satisfy their customers during sales, but also after sales. They occasionally offer their customers rebates and they must guarantee that the customers receive their promised rebate. Verizon has 24-hour online support that can provide their customers with any assistance they may need. Verizon offers warranties to their customers and with a line repair center at Verizon Wireless locations their customers are able to replace and or repair a device.
Verizon’s support activities provide them with the assistance necessary for the primary activities to take place. Their human resources management is key to their success as a company. They use recruiting, training, incentive system, and employee feedback to attract and retain the best and brightest employees, leading them to have the best people on their team to beat their biggest competitors. In the telecommunications industry technology development is essential for a company to remain competitive. Verizon needs the industry’s smartest people on their research and development team, so they can utilize their research capabilities. They also need to be able to collaborate with different companies to provide their customers with the best products and services.
Verizon uses a global differentiation strategy as its marketing tool to target a specific niche of customers. Their aim is not to target all customs but to target specific groups of individuals by providing high quality service, efficient customer service and improved data transmission rates and its latest push for differentiation is around local programming.
Verizon began trading on the New York Stock Exchange (NYSE) under the VZ symbol on Monday, July 3, 2000. The symbol was selected because it uses the two letters of the Verizon logo that graphically portray speed, while also echoing the genesis of the company name: veritas, which is the Latin word connoting certainty and reliability, and horizon, signifying forward-looking and visionary. Verizon Communications was added to the Dow Jones Industrial Average in 2004. With the addition of MCI, Inc., in 2006, Verizon was a leading provider of advanced communications and information technology solutions to large business and government customers worldwide.
Verizon is a leader in the telecommunications industry. Verizon owns 55% of Verizon Wireless, a joint venture with Vodaphone serving about 94 million customers across the U.S. They serve about 33% of the U.S. local phone population and owns a long-haul network that reaches cities around the globe.
Verizon has launched its iPhone offering and continues to expand its wireless 4G LTE network, posting the best margins of any U.S. carrier by steadily growing its customer base and dominating the industry. Though margins will come under pressure over the near term, adding the iPhone device should be a positive over the long run.
Verizon recently announced their acquisition of Terremark Worldwide, Inc., a global provider of managed IT infrastructure and cloud services. Verizon has already received regulatory approval for the acquisition and plans to keep the Terremark name and run the company as a wholly owned subsidiary under its current management, it is believed this will bolster their business enterprise side and provide synergistic expansion.
As of December 2010, 26% of Verizon Wireless’ retail post-paid customers had a Smartphone. Management expects this percentage to grow to 50% Smartphone penetration in 2011 due to popularity of Android devices and the new iPhone 4. Given that Smartphone users have much higher ARPU (average revenue per user), Verizon is on track to substantially increase revenue over the next several years.
Compared to a 13% rise in the S&P 500, Verizon shares are up 33% over the last year. A strong run-up in the shares has raised valuation metrics, though trailing P/E remains below the peer group average. Verizon’s trailing multiple of 17.2 is above the company’s own five-year average range of 12.0-14.6, below the peer group average of 19.4, but above AT&T’s multiple of 9.1. The price/sales multiple of 1.02 is in the upper half of the range of 0.89-1.07 and the price/EBITDA ratio of 3.5 is above the high end of the range of 2.8-3.3. The segment’s EBITDA service margin of 47% was the best in the industry. Most analysts estimate the 2011 EPS (earnings per share) to be $2.19 with a 2012 forecast of $2.47. The 2011 estimate falls toward the low end of management’s EPS growth forecast of 5%-8% marking a long-term growth rate forecast of 4%.
The credit agencies give Verizon ratings in the low A’s, comfortably within investment grade, with a stable outlook. However, S&P lowered its rating a notch to A- in December, citing its belief that Verizon will be unable to lower its debt quickly enough. The company has been steadily reducing its debt, redeeming $9.2 billion in 2010 and leaving the debt-to-total capital ratio at 57.8%, a drop of 2.3% from end 2009. Management intends to continue this practice in 2011.
Verizon needs to stay atop of the industry with its 4G LTE rollout and other new innovative service to offset the decrease of the traditional access-line business as Telecom companies are highly susceptible to disruptive technological change. Note that wireless, despite its rapid growth, is also a highly competitive sub-industry, and rates on voice services continue to decline.
Verizon’s business lines are highly regulated which could become an important issue given rumblings from the Obama administration. The FCC order on net neutrality for the Internet has already triggered a test suit from Verizon.
Over the past six years, the US market for data revenues has steadily increased and it is predicted to continue to increase. According to Chetan Sharma Consulting, data revenues in 2004 were below $10,000 and for 2011, they are predicted to be about $68,000. That is a enormous amount of growth in revenues in only a couple of years. There are four major carriers that account for this data revenue: Sprint, Verizon, AT&T, and T-Mobile. Verizon Wireless and AT&T both lead with roughly the same amount of revenue. Verizon Wireless’ Average Rate per User is about $19. It is well above the average, which is about $17. As of Quarter 4 2010, there were over 20 million wireless subscriptions. Verizon Wireless and AT&T account for three fourths of those subscriptions. Verizon and AT&T are highly competitive with one another for customers. They almost have the same amount of market share. According to Chetan Sharma Consulting, the carrier market share for 2010 was Verizon leading with 33%, AT&T in a close second with 31%, Sprint with 16%, T-Mobile with 11%, and all others with only 9%. As you can see, AT&T is very closely behind us in market share. Verizon must take action to ensure that they continue to hold the greatest amount of market share in the telecommunication industry. They want to continue to be the leader of their industry.
Verizon focuses on two marketing initiatives, sponsorship and marketing to diverse markets. Sponsorship is a tool that enables Verizon to expand its visibility in their key markets and is a strategic component in their overall marketing mix. It allows them to inform consumers about new products and services in a manner which is acceptable and unobtrusive. It links Verizon’s brand attributes and values with their customers’ values, reinforces their brand positioning efforts and provides a platform to deliver credibility for the brand. They achieve sponsorship in various ways to fit with their marketing brand strategies and general sponsorship guidelines.
Verizon serves approximately 35% of the multicultural market. The diversity is reflected in their marketing efforts and how they communicate with these customers. They speak customers’ languages and participate in the celebration of their lifestyles’ and cultures. To help them understand the needs of these customers, their multicultural marketing team conducts in-depth market research; focus groups and surveys. They also work with agencies that specialize in targeting African-Americans, Asians and Hispanics. So when they reach out to each of these diverse communities, they communicate in their language and focus on relevant topics for each. Verizon’s multicultural marketing team also communicates with our multicultural sales to gather feedback about their services and products. The customers’ feedback gives them first-hand knowledge and even more insight into what their customers want.
Verizon Wireless’ marketing mix currently includes television advertisements, print advertisements, online advertisements, pop-ups, and affiliate programs. They recognize the importance of effective marketing, so they put millions of dollars into their marketing budget every year. The more educated consumers are on their products and services the more likely they will do business with them, increasing the return on their investments with their advertising techniques.
Another current issue facing Verizon Wireless is that on March 20, 2011 AT&T announced a deal to buy T-Mobile USA from Deutsche Telekom in a cash and stock deal worth $39 billion. If the United States government approves the deal, it will make AT&T the nation’s largest wireless carrier by a wide margin. As stated before, AT&T is already one of the top wireless providers with about 31% of the market while T-mobile currently has 11 % of the market share. An acquisition such as this one would make AT&T the leader by far. We will no longer be the industry leader with our 33 %. It will be about twelve more months before we know if the government will accept the deal. Verizon Wireless will face some issues if this deal does make it through legislation, however, history would suggest that Verizon’s market share would actually increase due to the historical churn rate of merging telecommunication companies. Verizon must begin to prepare now on the assumption that the deal does in fact go through.
Verizon wireless has established itself as a leader in the industry in regards to broadband access. In addition with the acquisition of the iPhone, Verizon also has good standing in regards to hardware/software. However one must also recognize that Verizon does not seek to use a cost-strategy and instead uses a differentiation strategy. It is important that Verizon seeks to continue to develop new technologies in the area of hardware and software.
Verizon already does a phenomenal job with their marketing, but we think they can enhance their strategies. We know that television advertisements are amongst some of the most successful strategies. Verizon has previously concentrated mostly on advertising their wireless services through television advertisements, but it is time to advertise more of their other products and services via television advertisements. Their competitors have found great success in advertising their other products in television advertisements. In order to remain a good competitor Verizon must adjust. They must make consumers aware of their other services, they have diversified, but many consumers are unaware of that. Consumers need to be aware that they can have wireless high speed Internet, home phone services, and cable with Verizon as well. For example, a marketing opportunity Verizon can improve is FiOS service, which is not being marketed to USA customers like the other services they offer. Verizon has a great opportunity for advancement, if they market the service of the Nation’s largest 100% fiber optic network with campaigns and commercials to offer an incentive to consumers in the market of cable television. Verizon should advertise the following statements; Benefiting from a fiber optic network that’s faster than fast, FiOS delivers the speediest uploads and downloads around, it’s the fastest Internet in the U.S. High Definition TV; only network that can deliver picture perfection to every last pixel. Allowing less interruptions or weather interference, picture quality is sharper and more reliable in bad weather higher quality TV brought to customers by the nation’s largest 100% fiber optic. Also, Verizon FiOS TV has been rated the # 1 in value, overall quality, and customer loyalty according to the American Customer Satisfaction Index. Over 130 HD channels and access to more than 19,000 On Demand movies and programs each month. (www22.verizon.com/Residential/aboutFiOs/Overview.htm). Verizon should definitely consider this marketing soultion, because if AT&T does in fact acquire T-Mobile, Verizon will no longer have the largest market share in the telecommunications industry and consequently they will have to open up their target markets to a whole new segment. If they concentrate on their other services, this could be the solution to future problems.
One key advantage Verizon has over its competitors is a much stronger 4G experience. According to Christina Bonnington, a Wired correspondent, “Verizon 4G networks leaves other carriers in the dust.” Before looking at the results of data tests she presents what each carrier promises you can expect from each of their respective services. Verizon’s LTE network promises download speeds of 5-12 Mbps, AT&T’s HSPA+ network should provide 6Mbps down, Sprint’s WiMax offers an average of 3-6 Mbps, and T-Mobile’s HSPA+ is supposed to provide 5-10 Mbps. Clearly Verizon is the frontrunner, promising speeds of up to quadruple the rate of the competition. To put this in comparison Road Runner Turbo speed promises up to 10.0 Mbps (http://www.cabledeals.org/internet.html). Of course DSL and bandwidth are still faster, but Verizon (and other networks) are catching up by leaps and bounds.
RootMetrics performed an extensive study across the Seattle area to analyze how each network’s 4G speeds hold up to their claims. Their conclusion was that “Verizon’s LTE network performed at a 100% data-success rateâ€¦ with average data speeds between four and 14.5 times faster than competitors, and average upload speeds between 4.7 and 49.3 times faster.” Interestingly enough RootMetrics’ CEO Paul Griff showed that performance is almost all