Introduction
This paper is based on the analysis of two companies in the telecommunications industry. These companies are AT&T and Verizon Wireless. AT&T Company is a combination of many formerly Regional Bell Operating Companies. It is the largest company in the communication industry and provides its long-distance services in over 13 states and offers enterprise solutions across the country. Among the services, they offer include wireless communications, broadband and internet service, and local exchange and long-distance service. Their major competitor in the industry is Verizon Inc.
Verizon Company is situated in New York City. The company was formed in the year 2000 following a merger between GTE Corp and Bell Atlantic. It operates a wireline and wireless network in America which serves more than 80 million subscribers and has more than 40 million commercial and residential access lines in the United States. Among its accomplishments include having built the first wireless broadband network that covers a large area and has the most loyal customer base in the communications industry. It also delivered the first wireless consumer 3G multimedia service in the region and finally the most comprehensive service in mobile music internationally.
Strategy Comparison
AT&T merged with Comcast cables recently which led to an increase in their broadband subscribers by almost double. Verizon was also formed through a merger between Bell Atlantic and GTE. Both companies have had to recreate their brands and this fact brings out some key differences between the two companies. It has been said that “the most successful brands are outcomes of several years of investment and strategic planning” (Harkinson & Harkinson, 1999, p. 135). The dynamic nature of the telecommunications industry required launching of new strategies after the mergers and acquisitions by the companies and it has been said that “building a brand after a merger or acquisition is, without question, more challenging than building a brand for a brand new company” (Johne, 2003, p. 33).
AT&T’s mission statement states that it strives to connect people with their world and do it better than anyone else. Its mobile segment is said to be the fastest-growing business. The company owns the fastest-growing 3G network and is therefore dedicated to providing its customers with the wireless technology required to improve their lives.
On the other hand, Verizon Wireless has a mission statement that declares its commitment to operating as the most reliable and largest wireless voice and data network. According to Ivan Seidenberg, they strive to enable people and businesses to communicate together. It provides the largest Mobile to Mobile calling family in America with more than 80 million subscribers. It offers quality products and services to its subscribers thereby offering a high level of satisfaction to its customers.
As for the product and market served, AT&T is the market leader in the industry regarding the provision of voice, IP-voice, video, and data communication services. The company strives to be a one-stop-shop since they provide high-speed internet, home, wireless, direct TV, AT&T U verse TV which is a new product. Their biggest sellers are cellular phones. They consider everyone in their marketing strategy with various products to cater for a variety of markets and budgets for example the pantech phone designed for the elderly and hearing impaired as the digits are bigger and it works with hearing aids. It maintains its regular prices and tries to convince its existing customers to continue subscribing to them by marketing its services and convenience.
Verizon Wireless on the other hand offers reliable products which include Mobile Broadband and wireless internet connections at broadband like speeds, V CAST for high-quality video, 3D games and music downloads, V CAST Music with Rhapsody, National Access for wireless data services, Nationwide text messaging service and finally picture messaging. The market streams across over 160 destinations providing to retail, wholesale, government, and business customers. They continue marketing a cheaper and faster service.
Examining the promotion strategies used by both companies shows that there are very minor variations. AT&T markets their services and convenience while maintaining regular prices. They convince their existing customers to continue staying with them. Verizon on the other hand continues to promote a faster and cheaper service to try and lure more customers from their competitors. Both companies have also formed retail alliances with companies like Best Buy. AT&T has however gained an upper hand technologically by winning the support of Microsoft. Verizon allied with MSN. AT&T has however also formed alliances with sports teams and providers of other content.
The corporate-level strategy by AT&T revolves around their being a one-stop-shop. This means that they strive to provide all the services using a single channel. Their business-level strategy is one of cost leadership and differentiation. They offer a variety of services as compared to its competitors although the products are similar to those of the competitors. Internationally, AT&T is located on six different continents with approximately 73 million subscribers. They provide different products for different markets depending on the needs of the consumer to ensure satisfaction. The company’s website is available in seven languages to make it accessible to all consumers regardless of the language spoken. Standardization of products across markets is a global strategy employed by the company for example the iPhone which they have made available in many countries which use similar cell phone towers but are programmed for the language of the country they are meant to be used in.
On a corporate level, Verizon uses mergers, acquisitions, partnerships, and joint ventures. The joint venture between Verizon and Vodaphone led to the creation of Verizon Wireless while the merger between MCI and Verizon led to Verizon Business. Verizon Wireless also uses a business strategy of cost leadership and differentiation. It offers a reliable service at a premium but affordable cost. The product is similar to its competitors but they guarantee the least amount of dropped calls and enjoy exceptional customer loyalty. Internationally, Verizon is present in over 160 destinations. Finally, on a functional level, Verizon is focused on innovation, efficiency, and quality. Their preferred style of management is bureaucratic with a multidivisional structure that is tall and centralized. Control functionalism revolves around internal promotion, surveying the customer service, training of employees, and net promoter score.
Financial Analysis
AT&T Company’s financial analysis shows that it enjoys solid financial performance in the short and long-run periods. This statement is supported by the fact that has healthy financial ratios. Its wireless operating margin rose from 15.4% last year to 25.5% this year. AT&T has a leading customer base with 72.9 million subscribers. Their postpaid churn of 1.1% outdid that of Verizon at 0.83%. The company also has very good growth potential. It has an upside of 30.9% but using their assumed growth rate of 3%, the value of the upside is 40.8% which is considerably high. Their growth estimate for 5 years is 12%. Their dividend yield stood at a high of 5.2% and their margin expansion projections improved. The Wireline service they offer comprising of voice and data covers about 52% of the total revenue while Wireless communications and services cover 33%. Finally, the mergers undertaken led to further upside. The total revenue was therefore 4.7% higher but missed the $31.2 billion estimate by analysts. Adjusted EPS leveled at $0.76 while the net income stood at $3.8 billion which translates to $0.63 per share. This shows an increase from $2.9 billion net income or $0.47 per share for the previous fiscal year.
As of 23rd July, AT&T filed its financial report for the period ending 30th June 2008. It grew 15.8% in its wireless revenue without taking into account the sale surge brought about by the 3G iPhone which will be recorded in the next quarter. However, following the launch of the 3G iPhone, their sales doubled and they saw an increase in their subscriber base by 40%. In this quarter, AT&T paid dividends to the tune of $2.4 billion and reclaimed $2 billion worth of shares. The cash flow in this quarter was $3.9 billion but expectations for the whole year were projected at $16 billion taking into effect the impact of the sale of the 3G iPhone.
As for Verizon Inc., it has a dividend yield of 4.9 % and paid dividends of $ 1.62 which is an exemplary good performance. It is the second-largest in the industry with a market capitalization of $111 billion. Verizon posted a 3.7% revenue growth to $24.1 billion while analysts had predicted it at $24.2 hence a very slight variation. However, they reported the lowest inventory turnover at 14.30 % net income growth and their day’s sales stood at 25.5 % which is a bit low. Verizon’s liquidity level is a bit weak with the current ratios at 0.66 and a quick ratio of 0.59. there was also notably low demand in the wireline business as the revenue dropped 1.8% reaching $12.1 billion as well as a decline in residential subscribers who dropped 11.4% settling at 22.45 million. DSL connections dropped by 133,000 but they saw an increase in broadband connections to 8.3 million. They also experienced the lowest churn of 1.12% and the operating margin stood at 28.6%
Critical issues
Certain issues arise from the comparison of strategies, financial highlights, and the SWOT analysis of the companies. AT&T’s weaknesses include having a market that changes rapidly and competitors offering alternative services to theirs which threaten their growth. Furthermore, AT&T Company relies heavily on the iPhone and iPhone 3G that it almost neglects its other products and this can have more detrimental effects with the sale of unlocking software for their more advanced 3G iPhones. The opportunities revolve around the creation of a federal network and customer base with a more direct gateway, swallowing up the competition with mergers with smaller companies, expansion of its wireless service, and effective use of technology. There is however the threat of being swallowed up by competitors who buy out other smaller companies before them and the fact that their prices are higher than their competitors. The cell market also is threatened with saturation and therefore there is a need for constant innovation and invention to be able to maintain their market leadership. It emerges that before the company merged with Comcast’s fiber-optic cables, it experienced problems with its broadband.
Other issues that crop up include the loss of business due to cloning of the iPhone which is a major product for AT&T and relies on heavily. There is also the prevailing economic condition that is not conducive for business as well as the opposition to the AT&T-Apple partnership deal regarding the iPhone. Finally, there is competition from cable companies that offer bundled services which include internet, TV, and phone services.
As for Verizon, customer service is an issue that needs to be addressed. They fail to provide solutions to problems that customers are facing which reflects negatively on their image. Another issue is the quality of their broadband and DSL. They may have had the first broadband network but there are a very high number of complaints from customers who are not satisfied with the quality. They, therefore, need to upgrade their broadband service. Verizon promotes its DSL through advertising promotions at various retail stores however customers are not convinced (DeKok 2001).
Verizon also faces increased competition from AT&T. This is majorly due to the mergers that AT&T undertakes. AT&T acquired 9.2 million new subscribers which are approximately 40% more than what Verizon got. Finally, there is the case of innovation where Verizon seems to have been left behind. Many of their customers are switching to AT&T because of the iPhone. It is estimated that 47 % of the 30% of customers who switched from other mobile service providers and joined AT&T are came were from Verizon. The use of some copper phone lines instead of fiber optic cables is also an indication that they are lax on innovation as compared to their competitors.
From the SWOT analysis, several issues are realized for Verizon. One is that the consolidation and merging of companies lead to loss of competition which is not healthy for business. There is also the risk of losing the deal of buying Sprint Nextel as other companies are eyeing the stumbling company. Finally, they have almost doubled their debt to approximately $40 billion following their deal with Alltel.
Recommendations
Short term recommendations
Following the critical issues that have been identified, various short-term recommendations can be made for both companies. In the short term, AT&T should diversify its product range and not heavily rely on the iPhone and iPhone 3G. The Comcast-AT&T merger solved the broadband problem formerly experienced as they now used fiber optic cables.
On the other hand, Verizon should strive to improve its customer service to offer solutions to its problems. They should also limit credit facilities to customers to prevent undue losses. The quality of their broadband and DSL networks should be improved to offer better services to their customers. They should match the speeds that they advertise. Verizon should implement strategies that focus on improving their broadband and DSL networks and also consolidate the research and development department to ensure innovation to have an upper hand over their competitors.
Long term recommendations
AT&T in the long run should upgrade technologically by adopting LTE technology or 4G instead of the current 3G technology. Expansion of their business globally is also a strategy worth considering. Provision of HD video conferencing for wireless devices, TV, and computers should be on their list of agendas.
In the future, Verizon should try and expand its wireless offerings. This includes doing away with the copper wired connections and shifting to wireless or fiber-optic cables which is more effective. It also includes rolling out their wireless services to other parts of the country with better quality. By doing this they will create a universal network. Finally, they should consolidate their research and development department to facilitate innovation and invention. As for long-term implementation, they should acquire a broadband connection card to boost their DSL and broadband networks. This should go hand in hand with the acquisition of rights to 698 MHz.
Conclusion
The outcome of both companies in the future is very difficult to speculate. However, based on the above analysis of the strategic differences of both companies, AT&T is more likely to prevail. It is currently the first choice for broadband services. Technologically, Verizon is lagging a bit behind as compared to AT&T. the pressure to advance technology means that the companies should decide on what to emphasize between profit making and gaining customer loyalty. The fact that customers are shifting from Verizon to AT&T is an indication that Verizon has failed in some aspects and therefore people tend to prefer AT&T.
AT&T from the SWOT analysis has the experience, technology and technologists, unlimited resources, and a strong management team and is therefore well placed to meet the needs of the consumers.
Financially, AT&T is in a better position as compared to Verizon. AT&T has unlimited resources at its disposal as they have a large asset base and a high level of efficiency and can therefore afford to undertake research and development projects to further improve their services. This does not mean that Verizon cannot afford to undertake the projects but AT&T is in a better position. AT&T also has a high-profit margin as well as the gross margin than Verizon hence it gets more from its customers as compared to Verizon and also has more subscribers. In Conclusion, AT&T in the future is seen as a very huge company if not a monopoly in the telecommunications industry.
References
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DeKok, D. (2001, October 23).Comcast, Verizon Rivalry Yields Consumer Deals on Internet Service. The Patriot-News.
Harkinson, P. and Harkinson, G. (1999), “Managing successful brands: an empirical study which compares the corporate cultures of companies managing the world’s top 100 brands with those managing outsider brands”, Journal of Marketing Management, Vol. 15 No. 1-3, pp. 135-55
Johne, M. (2003). Brand Building After the Merge. CMA Management, 5, 32-36.
Verizon Wireless. About Us Facts-at-a Glance (2009). Web.
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