VERIZON - CASE ANALYSIS

VERIZON -CASEANALYSIS

by Carlos BardalesUNIVERSITY OF TAMPA

John H. Sykes College of BusinessFALL 2016 / MGT615 – F

Prof. Dr. Thomas Pittz

External Analysis

External Analysis - Telecom Industry in USA• TELECOM COMPANIES CONTENT COMPANIES

• AT&T : DIRECTV(48.5b), TIMEWARNER (85.4b)• VERIZON: AOL TIME WARNER(4.4b), YAHOO EMAIL & YAHOO FINANCE

(4.8b)

• CONTENT COMPANIES TELECOM COMPANIES• GOOGLE: Search, Content, ULTRAFAST INTERNET 18 CITIES• FACEBOOK: 500b TELECOM INVESTMENT IN OPTICAL NETWORKS• AMAZON: To become internet service provider (ISP) in Europe• NETFLIX: Demand of 1.6Terabits/second. Entire network redesign. Exploding

bandwidth requirements. Actual 1Gb ports must be upgraded to high-endswitches and routers that support 10Gb and even 100Gb.

External Analysis – Telecom Industry in USAVERIZON GOING WIRELESS CONTENT• ACQUIRE VODAFONE STAKE IN VERIZON

WIRELESS IN 2014(130b), ACQUIRE AOLTIME WARNER in 2015(4.4b), POSSIBLEYAHOO EMAIL AND FINANCE in2017(4.8b), SOLD landline to FRONTIER2015(3b) and 2016(8.6b)

AT&T GOING WIRED AND WIRELESSCONTENT• ACQUIRE CINGULAR WIRELESS IN 2006

(86b), ACQUIRE DIRECTV 2014 (48.5b),ACQUIRE TIME WARNER 2016 (85.4b)

Trends in Telecom

ECONOMIC CHARACTERISTICS

NAICS in Telecom Industry• 517 Telecommunications

• 517110 Wired: AT&T, VERIZON• 517210 Wireless: AT&T, VERIZON, T-MOBILE, SPRINT• 517410 Satellites• 517911 Resellers (MVNOs): METRO PCS, VIRGIN, US Mobile, etc.• 518210 Data Processing, Hosting, and Related Services: VERIZON (AOL

Time Warner, Hufftingtonpost, TechCrunch, Go90, Yahoo email, Yahoofinance)

• 51512 Television Broadcasting• 515210 Producing and distributing a channel of television

programming: AT&T(DirecTV, Time Warner->Cable-CNN, TNT, HBO andWarner Bros)

Market Size

• 60 billion calls and data calls per quarter.• 250 to 300 billion calls and data calls to be distributed

in the USA market.

6%

7%

8%

9%

10%

11%

12%

201520142013

Telecom Industry Sales Growth Rate (%)

SALES REVENUES

Stage ofthelifecycle

Type ofproducts sold

Variation in Sales

•No cyclicality•No seasonality•Event oriented

0

20000

40000

60000

80000

100000

120000

2015201420132012

Telecom Industry - Profit Margins (USD Millions)

0100200300400500600700800900

AmericaMovil(AMX)

Orange(ORAN)

TelecomChina

Telefonica(TEF)

Vodafone(VOD)

DeutscheTelekom(DTEGY)

ChinaMobileLimited(CHL)

NipponTelegraph

&Telephone

(NTT)

VerizonWireless

(VZ)

AT&T (T)

SCOPE OF RIVALRY - Global Competitors (Revenues and No ofusers in Millions)

2015 Revenues 2015 No of users

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2015 2014 2013 2012

SCOPE OF RIVALRY - National Competitors (USD Millions SalesRevenues)

Verizon AT&T T-Mobile Sprint

Resellers

KEY SUCCESS FACTOR

• Available capital for investment

• Ability to detect trends and implement new technologies

• Vertical integration and economies of scale• Telecommunication Assets: Fiber Optic Network, Tower Stations,

Equipment, Spectrum & Subscribers

300.310.320.330.340.350.360.370.380.390.400.

2013 2014 2015

Telecom Industry - Number of subscribers (Millions)

PORTER 5 FORCES

• Threat of new entrants – HIGH• Bargaining Power of Buyers – HIGH• Threat of Substitute Products or Services – HIGH• Bargaining Power of Suppliers - LOW

MACRO ENVIROMENTAL TRENDS

Opportunities and threats

for the industry

VERIZON AT&T T-MOBILE SPRINT

Capital for investments 18b profit.

39b cash for investment.

30b invested

(18b capex,

4b acquisitions,

10b AWS-3 spectrum

license).

13b profit. 36b cash for

investment. 49b invested

(19b capex, 12b acquisitions

18b AWS-3 spectrum

license).

678m profit. 5.4b for

investment. 10b invested (3b

increase,

5b capex,

1.8b AWS-3 spectrumlicense)

2b profit.

4b for investment.

6b invested (7b capex,

1b disposal of fix assets)

Implementation of new

technologies

312M persons covered with

4G LTE network.

111b invested in 4G LTE since

2000.

355M people covered by 4G

LTE network.


LTE network.


LTE network.

Economies of scale through

merges, joint ventures,

acquisitions and sales.

ACQUIRE VODAFONE

STAKE IN VERIZON

WIRELESS IN 2014(130b),

ACQUIRE AOL in 2015(4.4b),

POSSIBLE YAHOO EMAILAND FINANCE in 2017(4.8b),

SOLD landline to FRONTIER

2015(3b), and in 2016(8.6b)

ACQUIRE CINGULAR

WIRELESS IN 2006 (86b),

ACQUIRE DIRECTV 2014

(48.5b), ACQUIRE TIME

WARNER 2016 (85.4b)

Tried to buy T-Mobile in 2014.

Potential merge with T-Mobile

in 2017.

Subscribers Database 143M 132M 68M 58M

VERIZON

INTERNAL ANALYSIS – VERIZON STRATEGY

• Deliver of wireless and wired services over their superior networkinfrastructure.

• Develop new business models in platforms such as video and theInternet of Things.

• Create incremental revenue opportunities in applications andcontent.

• They perform well in all the key factor, specially in Telecom Assets

#2 Wireless Coverage

#1 in Rural Coverage, #2 in Non-Rural Coverage

#2 in LTE Download Speed

Global Presence

FINANCIAL ANALYSIS

Market Cap. - Comparison with peers

Market Cap. - Comparison with Indices

RATIOS

0.000.501.001.502.002.503.00

12/31/201512/31/201412/31/201312/31/2012

2015201420132012

VERIZON - LIQUIDITY RATIOS

Current ratio Cash ratio Quick ratio

0.000.100.200.300.400.500.60

12/31/201512/31/201412/31/201312/31/2012

2015201420132012

VERIZON - PROFITABILITY RATIOS

Gross profit margin Operating profit margin

Net profit margin Linear (Net profit margin)

0.00

2.00

4.00

6.00

8.00

10.00

12.00

12/31/201512/31/201412/31/201312/31/2012

2015201420132012

VERIZON - INTEREST COVERAGE RATIOS

EBITDA Coverage ratio TIA(Time Interest Earned)

0.00

0.20

0.40

0.60

0.80

1.00

1.20

12/31/201512/31/201412/31/201312/31/2012

2015201420132012

VERIZON - OPERATING RETURNS RATIOS

ROE ROA Asset turnover ratio ROIC

0.002.004.006.008.0010.0012.0014.0016.0018.00

12/31/201512/31/201412/31/201312/31/2012

2015201420132012

VERIZON - LEVERAGE RATIOS

Debt/Equity (TD) Debt/Equity (LTD) Debt ratio

0.005.0010.0015.0020.0025.0030.0035.0040.0045.0050.00

12/31/201512/31/201412/31/201312/31/2012

2015201420132012

VERIZON - ACTIVITY RATIOS

A/R Turnover A/P Turnover Inventory turnover Avg. Collection Period

BENCHMARK

0

50,000

100,000

150,000

200,000

2015201420132012

TELECOM INDUSTRY - REVENUE(USD Millions)


-10.00%

0.00%

10.00%

20.00%

30.00%

201520142013

TELECOM INDUSTRY - SALES GROWTHPERCENTAGE

Verizon AT&T T-Mobile Sprint AVERAGE

-5,00005,00010,00015,00020,00025,00030,00035,000

2015201420132012

TELECOM INDUSTRY - EBIT (USD Millions)


0

2,000

4,000

6,000

8,000

2015201420132012

TELECOM INDUSTRY - INTEREST (USDMillions)


-12,000-10,000-8,000-6,000-4,000-2,00002,000

2015201420132012

TELECOM INDUSTRY - TAXES (USD Millions)


-5,000

0

5,000

10,000

15,000

20,000

2015201420132012

TELECOM INDUSTRY - NOPAT/Net Income(USD Millions)


-5,00005,00010,00015,00020,00025,00030,00035,00040,00045,000

2015201420132012

TELECOM INDUSTRY - OPERATING CASH (USDMillions)

Verizon AT&T T-Mobile Sprint-80,000

-60,000

-40,000

-20,000

0

20,000

40,000

2015201420132012

TELECOM INDUSTRY - FINANCING (USDMillions)


30

35

40

45

50

2013 2014 2015

Telecom Industry - ARPU (Monthly)

Verizon Wireless AT&T Sprint

T-Mobile Average

0.

20.

40.

60.

80.

100.

120.

140.

160.

2013 2014 2015

Telecom Industry - Number ofSubscribers

Verizon Wireless AT&T Sprint T-Mobile

VRIOResource Valuable Rare Costly to imitate Exploited Competitive

implications

Fiber optic network Y Y Y N Sustained Competitive

advantage

3G CDMA EVDO

assets

Y N N Y Temporary

Competitive Parity

4G assets Y N Y Y Competitive parity

Network coverage Y N Y Y Sustained Competitive

advantage

Radio spectrum Y Y Y N Sustained Competitive

advantage

Product portfolio Y N N Y Competitive parity

Capital expenditure

capacity

Y Y Y N Sustained competitive

advantage

Subscribers database Y Y Y N Sustained competitive

advantage

Recommendations for Verizon• Buy Yahoo mail and Yahoo Finance with a discount of 1 billion dollars

due to the breach.• Be more aggressive in the purchase of content companies. AT&T has

spent 130 billions in the last two years buying DirecTV and TimeWarner, Verizon has spent 4.4 billions buying AOL Time Warner andstill deciding if it will buy Yahoo.

• Continue selling not integrated landlines FiOS to operators likeFrontier but creating a company that includes all the workers to avoidpolitical retaliation. Discontinue operation and maintenance of ADSLtechnology (copper) or replace with actual IP technologies: 4G LTE orFiOS.

Technology

VERIZON - CASE ANALYSIS