Verizon Wireless market leadership and strategic analysis

Verizon Wireless

The following pages focus on analyzing the situation of Verizon Wireless. Verizon is currently the leader on the wireless service providers market. The introductory section will provide a series of information regarding the company's history, activity, and current situation. Also, the company's outstanding financial performance will be presented in this section in order to provide a better and clearer image on the company's current situation.

This section is followed by an external analysis on the wireless industry. This section will provide information on the wireless market's evolution, current situation, and market trends. Also, Verizon's general position on this market will be mentioned.

The following section refers to Verizon's internal analysis. This section will provide a more detailed view on the company's activity and especially on the company's current situation. The most important aspects discussed in this section are the company's strengths, given the fact that the company's success relies on taking advantage on its strong points and adapting them to the opportunities provided by the wireless market. Another important topic discussed in this section refers to the risks that threaten to affect the company's current activity, unless Verizon implements a series of modifications in order to counteract these risks.

The section that refers to strategic options will discuss a series of strategic objectives and actions that are required for reaching these objectives. This section is followed by the implementation section that will focus on discussing the implementation of sales and distribution strategy.

Introduction

Verizon Wireless was established in 2000 and has managed to become the second largest wireless telecommunications network in the United States. The company is a joint venture between Verizon Communications (55%) and Vodafone Group (45%). This situation is likely to change in the future, given Verizon's intention of acquiring Vodafone Group's stock (Wikipedia, 2007). However, the company's history started in 1995, when Bell Atlantic Mobile merged with NYNEX Mobile Communications, forming Bell Atlantic - NYNEX Mobile. Later, in 1999, Vodafone AirTouch merged with Bell Atlantic, forming Verizon Wireless.

The company's activity is related to CDMA technology, Verizon being one of the seven national U.S. carriers. In addition to this, Verizon also supports AMPS network. The annual investment made by Verizon in order to maintain and to nationally expand the CDMA network is supposed to reach the value of $8 billion.

The company's products and services include: phones and accessories, cell phones, PDAs and SmartPhones, BlackBerry devices, push to talk phones, wireless PC cards. Verizon also provides voice services, 3G data services, like: wireless broadband based on EV-DO Rev a, text and picture messaging, over-the-air downloadable applications, content from Get it Now service, video on demand, and location-based services.

The company currently has 63.7 million wireless phone customers, 68,000 employees, 2,300 company operated stores and kiosks, and over 170 switching centers.

Verizon Wireless's financial performance proves the quality of the company's services, and the loyalty that its customers reward the company with. In the third quarter of 2007 Verizon's consolidated revenues increased by a 6% rate. Operating income has also increased by 18.5%. Diluted EPS from continuing operations valued at $0.63 have increased up 14.5%. Cash flow from continuing operations reached $18 billion, reporting a 5% increase. The total number of customers has also increased from 56.7 million in 2006 to 63.7 million at the present. Total service revenue increased up to 15%, retail service ARPU increased up to 2%, total data revenue increased up to 63%, and retail data service ARPU increased up to 43%.

The number of broadband subscribers has also increased with 20%, reaching 8 million. This situation determined a 30% increase in broadband revenue and a 67% growth in broadband and video revenues. The overall enterprise revenue reported a 2.4% growth. Wholesale revenues reported a 3.7% growth. International revenue however, has reported negative evolutions, declining up to 0.5%.

The Operating income margin has increased from 8.8% in 2006 to 9.4% currently. The company's experts have decided that all key growth areas of the business have performed well in this period. Margin expansion has been positively influenced by revenue growth and productivity initiatives. Also, wireline revenues and margin are expected to improve in the future as well (Verizon, 2007).

Verizon's 2006 revenues reached $38 billion. The total number of customers was of 59.1 million. The company has also reported the highest customer loyalty in the industry (Verizon, 2006).

External Analysis

The telecommunications industry has reached a value of $3.5 billion. In the United States, annual revenues account for approximately $1 trillion. Currently, there are over 2.3 billion cellular phone service subscribers worldwide, and over 239 million subscribers in the United States. Experts in this field estimate that the number of subscribers will increase up to 4 billion by the end of 2011 (Plunkett Research, 2007). This sector does not only provide tremendous revenues amounts, but it also involves a lot of workforce. For example, the United States market relies on approximately 1 million employees.

There is a series of factors that influence the direction that this market is following. One of these factors refers to mergers made by giant companies in this market, which are meant to grant more power to these companies. This situation constantly reconfigures the market's traits. Another factor that somehow resides from the previous one is related to competition in this sector that becomes tougher and tougher. Also, recent developments in Internet and wireless technologies contribute to a constant change in customer's preferences and their buying behavior. These changes determine wireless companies to adapt, to make changes of their own, changes that must be in accordance with their customers.

The wireless sector is constantly gaining more ground in spite of traditional telecommunications methods. Among the advantages that helped wireless companies to be more successful one may consider continuous and rapid developments, and lower costs and prices. As a consequence, the number of households and business that use wireless technologies has significantly increased, determining the number of wireless services providers to significantly increase as well, and certain wireless services providers to develop.

Messaging applications that provide leading-edge capabilities and animated messages

However, there are certain risks that might affect the company's activity and that must be taken into consideration. The most important factor regards competition in the wireless services market. Competition on this market is becoming stronger. More wireless companies decide to merge in order to become more powerful, and more new wireless companies are emerging. Therefore, it will be very difficult for Verizon to maintain its leader position on the wireless market.

The company is very aware of the fact that competition is very likely to increase significantly, because of a series of factors, like: consolidation of the industry, entrance of new competitors, new technology developments, and also development of products and services. This situation will empower Verizon's competitors, granting them significant financial, technical, marketing, and other resources.

This situation has forced Verizon to make certain changes in order to adapt to increasing competition and to maintain its leader position on the wireless service providers market. These actions include:

Service prices reductions

Service packaging restructuring so that customers receive more value

Providing special introductory pricing or packages

This situation could lead to revenues decreases, and also margins and average revenues decreases.

Another risk that the company is facing refers to significant cash requirements that the company needs in order to expand and upgrade its network. As mentioned above, the annual amount needed for these operations is of approximately $8 billion. This situation could lead to increasing additional debt.

Another risk of extreme importance is based on a possible failure in developing business opportunities like wireless data services, and that could become an impediment in the company's activity growth.

Also, Verizon relies on a suppliers and vendors network that could not be able to respect their contracts with the company. In such cases, company may become unable to provide services to its customers at normal levels, and the network maintenance and upgrading could be severely compromised.

Strategic Options Analysis

Verizon's main strategic objective resides in the acknowledgement as the market leader in providing wireless voice and data services in the United States. Attaining this objective requires secondary strategic objectives and strategic actions to be taken. The most important strategic options are discussed bellow.

The first step in implementing the company's strategy consists in acquiring, satisfying, and retaining the number of subscribers, on the one hand, and increasing the quality of services, on the other hand. Increasing the number of customers and increasing the amount of their usage of services will lead to increased revenue and cash flow that can be further invested in expanding the company's activity. A specific area of investment is consisted of customer loyalty and retention efforts. The company has already started to implement certain actions in this direction, like:

Introducing the Worry Free Guarantee

Introducing two-year contracts with customers

Announcing a three-year call center improvement plan

Another strategic action refers to increasing the value of the company's services. This plan should lead to retaining existing customers and attract new ones as well. Also, Verizon must establish more specific pricing packages suitable for all customer types.

One of the most important strategic options that the company should exploit refers to continuing the investment in expanding the company's digital network. If the company could develop this project, it will help Verizon to provide the highest quality service to its customers. This could be the action that would establish Verizon as the indisputable leader on the wireless service providers market.

National coverage must also be expanded, even if this would require significant financial, technical, and human resources investment. This could be attained by acquiring more wireless operations and spectrum licenses.

Regarding strategic marketing options, the company should focus on building the Verizon Wireless brand. Verizon's launching campaign was quite an aggressive one that reached its goals in a short period of time, since the company achieved brand awareness of over 90% among wireless users. It is recommended that the company continues to use messages of simplicity and affordability, which will determine the company's customers to associate Verizon with confidence and acceptance. This will lead to increased number of customers, on the one hand, and increased loyalty among the company's existing customers, on the other hand. The company's campaign should be doubled by a campaign promoted by Verizon Communications, which will increase the company's seriousness and will be promoted on other markets also.

However, the company's strategy should include financial objectives also. For example, the company should work on increasing its operating margins and capital efficiency. This situation will generate cost competitiveness. In order to do so, the company must reduce certain costs regarding network and equipment, and it must also reduce other costs by:

Reducing network and equipment costs

Reducing subscriber acquisition costs

Another strategic action is based on expanding Verizon's wireless data and messaging offers. The company already enjoys considerable success on this segment. Therefore it is recommended that the company follows this direction and expands its range of products and services by introducing value-added digital wireless data applications.

Also, consolidation and streamlining operations could be used in order to accomplish economies of scale and scope. One way of accomplishing this objective is by reducing handset and network equipment costs, by consolidating customer call center operations, by reducing roaming costs, and by consolidating staff functions. The company has already started to work in this direction by reducing the number of network operations control centers.

However, given the fact that the company's activity is also based on sales, another marketing objective refers to establishing a stronger sales and distribution strategy. The implementation of such a strategy, if successful, will lead to reducing the waiting time for customers, and reducing distribution costs.

Implementation

This section will focus on discussing the implementation of Verizon's sales and distribution strategy. The company's current strategy relies on using a combination of distribution channels like direct, indirect, and resale. The purpose of this strategy is to increase the number of customers, on the one hand, and to reduce customer acquisition costs, on the other hand. The distribution channels currently used by Verizon are:

Direct sales

Business to business

Telemarketing

Web-based

Extranets

Indirect retailers and agents

These distribution channels are very suitable for the company's object of activity, company type, and customer preferences. However, in order to reach the growth objectives that the company has set for the following period of time, it is recommended to develop the management of these distribution channels.

For example, the company should focus on expanding direct sales. This objective can be achieved by increasing the number of the stores owned by the company, by increasing telemarketing activity, and by increasing web based activity also. These actions should be doubled by developing indirect distribution channels. Development of indirect distribution channels will determine the development of the distribution system, which will eventually lead to increasing the number of customers and national coverage. This factor already represents one of Verizon's strong points, and, if developed, it could generate significant competitive advantage for the company.

However, such actions will require tremendous amounts of financial, technical, and human resources. The company should focus in training its employees, since the most valuable resources that any company could have is represented by human resources. The company's success relies on how well its employees manage to do their tasks. Therefore, it is recommended that the company invests more in its human resources. Although costs will not be reduced, the effects will be priceless. However, these actions will only produce their effects on medium term and long-term. The company's indirect retailers could also benefit from training provided by the company, since this will be in favor of both the company and the indirect retailers.

The company's distribution strategy's center point is represented by company-owned stores. As for any company, these stores require low maintenance costs, but bring high profits. This is one of the reasons for which company-owned stores are Verizon's favorite distribution channel. Another reason for this is the fact that customers that go to company-owned stores are more loyal are more serious, which is exactly what Verizon expects from its clients. The company's current stores sell wireless handsets and accessories, wireless service paging, and narrowband PCS service. The company currently owns 1,180 stores, kiosks and carts. These stores and their personnel are able to create customer satisfaction and to increase customer loyalty. Therefore, it is recommended that Verizon opens at least 300 more such stores.

Regarding business to business distribution, the company currently operates with two important business to business sales forces. This means over 2,000 employees. One of the two forces operates with the small to medium businesses. Their number is continuously increasing. The main target is represented by regional and local businesses that operate in industries with less than 100 wireless users. Given the fact that these small to medium companies' number is continuously increasing, it is recommended that Verizon also increases the number of employees working with this segment, in order to be able to expand the company's activity, as number of customers, on the one hand, and as national coverage, on the other hand.

The other sales force operates with large and national businesses. In the following period of time, Verizon can expand corporate relationships due to the company's extensive wireless coverage. These large companies benefit from competitive price plans, specialized account management, and customer service provided by Verizon. The company also provides enhanced features specific to large corporations. This increased interest from Verizon proves that the company puts the quality of service and customer satisfaction first, which creates a very good impression to the company's customers, creating customer loyalty. Therefore, it is recommended that the company continues to follow this direction and even more, to expand the range of special services provided to large and national companies.

In case of large global companies, Verizon has combined its efforts with Vodafone's. Verizon operates the United States market, while Vodafone operates on the European and Asian markets. However, it is recommended that Verizon expands its geographical coverage, addressing markets like Europe and Asia that present tremendous potential that has not yet been exploited. The company's possible activity in Europe and Asia could be facilitated by Vodafone's presence on these markets, since this company is one of the leading and most reliable companies on these markets.

Another important distribution channel that the company should continue to develop is telemarketing. Verizon's telemarketing sales force relies on approximately 500 employees. The company should take advantage of the fact that it is one of the promoters of telemarketing distribution channel for wireless services. This distribution channel should be expanded due to a series of reasons, like:

Telemarketing is very convenient for the company's customers

Telemarketing is a low-cost channel that could help the company make significant cost savings, which can be invested in other areas

This distribution channel is expected to develop in the future period of time, which means that the timing is perfect for Verizon to expand this system

He company's web site hosts a web-based sales channel that presents similar advantages as the telemarketing distribution channel discussed above. The company's products are open for purchasing here. Given the fact that this channel is very suitable for the company's customers and that it requires low maintenance costs, it is recommended that the company expands this web-based distribution channel also. The expansion of this distribution channel requires minimum costs, but it provides maximal benefits.

Verizon has also developed a series of extranets for large corporations. However, there are very few customers using this distribution channel. Its benefits should be presented to potential customers. The benefits from attracting large corporations as customers using this distribution channel could be very strong, given the size of these companies.

Regarding indirect sales, Verizon currently relies on 25,000 retailers. It is recommended that these retailers are trained by the company in order to provide the best customer assistance possible. However, it is not recommended to increase the number of indirect retailers. If their number is increased, the company's degree of dependence on these retailers could increase, and the company could lose its negotiation power in certain cases.

Reference List

Verizon Wireless (2007). Wikipedia, the free encyclopedia. Retrieved November 30, 2007 at http://en.wikipedia.org/wiki/Verizon_Wireless.

3rd Quarter 2007. Earnings Conference Call (2007). Verizon Wireless. Retrieved December 1, 2007 at http://news.vzw.com/investor/events/2007/event_2007-10-29.html.

Annual Report (2006). Verizon Wireless. Retrieved December 1, 2007 at http://investor.verizon.com/financial/quarterly/index.aspx#link.

Telecommunications trends (2007). Plunkett Research. Retrieved December 1, 2007 at http://www.plunkettresearch.com/Industries/Telecommunications/Telecommunicationstrends/tabid/95/Default.aspx.

Verizon Wireless (2001). U.S. Securities and Exchange Commission. Retrieved December 1, 2007 at http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001120994&owner=include&count=40.