Verizon Communications Inc. Case Study:
Communications in the Future
Verizon Communications Inc. is entering a new era for the telecommunications industry, the company needs to make risky capital expenditures in order to succeed in the changing completive environment. For Verizon Communications Inc. to succeed in the future, they will need to enter into new business, and find a competitive advantage over the cable companies that are cutting into Verizon’s revenues, but Verizon must maintain high revenues to cover its large debt obligations and labor costs.
Verizon will need to supplement its fiber-optic expansion with strategic maneuvers that build customer ...view middle of the document...
Additionally, the company must determine an innovative way to offer similar products (internet services, Wi-Fi, and telephone services) that will keep them competitive in their industry yet provide enough revenue to cover their high debt and labor costs, while simultaneously creating enough resources to cover a market-changing fiber-optic strategy.
In its attempt to be competitive in the future, Verizon has opted to connect every home and business in its 29-state territory with fiber-optic cables that will allow the company to provide video, internet, and phone services at higher speeds and quality then the cable industry’s broadband connections currently provide. This fiber-optic infrastructure will also put Verizon into new business—video services. Situation Analysis
Verizon has been a recognized company in the American market for many decades, and as such has multiple strengths to help it succeed in the future. One of the biggest strengths the company has is its ability to generate cash from its service offerings: “Verizon generates $22 billion a year in cash from operations (cravens p. 506).” This is a huge advantage over the competition because Verizon can cover large debt payments that the competitors cannot. However, the amounting debt at Verizon is a weakness of the company when the appeal of fiber-optic lines have yet to be proven enough to entice customers to remain with or switch to Verizon when the services become available. Another positive aspect of Verizon is the companies’ diversification of services; the company has many revenue channels to feed its increased debt and costs in the short-term. The SWOT analysis of the appendix, figure 1, reflects Verizon’s weakness of high debt and labor costs due to employing many union workers. This is a concerning weakness for Verizon because the competing cable companies do not typically have union workers, and thus their labor expenses are much lower. Additionally, if Verizon ventures into new business, the company cannot simply layoff union workers and hire new employees with relevant skills, they will likely have to incur a large expense of training their current workers.
The threats facing Verizon wireless is the available substitutes for internet/phone/cable services in the saturated market which contain low switching costs for consumers—if a consumer doesn’t see an improvement of services, then the higher expense of installing fiber-optic lines instead of broadband will be a large hit to the net income of the company. Industry pricing pressure is another threat to the company’s future: if they can’t charge a price that is competitive yet enough t recover the cost of instillation and operation of the new business expansions than net income may drop in the future. Perhaps the biggest threat facing the company is the advancement of technology, if new technology is created that delivers comparable speeds and quality, Verizon will no longer be a market changer and...