Verizon SWOT Analysis Verizon Communications

Verizon SWOT Analysis

Verizon Communications (NYSE: VZ) is one of the world's leading providers of wireless and wireline-based communication services including broadband, data, network access and global internet protocol (IP) Services. In their latest full fiscal year the company reported revenues of $110, 875 million with an operating profit of $12,880 million during FY2011 (Verizon Investor Relations, 2012). At present the company has 192,000 employees and operates in 150 nations both in a franchised and direct selling model (Verizon Investor Relations, 2012). The strengths, weaknesses, opportunities and threats (SWOT) of Verizon are the basis of this analysis.

Strengths

Verizon continues to have a commanding market presence globally with one of the most profitable brands in the telecommunications industry (Brown, 2010). The strength of their brand has given the company the ability to manage customer churn more effectively than competitors, reducing the relative churn rate of customers by 56% over the last three years while competitors have seen churn rates increase by over 67% (Verizon Investor Relations, 2012). The combination of the Verizon brand stability and customer loyalty has given the company a unique level of stability in a very turbulent global telecommunications market (Zoakos, 2002).

Another significant strength of Verizon is their ability to orchestrate and complete alliances, mergers and questions quickly. They have also been one of the few telecommunications companies to pioneer the development of effective shared-risk mergers that drastically reduce the downside risk of being an industry consolidator, a role they continue to take on globally (Peaks, Arbogast, O'Keefe, 2009). The well orchestrated acquisition of Alltel by at&T that Verizon played a central role in is a case in point (Seidenberg, 2002).

Verizon also is moving aggressively into new markets including cloud computing using their core strengths in mergers and acquisitions. An example of this strength is the company's recent $1.4B acquisition of Terremark (Ya, 2011). Verizon continues to aggressively and successfully pursue an inorganic growth strategy by concentrating on mergers and acquisitions to bring greater cloud-based innovations to their customers (Gorski, 2005). Verizon continues to also seek out opportunities to define advanced e-commerce encryption standards globally, looking to become the global e-commerce platform at the infrastructure level for enterprises (Everett, 2012).

Weaknesses

In evaluating the financial structure of Verizon, it's clear they are heavily reliant on long-term debt to finance their current operations and continued growth plans. The costs of capital for Verizon are inordinately high given this era of low interest rates, and this can be attributed to their continued focus on buying into new markets and financing infrastructure across short, high risk timeframes (Verizon Investor Relations, 2012). Verizon likes to grow fast and bets against the interest rate structures of markets that they can expand faster and attain profitability more effectively than per businesses -- seeing innovation as the catalyst of this growth (Seidenberg, 2002). Capital structure is a clear weakness of the company.

Another weakness is the continued labor problems the company has faced in the past and is going through today as evidenced by their current labor class action lawsuits (Verizon Investor Relations, 2012). This is a strategic weakness as competitors continue to use these lawsuits to portray the company as insensitive to minorities, prone to practice racism and exclusivity in hiring practices (Zoakos, 2002).

Verizon is continually challenged with the growing base of environmental laws and regulations which are also changing the strategies the companies rely on for achieving sustainability. Verizon has gone for years without a specific sustainability plan in place, and has been fined in the more stringent countries who expect higher levels of environmental compliance on their part (Brown, 2010). This weakness if not addressed could cost the company access to foreign nations whose green or sustainability initiatives are decades ahead of the United States (Verizon Investor Relations, 2012).

Opportunities

The most significant opportunity for Verizon today is the exponential growth of the cloud computing market globally, and their highly profitable enterprise customer base. The majority of Verizon's recurring revenue and lowest cost base of customers to serve are in its enterprise base (Verizon Investor Relations, 2012). The inclusion of a cloud computing series of services obtained from Terramark could propel the company well beyond the $115B revenue pace in their strategic plans through 2015 (Ya, 2011).

What makes the cloud computing initiatives in the company so transformational is the opportunity to unify the entire customer experience in the consumer, enterprise and mid-size and small business packaging and experiences on a common platform (Verizon Investor Relations, 2012). Today Verizon customers are all running on multiple service platforms depending on their mix of services; with a cloud-based platform there will be consolidation of back-end services and a more cost-effective delivery of services (Verizon Investor Relations, 2012). This has significant revenue and cost reduction opportunities for Verizon over the long-term and could significantly change the capital structure of the business.

Another significant opportunity for Verizon is the rapidly growing machine-to-machine (M2M) market that shows significant potential in several of the core vertical markets the company competes in (Verizon Investor Relations, 2012). In June of this year Verizon reached an agreement to purchase Hughes Telematics for $612M which gives the company a solid base of automotive and fleet telematic technologies, services and most importantly, software. These M2M technologies will give Verizon the ability to create route optimization services and advanced planning and replenishment services for those customers who have complex supply chains (Verizon Investor Relations, 2012). These technologies are integral to the performance of FedEx, United Parcel Service (UPS) and other freight-based companies, and Verizon hopes to also become the technology platform of choice for comparable enterprise customers (Verizon Investor Relations, 2012).

Their core base of customers continue to rely on the consumer wireline business, and have proven to be among the most loyal of customers globally as cited by their senior management (Seidenberg, 2002). The potential to upsell and cross-sell long-standing customers in their base has long appealed to the company yet only recently with the inclusion of cloud technologies has the company had the opportunity to move with speed on new innovations (Verizon Investor Relations, 2012). These cloud technologies are also what's behind the continued rapid growth of their television, internet and phone services to consumers. This triple-bundling strategy has significantly reduced customer churn, by over 70% in the latest fiscal financial period (Verizon Investor Relations, 2012).