Verizon Communications 2011

Forest David

A. Case Abstract
Verizon is a comprehensive strategic management case that includes the companys year-end 2010
financial statements, organizational chart, competitor information and more. The case time setting is the
year 2011. Sufficient internal and external data are provided to enable students to evaluate current
strategies and recommend a three-year strategic plan for the company. Headquartered in New York, New
York, Verizons common stock is publicly traded under the ticker symbol VZ.

Verizon is the #2 US telecom services provider behind AT&T, but Verizon holds the top spot in wireless
services ahead of AT&T Mobility. Verizon's core mobile business is named Verizon Wireless (known
legally as Cellco Partnership), which operates as a joint venture with Vodafone; it serves about 100 million
customers. Meanwhile, with about 30 million landline accounts, Verizon Communications' wireline unit
provides local telephone, long-distance, Internet access, and digital TV services to residential, corporate,
and wholesale customers. The companys Verizon Business division provides a wide range of telecom,
managed network, and IT services to commercial and government clients.

Verizon Wireless' 4G LTE wireless network is the fastest and most advanced 4G network in America and
offers speeds up to 10 times faster than the current 3G network. All total, Verizon has invested more than
$65 billion $6 billion on average every year since its inception to increase the wireless voice and data
coverage of its national network and to add new 3G services like Mobile Broadband and V CAST.

B. Vision Statement (proposed)

Our vision is to enrich the lives of our customers with the benefits of communication, and creating the most
respected brand name worldwide.

C. Mission Statement (proposed)

Our mission is to provide the best wireless and wireline products to the most customers in more places than
our competitors (1, 2, 3). Verizon Communications strives to bring the latest innovative products to its
customers (4) and strives to benefit the communities in which we are located (5) and provide safe and
comfortable work environments (8) while continuing to increase profits (6, 9). Verizon Communications
believes in providing its customers with the best quality products to enable them to communicate with
confidence in our network (7).

1. Customers
2. Products or services
3. Markets
4. Technology
5. Concern for survival, growth, and profitability

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.

 6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

D. External Audit
Opportunities

1. 57% of American use more than one phone for business.

2. 76% of kids have a phone by age 12.
3. 50 million iphones sold to date.
4. There are currently 670.6 million mobile connections in India.
5. India is projected to have 1.159 billion mobile subscribers by 2013.
6. Global mobile cellular subscriptions increased 17% per year.
7. Smartphone market in the US is expected to grow by 31%.
8. 500 million people worldwide accessed mobile internet in 2009.
9. There are 277 million mobile web users in China.
10. Revenue of India's telecommunication industry is expected to increase by 230 billion from 2008 to
2012.

Threats

1. Verizon Communications is dependent upon suppliers and vendors to provide equipment.

2. AT&T is a significant competitor owning 25% of the wireless market.
3. 91% of Americans use cell phones.
4. Bharti Airtel owns 31.18% of the wireless market in India.
5. Nokia leads Smartphone global market with a 39% share.
6. The economy is hurting the wireless industry.
7. European mobile broadband growth is at a record low of 4.7% for 2010.
8. Sprint 4G is available in 53 US markets.
9. AT&T wireless revenue increased 8.8% in 2009.
10. AT&T offers service in over 200 countries.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.

Competitive Profile Matrix

Verizon AT&T Sprint

Critical Success Factors Weight Rating Score Rating Score Rating Score
Advertising 0.12 3 0.36 4 0.48 2 0.24
Market Penetration 0.05 4 0.20 3 0.15 2 0.10
Customer Service 0.08 3 0.24 2 0.16 3 0.24
Store Locations 0.05 2 0.10 2 0.10 1 0.05
R&D 0.12 3 0.36 3 0.36 2 0.24
Global Expansion 0.07 2 0.14 3 0.21 2 0.14
Financial Profit 0.08 2 0.16 3 0.24 1 0.08
Customer Loyalty 0.06 3 0.18 2 0.12 4 0.24
Market Share 0.08 3 0.24 4 0.32 2 0.16
Product Quality 0.12 4 0.48 3 0.36 2 0.24
Top Management 0.06 3 0.18 3 0.18 2 0.12
Price Competitiveness 0.11 3 0.33 2 0.22 4 0.44
Totals 1.00 2.97 2.90 2.29

EFE Matrix

Opportunities Weight Rating Weighted Score

1. 57% of American use more than one phone for business. 0.01 1 0.01
2. 76% of kids have a phone by age 12. 0.04 3 0.12
3. 50 million iphones sold to date. 0.06 2 0.12
4. There are currently 670.6 million mobile connections in India. 0.08 4 0.32
5. India is projected to have 1.159 billion mobile subscribers by 0.09 4 0.36
2013.
6. Global mobile cellular subscriptions increased 17% per year. 0.06 3 0.18
7. Smartphone market in the US is expected to grow by 31%. 0.07 3 0.21
8. 500 million people worldwide accessed mobile internet in 2009. 0.04 2 0.08
9. There are 277 million mobile web users in China. 0.05 2 0.10
10. Revenue of India's telecommunication industry is expected to 0.06 4 0.24
increase by 230 billion from 2008 to 2012.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.

 Threats Weight Rating Weighted Score
1. Verizon Communications is dependent upon suppliers and
0.01 1 0.01
vendors to provide equipment.
2. AT&T is a significant competitor owning 25% of the wireless
0.03 2 0.06
market.
3. 91% of Americans use cell phones. 0.02 2 0.04
4. Bharti Airtel owns 31.18% of the wireless market in India. 0.03 4 0.12
5. Nokia leads Smartphone global market with a 39% share. 0.06 2 0.12
6. The economy is hurting the wireless industry. 0.05 2 0.10
7. European mobile broadband growth is at a record low of 4.7% for
0.05 3 0.15
2010.
8. Sprint 4G is available in 53 US markets. 0.04 3 0.12
9. AT&T wireless revenue increased 8.8% in 2009. 0.07 4 0.28
10. AT&T offers service in over 200 countries. 0.08 2 0.16
TOTALS 1.00 2.90

E. Internal Audit
Strengths

1. Verizon acquisition of Alltel which increased total customers by 26.6%.

2. Verizon lowered prices by $30 on unlimited text and talk plans.
3. Worlds largest provider of print and online directory information.
4. Constructed more than 2,300 cell sites in 2009 with fiber Ethernet service.
5. In 2009 Verizon was rated the top performer in overall satisfaction in the Large Enterprise segment by
J.D. Power and Associates.
6. ARPU grew by 17.9% to $15.20.
7. FiOS TV is ranked number one in customer satisfaction in the 2010 American Customer Satisfaction
Index.
8. Verizon Wireless operates the nations most reliable and largest wireless voice and 3G data network,
serving more than 93 million customers.
9. The iPad is available at over 2000 stores nationwide.
10. Diversification of services offered by Verizon.

Weaknesses

1. Dependent upon suppliers and vendors to provide equipment needed to operate business.
2. Unions represent 35% of Verizon employees.
3. 213,000 retirees are participating in the benefits plan significantly impacting profit.
4. ARPU from service revenues decreased by 1.6% to $50.77.
5. Verizon does not carry the Apple iPhone.
6. The company faces considerable amount of litigation.
7. Verizon has a current ratio of 0.8.
8. Long term debt is $45 billion.
9. 12% increase in Verizon's health care costs during the past three years.
10. Verizon has a high leverage ratio of 5.8 compared to the industry average of 3.4.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.

Financial Ratio Analysis

Growth Rate Percent Verizon Industry S&P 500

Sales (Qtr vs year ago qtr) 5.40 260.20 14.50
Net Income (YTD vs YTD) NA NA NA
Net Income (Qtr vs year ago qtr) 109.30 122.70 47.20
Sales (5-Year Annual Avg.) 8.92 15.33 8.31
Net Income (5-Year Annual Avg.) -15.81 12.13 8.76
Dividends (5-Year Annual Avg.) 3.51 8.72 5.70

Profit Margin Percent

Gross Margin 59.2 53.4 39.8
Pre-Tax Margin 16.8 15.1 18.2
Net Profit Margin 13.8 11.2 13.2
5Yr Gross Margin (5-Year Avg.) 59.4 56.1 39.8

Liquidity Ratios
Debt/Equity Ratio 1.41 1.04 1.00
Current Ratio 0.8 2.8 1.3
Quick Ratio 0.8 0.4 0.9

Profitability Ratios
Return On Equity 18.4 12.4 26.0
Return On Assets 6.7 5.1 8.9
Return On Capital 10.4 6.6 11.8
Return On Equity (5-Year Avg.) 7.3 10.3 23.8
Return On Assets (5-Year Avg.) 4.2 4.5 8.0
Return On Capital (5-Year Avg.) 6.1 5.6 10.8

Efficiency Ratios
Income/Employee 77,459 52,636 126,905
Revenue/Employee 559,846 474,690 1 Mil
Receivable Turnover 9.2 9.0 15.4
Inventory Turnover 41.0 19.7 12.5

Net Worth Analysis (in millions)

Stockholders' Equity $ 38,569

Net Income x 5 $ 12,745
(Share Price/EPS) x Net Income $ 38,184
Number of Shares Outstanding x Share Price $ 105,559
Method Average $ 48,764

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.

 IFE Matrix

Strengths Weight Rating Weighted Score

1. Verizon acquisition of Alltel which increased total customers by
0.10 4 0.40
26.6%.
2. Verizon lowered prices by $30 on unlimited text and talk plans. 0.10 3 0.30
3. Worlds largest provider of print and online directory
0.08 3 0.24
information.
4. Constructed more than 2,300 cell sites in 2009 with fiber Ethernet
0.04 3 0.12
service.
5. In 2009 Verizon was rated the top performer in overall
satisfaction in the Large Enterprise segment by J.D. Power and 0.04 4 0.16
Associates.
6. ARPU grew by 17.9% to $15.20. 0.05 3 0.15
7. FiOS TV is ranked number one in customer satisfaction in the
0.04 4 0.16
2010 American Customer Satisfaction Index.
8. Verizon Wireless operates the nations most reliable and largest
wireless voice and 3G data network, serving more than 93 million 0.04 4 0.16
customers.
9. The iPad is available at over 2000 stores nationwide. 0.03 3 0.09
10. Diversification of services offered by Verizon. 0.03 4 0.12

Weaknesses Weight Rating Weighted Score

1. Dependent upon suppliers and vendors to provide equipment
0.04 1 0.04
needed to operate business.
2. Unions represent 35% of Verizon employees. 0.09 2 0.18
3. 213,000 retirees are participating in the benefits plan significantly
0.04 1 0.04
impacting profit.
4. ARPU from service revenues decreased by 1.6% to $50.77. 0.03 2 0.06
5. Verizon does not carry the Apple iPhone. 0.04 1 0.04
6. The company faces considerable amount of litigation. 0.03 2 0.06
7. Verizon has a current ratio of 0.8. 0.03 1 0.03
8. Long term debt is $45 billion. 0.04 1 0.04
9. 12% increase in Verizon's health care costs during the past three
0.06 2 0.12
years.
10. Verizon has a high leverage ratio of 5.8 compared to the industry
0.05 2 0.10
average of 3.4.
TOTALS 1.00 2.61

F. SWOT
SO Strategies

1. Design plans and easier cell phones for younger kids to operate (S1, S5, S8, O2).

WO Strategies

1. Open 50 stores in China (W8, O9, O7).

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.

 ST Strategies

1. Start implementing 4G towers in large cities (S8, T9, T2).

WT Strategies

1. Merge with Idea Cellular in India (W1, W8, T5, T4).

2. Cut capital expenditures to reduce long term debt (W8, T7).

G. SPACE Matrix

FP
Conservative Aggressive
7

CP IP
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7
-1

-2

-3

-4

-5

-6

-7
Defensive Competitive
SP

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.

Internal Analysis: External Analysis:
Financial Position (FP) Stability Position (SP)
Return on Equity (ROE) 6 Rate of Inflation -2
Current Ratio 3 Technological Changes -6
Debt/Equity Ratio 2 Price Elasticity of Demand -3
Gross Margin 5 Competitive Pressure -5
Inventory Turnover 7 Barriers to Entry into Market -4
Financial Position (FP) Average 4.6 Stability Position (SP) Average -4.0

Internal Analysis: External Analysis:

Competitive Position (CP) Industry Position (IP)
Market Share -2 Growth Potential 6
Product Quality -2 Financial Stability 5
Customer Loyalty -2 Ease of Entry into Market 2
Technological know-how -2 Resource Utilization 5
Control over Suppliers and Distributors -6 Profit Potential 6
Competitive Position (CP) Average -2.8 Industry Position (IP) Average 4.8

H. Grand Strategy Matrix

Rapid Market Growth

Quadrant II Quadrant I

Verizon

Weak Strong
Competitive Competitive
Position Position

Quadrant III Quadrant IV

Slow Market Growth

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.

I. The Internal-External (IE) Matrix

The Total IFE Weighted Scores

Strong Average Weak
4.0 to 3.0 2.99 to 2.0 1.99 to 1.0
4.0 I II III

High

3.0 IV V VI

The
EFE
Total Medium Verizon
Weighted
Scores

2.0 VII VIII IX

Low

1.0

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.

J. QSPM

Open 50 Reduce
stores in longterm
India/China debt
Opportunities Weight AS TAS AS TAS
1. 57% of American use more than one phone for business. 0.01 0 0.00 0 0.00
2. 76% of kids have a phone by age 12. 0.04 0 0.00 0 0.00
3. 50 million iphones sold to date. 0.06 0 0.00 0 0.00
4. There are currently 670.6 million mobile connections in India. 0.08 4 0.32 2 0.16
5. India is projected to have 1.159 billion mobile subscribers by
0.09 4 0.36 1 0.09
2013.
6. Global mobile cellular subscriptions increased 17% per year. 0.06 3 0.18 1 0.06
7. Smartphone market in the US is expected to grow by 31%. 0.07 1 0.07 3 0.21
8. 500 million people worldwide accessed mobile internet in 2009. 0.04 0 0.00 0 0.00
9. There are 277 million mobile web users in China. 0.05 4 0.20 1 0.05
10. Revenue of India's telecommunication industry is expected to
0.06 4 0.24 2 0.12
increase by 230 billion from 2008 to 2012.

Threats Weight AS TAS AS TAS

1. Verizon Communications is dependent upon suppliers and
0.01 0 0.00 0 0.00
vendors to provide equipment.
2. AT&T is a significant competitor owning 25% of the wireless
0.03 0 0.00 0 0.00
market.
3. 91% of Americans use cell phones. 0.02 0 0.00 0 0.00
4. Bharti Airtel owns 31.18% of the wireless market in India. 0.03 4 0.12 2 0.06
5. Nokia leads Smartphone global market with a 39% share. 0.06 0 0.00 0 0.00
6. The economy is hurting the wireless industry. 0.05 1 0.05 4 0.20
7. European mobile broadband growth is at a record low of 4.7% for
0.05 0 0.00 0 0.00
2010.
8. Sprint 4G is available in 53 US markets. 0.04 0 0.00 0 0.00
9. AT&T wireless revenue increased 8.8% in 2009. 0.07 0 0.00 0 0.00
10. AT&T offers service in over 200 countries. 0.08 4 0.32 2 0.16

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.

 Open 50 Reduce
stores in longterm
India/China debt
Strengths Weight AS TAS AS TAS
1. Verizon acquisition of Alltel which increased total customers by
0.10 1 0.10 3 0.30
26.6%.
2. Verizon lowered prices by $30 on unlimited text and talk plans. 0.10 1 0.10 3 0.30
3. Worlds largest provider of print and online directory
0.08 3 0.24 2 0.16
information.
4. Constructed more than 2,300 cell sites in 2009 with fiber Ethernet
0.04 0 0.00 0 0.00
service.
5. In 2009 Verizon was rated the top performer in overall
satisfaction in the Large Enterprise segment by J.D. Power and 0.04 0 0.00 0 0.00
Associates.
6. ARPU grew by 17.9% to $15.20. 0.05 0 0.00 0 0.00
7. FiOS TV is ranked number one in customer satisfaction in the
0.04 0 0.00 0 0.00
2010 American Customer Satisfaction Index.
8. Verizon Wireless operates the nations most reliable and largest
wireless voice and 3G data network, serving more than 93 million 0.04 0 0.00 0 0.00
customers.
9. The iPad is available at over 2000 stores nationwide. 0.03 0 0.00 0 0.00
10. Diversification of services offered by Verizon. 0.03 0 0.00 0 0.00

Weaknesses Weight AS TAS AS TAS

1. Dependent upon suppliers and vendors to provide equipment
0.04 0 0.00 0 0.00
needed to operate business.
2. Unions represent 35% of Verizon employees. 0.09 1 0.09 3 0.27
3. 213,000 retirees are participating in the benefits plan significantly
0.04 1 0.04 3 0.12
impacting profit.
4. ARPU from service revenues decreased by 1.6% to $50.77. 0.03 0 0.00 0 0.00
5. Verizon does not carry the Apple iPhone. 0.04 0 0.00 0 0.00
6. The company faces considerable amount of litigation. 0.03 1 0.03 3 0.09
7. Verizon has a current ratio of 0.8. 0.03 1 0.03 3 0.09
8. Long term debt is $45 billion. 0.04 1 0.04 4 0.16
9. 12% increase in Verizon's health care costs during the past three
0.06 1 0.06 3 0.18
years.
10. Verizon has a high leverage ratio of 5.8 compared to the industry
0.05 1 0.05 3 0.15
average of 3.4.
TOTALS 2.64 2.93

K. Recommendations
1. Open 50 stores in China at $10 million each.
2. Invest $200 million to design plans and easier cell phones for younger kids to operate.
3. Cut capital expenditures to reduce long term debt.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.

L. EPS/EBIT Analysis (in millions)
Amount Needed: $700M
Stock Price: $36.72
Shares Outstanding: 2,380
Interest Rate: 5%
Tax Rate: 19%

Common Stock Financing Debt Financing

Recession Normal Boom Recession Normal Boom
EBIT $10,000 $15,000 $20,000 $10,000 $15,000 $20,000
Interest 0 0 0 35 35 35
EBT 10,000 15,000 20,000 9,965 14,965 19,965
Taxes 1,900 2,850 3,800 1,893 2,843 3,793
EAT 8,100 12,150 16,200 8,072 12,122 16,172
# Shares 2,849 2,849 2,849 2,830 2,830 2,830
EPS 2.84 4.26 5.69 2.85 4.28 5.71

20 Percent Stock 80 Percent Stock

Recession Normal Boom Recession Normal Boom
EBIT $10,000 $15,000 $20,000 $10,000 $15,000 $20,000
Interest 28 28 28 7 7 7
EBT 9,972 14,972 19,972 9,993 14,993 19,993
Taxes 1,895 2,845 3,795 1,899 2,849 3,799
EAT 8,077 12,127 16,177 8,094 12,144 16,194
# Shares 2,834 2,834 2,834 2,845 2,845 2,845
EPS 2.85 4.28 5.71 2.84 4.27 5.69

M. Epilogue
Verizons Q3 2011 earnings benefited from higher-than-expected postpaid wireless subscriber additions.
While rival AT&T added more new wireless customers in total (2.1 million versus Verizons 1.3 million),
Verizon landed almost triple the number of more lucrative postpaid customers. However, Verizon was only
able to activate 2 million units versus 2.7 million for AT&T in Q3 2011. That's a narrower gap than the
two rivals in Q2 of 2011, when AT&T outsold Verizon by 1.3 million iPhones. Thus, AT&T remains the
most popular iPhone carrier in the United States, but Verizon is catching up.

The number of wireless subscriber connections (327.6 million) in the United States has recently surpassed
the population (315.5 million) of America. Consequently, Verizon and other carriers are fighting it out for
new subscribers, especially those that pay for lucrative data plans on smartphones. The iPhone 4S sold 4
million units in its very first weekend, and it will likely bring in more customers for Verizon in Q4 2011.

Verizon is negotiating with about 45,000 wireline union workers who recently walked off the job for two
weeks to protest deep concessions the company is seeking in a new multi-year contract.

In Q3 2011, Verizons Consumer revenue grew 1.1 percent year-over-year with FiOS revenue up 18.5
percent. In Global Enterprise, revenue growth was 2.1 percent year-over-year, driven by Strategic Services

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.

growth of 15.6 percent.

Verizon recently expanded its 3G wireless networks in Ohio. "People across Ohio are increasingly relying
on smartphones and 3G applications to manage their busy lives and stay connected at home or on-the-go,"
said Mark Frazier, presidentOhio/Pennsylvania/West Virginia Region, Verizon Wireless. "The nearly $2
billion we've invested into our Ohio network has kept us ahead of consumer trends, provided our customers
a 3G advantage and underscored our belief that any mobile device is only as good as the network it runs on.
Proactive and sustained investment has made Verizon Wireless the 3G leader in Ohio and nationwide."

Verizon Wireless' 3G network powers many leading mobile multimedia services, including. For example,
notebook computer users can access e-mail, download files and browse the Internet at broadband speed,
downloading a one megabyte e-mail attachment the equivalent of a small PowerPoint presentation or a
large PDF file in about eight seconds and uploading it in less than 13 seconds.

In addition to recently enhancing its 3G network, Verizon Wireless has deployed its 4G LTE Network in
165 metropolitan areas across the country, covering more than 186 million Americans from coast to coast
and surpassing the company's goal of 185 million Americans by year-end.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall.