TABLE OF CONTENTS
EXECUTIVE SUMMARY……………………………………………………………3
SWOT ANALYSIS………………………………………………………………….....3
RECOMMENDATION AND JUSTIFICATION……………………………………...4
CONCLUDING THOUGHTS………………………………………………………….9
REFERENCES…………………………………………………………………………..10
Executive Summary
Verizon is an American based multinational corporation
in the Telecommunication and mass media industry. Verizon is cooporated in
Delaware but the company itself is based
in New York City. Its key products
include digital television, cable television, telematics, fixed line,
mobile broad band and internet related services.Verizon emerged when the
justice department mandated
AT&T corporation what was at
the time the seven baby bells in 1984. Actually the first name for what we know
Verizon was Bell atlantic. Later in 1997 Bell Atlantic merged with NYNEX which
was one of the seven baby bells and moved from Philadelphia to New York which
was NYNEX headquarters. Later in 2000 Bell atlantic acquired GTE a direct
competitor in the telecommunication industry which was in most areas that it
was not in as part of its expansion plans. It
was after this that it changed from Bell Atlantic to Verizon. Other
signifacant parts of its expansion include acquiring AOL and yahoo in 2005 and
2007 respectively.
Verizon wireless which is a subsidiary of Verizon
company is currently the largest wireless communication company in the country
with over 147 million users. It is also the second largest
telecommunication company in terms or
revenue only second to AT&T . Currently it has over 162,000 employees. Its
revenue as of 2006 stood at $126 billion and a net income of $22.52 billion. The shareholders got $ 3.87
earnings per share which marked a 10th consecutive year of increase
in earnings (Verizon, 2017). With the
increase in the number of subsidiaries and more products such as security
solutions Verizon seems to be a company adapting with the changing times and it
is here to stay.
Swot Analysis
STRENGTH: One of the biggest strength that Verizon has
is its brand. Infact it has been ranked top 100 of the most valuable brands,
recognizable and generally valuable in business terms by all reputable research
firms (Brown, 2017). Thus consumers
generally associate the brand with quality and reliability.The second strength
is economies of scale. Verizon in the US alone has access to 98% of the
territory (Verizon, 2017). With this in
place it is able to manufacture, distribute, advertise e.t.c its products in
large volumes thus decreasing the cost (Piercy
& Giles, 1989). To add to that, the quality of Verizon’s products
itself is a strength. By virtue of its services it has a loyal customer base.
WEAKNESSES: One of the challenges that Verizon faces is
the high cost of infrastructure that is required in the telecommunication
industry. With changes in technology new infrastructure is need and some cost a
lot of money in terms of acquiring and maintaining. Inability to compete in
terms of pricing is also a challenge that is created as a result of Verizon
culture of offering high quality services. The high quality services come at a
price which has to be transferred to the consumers. Some of the consumers find
the pricing high as compared to other similar goods offered by companies such
as Sprint.
OPPORTUNITIES: Global growth is one of the things that
Verizon has as an opportunity. The world is now a global village with over 7
billion potential customers. Another opportunity is in diversification. The
technological world is wide and Verizon can decide to venture into other
opportunities such as advertising, computers manufacturing and programming.
Recommendation and Justifications
Recommendations#1
Wireless equipments get the most capital allocaction
single handedly receiving $ 22, 238 million, 23,119 million and 21,625 million
in year 2016, 2015 and 2014 respectively. This is because it is the backbone of
Verizon in terms of revenue and brand.The revenues generated from wireless were
$ 89,186 million , $91680 million and 87,640 million in year 2016,2015 and 2014
respectively. From the above figures alone there is a direct relationship
between capital allocated and revenue made, thus it will be wise for Verizon to
increase its capital expenditure to increase competitiveness and also maintain
its brand
Recommendation#2
The real strategy for growth of Verizon has been through
acquiring other companies such as Yahoo
and GTE. Other companies that have been acquired by Verizon over the years
include ; skyward to help in down
operations, XO communication in the
fibre optic industry, LQD wifi, FleematicsVessel technologies among others. However
right now with over 98% access to the US and over 162,000 employees it has more
potential of growing internally as opposed ro acquiring new synergies. Over the
last 3 years to has used an average of just over $ 22,000 million in
infrastructure annually which can aid it when it comes to internal growth. It
is highly unlikely that a Verizon can be acquired by in the foreseeable future.
However if this was to happen, then AT&T will be the most likely choice, In
regards to culture it will be easier as their culture heritage can be traced
back to the seven bells days. With regard to the overlapping business that will
make AT&T a monopoly however due to the different customer preferences it
may have to run the products differently.
#Recommendation 3
The average outstanding debts for Verizon has been $
106,113 million, $ 112,833 nillion and $107,978 in years 2016, 2015 and 2014
respectively. The debt to equity ratio was 8 in 2015 while ideally it should be
less than one. This figure has risen by more than 66% in the last 5 years with
total debts rising by 25% in the same period
(Depersio, 2016). The interest coverage
ratio which is at 8 however is quite favourable as it shows how many times
Verizon current earnings can be used interest in the outstanding debts that it
currently has. This shows that in the short term it will be able to pay all its
interest that is needed thus shows no sign of insolvency atleast in the
foreseable future.
Even though debts are not necessary if they are used for
expansion purposes, the use of owners equity is much better and comforting for
a business. With the leverage ratio way above its direct competitors, Verizon
should try to decrease it unless absolutely necessary as the current cashflows
can maintain the operating costs and any minor additional investments that
might be required.
Recommendation#4
Since the start of 2016, over 25% of the advertisements
of the telecommunications industry has been from Verizon. The “ a better network as explained with
colourfu balls” advert alone generated more than 4 billion impressions on
television since the start of 2016.The dvert was meant to show how the company
dominates in terms of high quality internet which it holds as part of its
culture. The airings alone had an estimated media value of over $ 103 million.
In 2014 it had spend over $2.5 billion which made it number 5 biggest spender
in the United states. Right now Verizon is the leading spender in
advertisements in the telecommunicatin industry with over $4.3 (Verizon, 2017)billion
spend annual. With the growth of the internet access, online marketing and tv
advertisement is more effective than print media. Also all the print media are
to some extend going digital. Social media adverttisements in different sites
and apps such as facebook, Instagram and twitter has also become more popular
especially with the new generation. To maintain the brand name and brand value
Verizon has to acquire the lion’s share of the advertisement.
Recommendation #5
In the technological world, research and devevopments is
key. In 2014, Verizon commissioned the construction of a new data analytics
research and development center which will focus on artificial investments and
machine-learning activities. Even though rival company leads the research and
development space by investing more than more than $ 20.6 billion , Verizon is
second with over $15.5 billion invested and the figure is expected to increase
especially with the launch of the 5G network and completion of the artificial
center. The investment in the research and development is expected to be paid
back through the innovation of new products, and improvement in terms of
quality to the existing product which will aid in improving the current status
core and market share. The spending is due to the need of new and innovative
products and should however be covered with the income. Anything above the
income which is currently just above over $22 billion will be too much unless
the income also increases.
Recommendation #6
One of the most innovative ways that Verizon goes about
in the control of costs is through the use of asset tracking solutions. The
system can remotely access and control assets which help in decreasing the man
power that might be needed which is expensive as compared to the system itself.
Apart from protecting the assets, the system also gives it a business
competitiveadvantage and decreases the risk of losing the asset or unathorised
access to the asset. In regards to pension liabilities, Verizon has over the
year transfer the risks to insurance companies which settle the debts on their
behalf. In 2003 for example Verizon had reported a $ 4.23 billion in losses due
to pension liabilities. Borrowing and investing in the bond markets has also
proved vital to the company in dealing with the rise in pension liabilities.
In April 2016 more than 36,000 of Verizon’s employees
went on strike. This was as a result of the company trying to slash the
salaries by 30% so as as to reduce the rising wage bills. In addition to this
effort, the company is continuing to hire low wage workers and non union
workers.Another method being employed by Verizon is by outsourcing some of its
employees to oversees companies and its subsidiaries. This has been the case with over 5000 workers being
outsourced to the philipines and mexico. This saved the company with over $ 300
million in employees salaries in 2015 alone. The wireline sales have also been
decreasing over the years and Verizon has been dealing with this byselling some
of the companies which reduces the number of employees while at the same time
generating revenues for the company.
Recommendation #7
The world as we know it right now is a global village.
Nowadays businesses are no longer limited to the boundaries of one’s country or
continent. With the world population currently standing at over 7 billion and
expected to grow in the near future there is no better time to expand oversees.
With trade deals signed between countries and companies in the same industry
seeing each other as partners instead of rivals. Verizon can now expand to this
markets through acquisitions, joints ventures, direct investments among many
other methods.
The best places to expand to is the African continent which has seen
rapid growth in the telecommunication industry and access to internet. Despite
the growth in the continent, the consumers in the continent are limited in
terms of choices as monopolies such as Safaricom in Kenya and Mnet in Tanzania
and Uganda occupy the lion share. Another market that needs to be exploited is the Chinese market and the
Indian market which has over a billion potential customers each. The large
population in the two countries when accessed will provide Verizon with an
economy of scale way bigger than what it has acces to currently.
With the expansion however there will be challenges that
Verizon will have to face. First of all it will have to acquire the capital
that is needed to access this market and borrowing will be a challenge
considering its leverage ratios. Secondly it will face stiff competition from
the already established coorporations in this new ventures. Thirdly the problem
of different currencies that are used in this countries will affect how it
prices its products and when receivimg payments. Last but not list it will have
to face the differences in cultures and beliefs in the different settings (Bouchholz, 2006).
Concluding Thoughts
First of all, by expanding to the over sees market
Verizon will be able to off shore a lot more of its workers to the over sees
companies thus reducing its labor cost. Secondly it will have access to a
larger market thus generating more funds which will make it more profitable and
a larger market share in the world. By transferring the pension costs to
insurance companies it reduces the risk of incurring the costs itself which
reduces its general costs of doing business. For Verizon investing more in the
wireless sector is key to its survival as is the most profitable part of the
business. In addition to that it should avoid borrowing and instead use owners
equity and income to expand its agenda as the leverage ratios and debts in
general are quite high. All in all, the key is to reduce the overall operating
expenses.
By continue to keep he wireline sector of Verizon which has been
decreasing in sales as a result of more and more people switching to the
wireless networks, the company will experience losses in the near future. To
add to that if it does not invest more in
research and development it might become obsolete with the change in
technology. Also failure to invest in marketing the brand might lose its value
and the overall image of the company.
References
Bouchholz, R. A. (2006). Business environment. journals
of operation management, 34-56.
Brown, M. (2017, November 3). Ranking the Brands
Website. Retrieved 2017, from Ranking the Brands Website:
www.rankingthebrands.com/Brand-detail.aspx?brandID=525
Depersio, G. (2016, February 2009). Investopedia.
Retrieved December 27, 2017, from investopedia Website:
www.investopedia.com/articles/active-trading/022916/analyzing-verizons-debts-ratios-2016-vz.aspx
Piercy, N., & Giles, W. (1989). Making SWOT
Analysis Work. Marketing Intelligence & planning, 7(5), 5-7.
Retrieved from doi.org/10.1108/EUM0000000001042
Verizon. (2017, December 24). Verizon coorporation.
Retrieved from Verizon Website:
www.verizon.com/about/investors/financial-reporting
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