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strategic analysis
white paper
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CONTENTS
BACKGROUND _______________________________________________ 3
History ________________________________________________________ 3
Introduction ____________________________________________________ 3
STRATEGIC QUESTION _________________________________________ 3
RECOMMENDED STRATEGY _____________________________________ 4
SITUATIONAL ANALYSIS _______________________________________ 4
EXTERNAL ________________________________________________________ 4
Macro Factors ___________________________________________________ 4
Competitive Analysis ______________________________________________ 5
Competitor Analysis _______________________________________________ 7
INTERNAL ________________________________________________________ 7
Culture ________________________________________________________ 7
Financial ______________________________________________________ 8
SWOT ANALYSIS MODELS_______________________________________ 9
STRATEGIC RECOMMENDATIONS _________________________________ 9
Managerial and Internal Implications __________________________________ 9
Value Chain ____________________________________________________ 10
Stakeholder Impact ______________________________________________ 10
Ethical Implications ______________________________________________ 10
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We are united in our belief that better matters

-Lowell McAdam, CEO Verizon Communications, Inc.

BACKGROUND
History
In September 1999, Telecom giants Bell Atlantic and GTE Corp strategically
combined assets in order to form a wireless operation. This new brand, Verizon
Wireless, was named after a combination of the Latin word veritas, meaning
consistent and reliable, and horizon, denoting a progressive future. They began
operations on April 4th, 2000 after a six-month period of awaiting legal approval. They
were traded on the NYSE on July 3rd of that same year under the symbol (VZ).
The company is technically of 21st century origin, yet the mergers and
acquisitions that make up the companys foundation lead back to the invention of the
telephone in the 1849. Historically, governmental oversight has set the pace for most
development within the telecommunications industry. The formation of Verizon was a
direct result of the Telecom Act passed in February of 1966, as it created competition
with its focus on business enhancing policies. The mergers that ultimately created the
company were among the largest in the history of the United States.1

Introduction
Verizon Communications became a part of the Dow Jones Industrial Average in
2004, as they connected over a hundred million consumers to their service per day.
Currently, they have 160.9 thousand employees and are ranked 13th out of the Fortune
500 companies. As of 2016, Verizon had an annual revenue of 126 Billion and paid out
9.3 Billion in dividends from their 4.077 Billion shares outstanding.2 They run the most
reliable wireless network in the country, as 70% of their total revenue stream comes
from wireless operations. Verizons 4G LTE capabilities cover 310 million users across
the Unites States.3 The overall focus of the company has evolved towards technology, as
employees are described as problem solvers, engineers, technologists, and
innovators.4 They operate to link millions of consumers, communities, and businesses
to the digital world via their award winning services.

STRATEGIC QUESTION

How can Verizon make a turnaround from their recent net loss of subscribers and
become more profitable?

1 "History and Timeline". 2016. Verizon.Com. Accessed April 26 2017.

http://www.verizon.com/about/our-company/history-and-timeline.
2 "Who We Are". 2016. Verizon.Com. Accessed April 26 2017. http://www.verizon.com/about/our-

company/who-we-are.
3 "History and Timeline". 2016. Verizon.Com. Accessed April 26 2017.

http://www.verizon.com/about/our-company/history-and-timeline.
4 "Who We Are". 2016. Verizon.Com. Accessed April 26 2017. http://www.verizon.com/about/our-

company/who-we-are.
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Competition within the wireless industry has created a current price war, where
the consumers are greatly benefiting at the cost of Verizons revenue stream. During a
game of carrier catch-up, Verizon chose to cut prices and re-instill their unlimited
packages in order to stay competitive, now they no longer see sufficient revenue from
data overages. T-Mobile did this as a preemptive move before Verizon, and it is part of
why they are currently chipping away from Verizons subscriber base.5

RECOMMENDED STRATEGY

Verizon needs to focus on leveraging their current strengths and then moving
towards think about diversifying into the content creation arena. This being true, the
acquisitions of Charter Communications (CHTR) and Twitter Inc. (TWR) will provide
the subscriber base, advertising, and digital needs to their company. In addition,
Verizon should take specific steps to concentrate on
their own growth, such as: offer prepaid bundles on
top of their monthly plans, changing minimum base
speeds from 2G to 3G, and capitalizing on being the
first to release 5G network speeds.

These strategic suggestions will be further validated

in the section titled Strategic Recommendations.

SITUATIONAL ANALYSIS

External

Macro Factors
Economically, the industry has the potential to
grow as a result of increased levels of service through
upgrades in speed and connectivity. According to
Bloomberg, the industry is expected to grow by an
underwhelming 1.2% per year over the next five
years, and there is a likely growth of 4% in the
broadcasting of advertisements.6 As far as the
cultural environment, Verizon should be aware that
the consumption of content through the use of
mobile devices is preferred over in-home
applications. The penetration rates for smartphones
has increased by 10% each year, surpassing the point
of saturation. This can be confirmed by the fact that
there was an 8% increase in the use of cellular

5Jamerson, Ryan. 2017. "Verizon Customers Defect As Competition Ramps Up". WSJ. Accessed April 25
2017. https://www.wsj.com/articles/verizon-for-first-time-loses-core-wireless-customers-1492691308.

6 Bloomberg: BI Cable & Satellite Industry Outlook

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network connection over Wi-Fi from 2015 to 2016.7 5G network speeds will be
demanded and in full operation around 2020; however, these upgrades will be relatively
costly to achieve for industry players. There is
room for improvement for telecom companies to
enhance their customer service attitudes, as they
are among the worst of every industry.8 Advertising
in the sector will be reformed considering
television subscriptions are predicted to decline.
Marketers will need to capitalize on the current 181
million users of mobile streaming services and
focus less on traditional television placements.9
Mergers and acquisitions that promote vertical
integration are commonplace in the industry, and
will only become more prevalent as Federal
Communications Commission regulations are
predicted to relax with the new chairman, Ajit
Pai. The rate of cable and fixed telephone subscriptions is declining as the mobile
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industry increases. The savings from the industry standard bundled packages are the
only reason that most subscribers to cable and wireline still use the services.

Key Planning Assumption: A 17% rise in the daily usage of the internet and a similar
degree of decline in the amount of cable subscribers proves that an emphasis on
mobile, streamed content is necessary.11 A telecommunications company that fails
to develop premium speeds and update their technology to offer a full range of
servicesbeing wireless, wireline, cable, and internetwill no longer succeed past
2017.

Competitive Analysis
Growth within the industry is at a stagnant stage, lagging behind the 2.2%
expected yearly increase in GDP.12 The industry is consolidating during this late
maturity phase and key players are able to generate profits by increasing their premium
prices to make up from declining subscribers. The industry is structured as a tight
oligopoly as a few top firms dominate telecommunications. This also holds true for the
7 2016 Global Mobile Consumer Survey: US Edition. Deloitte.
https://www2.deloitte.com/content/dam/Deloitte/us/Documents/technology-media-
telecommunications/us-global-mobile-consumer-survey-2016-executive-summary.pdf.
8 Deloitte US. "2017 Telecommunications Industry Trends | Deloitte US". 2017. Deloitte United States.

Accessed February 4 2017. https://www2.deloitte.com/us/en/pages/technology-media-and-

telecommunications/articles/media-and-entertainment-industry-outlook-trends.html
9 Ibid
10 Kauffman, Gretel. "Trump's FCC begins to roll back Obama-era internet data regulations." The

Christian Science Monitor. February 06, 2017. Accessed April 19, 2017.
http://www.csmonitor.com/USA/2017/0206/Trump-s-FCC-begins-to-roll-back-Obama-era-internet-
data-regulations.
11 PRC."Internet/Broadband Fact Sheet." Pew Research Center: Internet, Science & Tech. January 12,

2017. Accessed March 29, 2017. http://www.pewinternet.org/fact-sheet/internet-broadband/.

12 Petrillo, Nick. "IBISWorld Industry Report 51711a Cable Providers in the US." IBIS World 43, no. 08

(October 2016). October 2016. Accessed February 16, 2017. doi:10.5860/choice.43-4410

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wireless carriers sector, as Verizon, AT&T, T-Mobile, and Sprint have respective market
shares of 35%, 32%, 17%, and 14%.13 This creates an environment of price based
competition where all players offer similar services. The differentiation comes from the
amount of integration with the Media and Entertainment industry and the extent and
strength of their marketing efforts.14
The buyers in the telecom industry have notably high bargaining power in
relation to wireless services. Consumers could theoretically change service providers,
keep their phone hardware and number, and save money all while not losing a minute of
service in the process.15 Verizons expansive scale as a company renders the bargaining
power of supplies to be quite low. There are a multitude of suppliers that could be called
upon, and most would value having Verizon as a customer, allowing them to bargain
with suppliers. Threats of new entrants are virtually nonexistent at this point, as
building a wireless provider would include surpassing government limitations,
maximum capital requirements, and creating a reliable brand reputation to compete
with Verizon and other players. For Verizon, the most relevant of Porters Forces would
be the looming threat of
substitutes. Incumbents
all offer similar services
while directly devising
plans for consumers to
witch seamlessly from
their competitors care.16
This makes the overall
competitive environment
quite high as players are
using each other as
benchmarks in order to
make their next
operational moves.

Key Planning
Assumption: Verizon is still the largest wireless service provider in the U.S., but
competitors are making ground as a result of the mature conditions of the industry.
Verizon must capitalize on their current position while looking to innovate into
areas untouched by competitors in order to maintain the status of market leader.

13 2016 Section, Market. 2017. "US Wireless Carrier Market Share 2016 | Statista". Statista. Accessed April
25 2017. https://www.statista.com/statistics/199359/market-share-of-wireless-carriers-in-the-us-by-
subscriptions/.
14 Bloomberg Terminal <BI> <Credit>
15 DePersio, Greg. 2016. "Analyzing Porter's Five Forces On Verizon (VZ)". Investopedia. Accessed April

25 2017. http://www.investopedia.com/articles/markets/012616/analyzing-porters-five-forces-verizon-
vz.asp.

16 Ibid
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Competitor Analysis
Breaking down Verizons competition would include two sectors of the
telecommunications industryfirst, distributors as a whole, then wireless providers.
The strategic group for distributors includes giants Comcast, AT&T, and Verizon, while
the wireless service providers group includes Verizon, T-Mobile, Sprint, and AT&T.
Verizons advantage compared to their competition stems from their core belief that
they are two years ahead of the curve, meaning they are the tech leader of the industry
and will be the first to release 5G speeds to the market.17 They have established 114
million customer relationships in addition to being deeply established in all areas of
operation. Among both strategic groups, there is pressure for both industries to
consolidate and offer a wall to wall variety of services with content integration. AT&T
acquired DirecTV and now enjoys a composite 25 million video subscribers compared to
Verizons 4.7 million. Verizon lacks this base and therefore lacks leverage with content
providers for deals. They have invested in the digital advertising area over the past five
years, as they are currently exploring the option of a Yahoo acquisition in order to
further arrange marketing efforts.18 Verizon is positioned as the higher cost wireless
service with the most up to date features. It is generally accepted that carriers cover less
area and have worse customer service ratings. Verizons lowest, 2G plan begins at $35
each month, and their highest, offering only the best services, is $110 a month with
unlimited data capability.19 Verizon is now ranked among the best for consumers in
eliminating problems per device by J.D. Power, which puts their customer service above
all members of each strategic group.20

Internal

Culture
Americas #1 Network, #1 Internet for Business, Highest Customer Satisfaction
for an Enterprise, Fastest Mobile Network, and #1 out of 50 EEO are all among awards
that reflect the beliefs and vision of Verizon Communications. Visionary CEO Lowell
McAdam has led Verizon to a network of 99% wireless coverage and 100% broadband
coverage within the United States. They now stream over 150 Million hours of content
every month and host four thousand developers as a part of their internet of things
integration. As a part of McAdams term, Verizon took full ownership of their wireless
division by acquiring Vodafones 45% stake and further pushing the company into a
position for focused growth.21

17 Lawson, Stephen. 2017. "Verizon Plans 5G Trial Service In 11 Cities This Year". Pcworld. Accessed April
1 2017. http://www.pcworld.com/article/3173157/internet/verizon-plans-5g-trial-service-in-11-cities-
this-year.html.
18 Ibid
19 "Verizon's New Plans Raise Prices For More Data". 2017. USA TODAY. Accessed April 25 2017.

https://www.usatoday.com/story/tech/2016/07/06/amid-growing-competition-verizon-revamps-data-
plans/86755334/.
20 "J.D. Power 2017 U.S. Wireless Network Quality Performance Study". 2017. J.D. Power. Accessed April

25 2017. http://www.jdpower.com/press-releases/jd-power-2017-us-wireless-network-quality-
performance-study.
21 "Our Company". 2016. Verizon.Com. Accessed April 26 2017. http://www.verizon.com/about/our-

company.
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Key Planning Assumption: Having the industry standard when it comes to coverage,
every move that Verizon makes is carefully followed by their competitors. They need
to find an additional way to make up for their lack of video subscribers and limit
their turnover rate of customers.

Financial

Current Debt to Net Quick Operating

Verizon Ratio22 23 Ratio Margin
Ratio Equity Income
0.87 449.79 10.42 0.67 21.48
2016
0.79 60.85 .76 0.60 11.36
2012
Strategic Group .80 218.4 9.72 .55 19.10
Average [2016]
Strategic Group 0.90 65.59 5.46 .74 13.67
Average [2012]

Key Planning Assumption: Takeaways from these financial indicators generally show
Verizon being among the top performers in each category, surpassing the 2016 averages.
Their current ratio of 0.87 leads the strategic group and shows that they are in position for
the short term portions for their next strategy. Verizon has the highest debt to equity ratio in
the group, signaling a significant amount of debt issued for their acquisitions. As a company,
Verizon has high liquidity and are able to cover their liabilities if necessary. Net income is
the focus, as it is down 4.3 Billion since Q1 in 2016. This is a direct reflection of the loss of
subscribers experienced as competition and the demand for streaming has elevated, and it
will set the pace for future decisions.

22 Verizon Form 10-K 2016

23 Bloomberg Terminal Run HDSK<GO> Reference H#778195997
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SWOT ANALYSIS MODELS

General Orientation Attractiveness Investment

Growth (Strength & Cash Flow Directed Expand Base of

Opportunity) Towards Opportunities Operations (External
Development, Strength)

Aggressive Related Diversification Vertical Integration

Diversification Horizontal Integration
Joint Ventures Related Diversification
Vertical Integration Joint Venture
Horizontal Integration Strategic Alliance
Concentrated
Growth

Due to their leading position within the wireless sector and top tier distribution
position, Verizon will be able to execute an aggressive set of strategies, having the shift
to streaming services in mind. The wake of 5G plans will give Verizon a burst of growth
in a struggling market. This strategy should be geared towards directing cash flows to
new opportunities and expanding wireline and video operations.

STRATEGIC RECOMMENDATIONS

Managerial and Internal Implications

As a part of the non-acquisition side of this strategy, Verizon should include pre-
paid plans in addition to their subscriptions. This would allow those who do not have
the income to commit to using high end services have a sample when possible. Part of
keeping their customers from turning over is offering varied payment options so and
this move would not be out of reach, as competitor T-Mobile continues to offer these
plans. Next, the very base speeds of 2G that Verizon offers as a backup should be
switched to 3G, especially considering the wake of 5G technology. For all carriers on this
strategic group, speeds are switched over to 2G as a failsafe when date limits are
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reached. Verizon should work towards the elimination their 2G networks in favor of 3G
being the new base. This will also attract potential consumers who might join Verizons
network for this unique perk aimed at providing the fastest speeds, even when data is
expended. Additionally, the 5G plans must be relatively comparable their 4G prices in
order to incite upgrades and ultimately expose consumers to the true meaning of
GigaByte per second speeds on their devices. On top of reflecting the values and
competencies of the company, being the first to offer these speeds can be lucrative if
carried out and marketed properly.

Value Chain
An acquisition of Charter Communications will increase the amount of
households reached for 14 million to 50 million and provide opportunities for new Fios
customers.24 Charter also focuses on the Midwestern Regions of the U.S., where Fios
internet capabilities are not currently present. Aside from eliminating a competitor,
Verizon will be able to take better advantage of the period around early 2018, where they
will be the only U.S. provider of 5G services. This would be done by utilizing the lines
acquired from Charter in order to connect the 5G towers to the internet instead of
paying a supplier for network easements, thus saving operational costs.
The Twitter acquisition will go in hand with their AOL purchase in 2015, as they
would have mobile and desktop social medial platforms for the cultivation of content.
This will also increase their stake in the emerging and growing digital advertising sector
as they will have increased data for ad curation that will take sales from the giants of
Silicon Valley. The AOL upper level team, including CEO Tim Armstrong, would merge
with Twitters in order to best utilize the acquisition and assimilate the cultures of the
organizations.25

Stakeholder Impact
Verizons CFO, Matthew Ellis, stated that his company executes strategies
organically, but they are never closed off to opportunism to catalyze the development of
their company by unnatural means as long as it provides value for stakeholders.26 This
shows that each action taken is in the best interest of all parties, but means that
investors have to reevaluate their portfolios in order to make sure their investments are
on a desired track.

Ethical Implications
The theory of utilitarianism sets the rational for this set of strategic decisions.
Verizon aims to profit while creating the leading technological provider emphasizing on
offering capabilities to get things done as efficiently as possible. Using this
consequentialist focus will keep stakeholders aware of the consequences of their actions,
ensuring that they are for the greater good of society. While Verizon continues to gain

24 Strategy, Simplifying. 2017. "Simplifying Verizon's Acquisition Strategy". Nojitter.Com. Accessed April
25 2017. https://www.nojitter.com/post/240172358/simplifying-verizons-acquisition-strategy.
25 "Who Will Buy Twitter? We Ranked All The Possible Buyers.". 2016. Recode. Accessed April 25 2017.

https://www.recode.net/2016/9/14/12876560/twitter-acquisition-options-google-facebook-apple.
26 Jamerson, Ryan. 2017. "Verizon Customers Defect As Competition Ramps Up". WSJ. Accessed April 25

2017. https://www.wsj.com/articles/verizon-for-first-time-loses-core-wireless-customers-1492691308.
 11

subscribers, they in turn offer services that maximize utility for consumers. Every action
within this strategy aims to produce the best possible results for all who are involved.
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References

2016 Global Mobile Consumer Survey: US Edition. Deloitte.

https://www2.deloitte.com/content/dam/Deloitte/us/Documents/technology-media-
telecommunications/us-global-mobile-consumer-survey-2016-executive-summary.pdf.

2016 Section, Market. 2017. "US Wireless Carrier Market Share 2016 |
Statista". Statista. Accessed April 25 2017.
https://www.statista.com/statistics/199359/market-share-of-wireless-carriers-in-the-
us-by-subscriptions/.

Bloomberg Terminal <BI> <Credit>

Bloomberg Terminal Run HDSK<GO> Reference H#778195997

Bloomberg: BI Cable & Satellite Industry Outlook

Deloitte US. "2017 Telecommunications Industry Trends | Deloitte US". 2017. Deloitte
United States. Accessed February 4 2017.
https://www2.deloitte.com/us/en/pages/technology-media-and-
telecommunications/articles/media-and-entertainment-industry-outlook-trends.html

DePersio, Greg. 2016. "Analyzing Porter's Five Forces On Verizon (VZ)". Investopedia.
Accessed April 25 2017.
http://www.investopedia.com/articles/markets/012616/analyzing-porters-five-forces-
verizon-vz.asp.

"History and Timeline". 2016. Verizon.Com. Accessed April 26 2017.

http://www.verizon.com/about/our-company/history-and-timeline.

Jamerson, Ryan. 2017. "Verizon Customers Defect As Competition Ramps Up". WSJ.
Accessed April 25 2017. https://www.wsj.com/articles/verizon-for-first-time-loses-
core-wireless-customers-1492691308.

"J.D. Power 2017 U.S. Wireless Network Quality Performance Study". 2017. J.D. Power.
Accessed April 25 2017. http://www.jdpower.com/press-releases/jd-power-2017-us-
wireless-network-quality-performance-study.

Kauffman, Gretel. "Trump's FCC begins to roll back Obama-era internet data
regulations." The Christian Science Monitor. February 06, 2017. Accessed April 19,
2017. http://www.csmonitor.com/USA/2017/0206/Trump-s-FCC-begins-to-roll-back-
Obama-era-internet-data-regulations.

Lawson, Stephen. 2017. "Verizon Plans 5G Trial Service In 11 Cities This Year". Pcworld.
Accessed April 1 2017. http://www.pcworld.com/article/3173157/internet/verizon-
plans-5g-trial-service-in-11-cities-this-year.html.
 13

"Our Company". 2016. Verizon.Com. Accessed April 26 2017.

http://www.verizon.com/about/our-company.

Petrillo, Nick. "IBISWorld Industry Report 51711a Cable Providers in the US." IBIS
World 43, no. 08 (October 2016). October 2016. Accessed February 16, 2017.
doi:10.5860/choice.43-4410

PRC."Internet/Broadband Fact Sheet." Pew Research Center: Internet, Science & Tech.
January 12, 2017. Accessed March 29, 2017. http://www.pewinternet.org/fact-
sheet/internet-broadband/.

Strategy, Simplifying. 2017. "Simplifying Verizon's Acquisition Strategy". Nojitter.Com.

Accessed April 25 2017. https://www.nojitter.com/post/240172358/simplifying-
verizons-acquisition-strategy.

"Who We Are". 2016. Verizon.Com. Accessed April 26 2017.

http://www.verizon.com/about/our-company/who-we-are.

"Who Will Buy Twitter? We Ranked All The Possible Buyers.". 2016. Recode. Accessed
April 25 2017. https://www.recode.net/2016/9/14/12876560/twitter-acquisition-
options-google-facebook-apple.

Verizon Form 10-K 2016

"Verizon's New Plans Raise Prices For More Data". 2017. USA TODAY. Accessed April
25 2017. https://www.usatoday.com/story/tech/2016/07/06/amid-growing-
competition-verizon-revamps-data-plans/86755334/.