Verizon Communications Inc.Strategic Management

September 16, 2012

Saurabh Barnwal

Fortune 500 list of 201228

World’s Most Admired Companies 201210

History of Verizon Communications1,2

• Jun 2000 – Verizon Communications Inc. formed with merger of Bell Atlantic Corp. and GTE Corp to become the number one communications provider.

– GTE• 7.1 million wireless customers• 35 million land lines in US, Canada and Caribbean

– Bell Atlantic• 43 million mobile customers• World’s largest directory information service

– Trades as VZ on NTSE

Financial Statement9

Business Unit

• Operates three business units

– Verizon Wireless

– Wireline

– Verizon Business

Employee –•Headquartered in New York

•2011 Total Operating Revenue of $110.87 billion

•Employs nearly 188,000 employees

•Largest wireless and fixed-line service provider

•$21.8 billion provided in annual compensation and benefits

•Nearly $3.6 billion in annual spending for health care coverage for

approximately 800,000 employees, retirees and family members

•$1.6 billion in retiree medical benefits

Fast Facts3

Corporate Citizenship –

•$3.8 billion in goods and services purchased from minority-owned businesses

•$66 million given by the Verizon Foundation to nonprofit organizations

•Verizon employees volunteered over 674,000 hours to support nonprofit

organizations in 2011

•More than 4.5 million phones collected for recycling and reuse, and more than

$10 million in cash grants awarded to domestic violence organizations

nationwide since 2008

Fast Facts Continue…..

Corporate – •Verizon Is Top Telecommunications Company in Fortune Magazine's 2012 List of World's Most Admired CompaniesMarch 2012•Verizon's Employee Training Programs Ranked Tops in the U.S.February 2012

Wireless – •Innovative Verizon Wireless Retail Software Solution Recognized By CIO MagazineJune 2012•Verizon Wireless Ranks Highest in Network Quality in Five Regions According to J.D. Power and AssociatesMarch 2012•Verizon Wireless Customer Care Leads Industry In J.D. Power And Associates StudyFebruary 2012

Awards and Recognition19

Diversity and Workplace Excellence – •Verizon Wireless Recognized as a Best Place To Work In Information TechnologyJune 2012•Verizon Again Named to Working Mother Magazine List of Best Companies for Multicultural WomenMay 2012•Verizon Recognized for its Military Recruiting and Hiring PracticesMay 2012•Verizon Named to NAFE List of Top 50 Companies for Executive Women, for 8th Consecutive YearFebruary 2012

Corporate Responsibility – •Verizon Wireless Receives Green Enterprise IT Award for Facility Design ImplementationMay 2012•Verizon Announces Aggressive Sustainability Goal: Cutting Carbon Intensity in Half by 2020March 2012

Awards and Recognition Continue…

Products and Services15-17

FiOS Video•4.5 million subscribers •Up to 130 HDTV channels, over 540 all-digital TV channels and 46 commercial-free digital music channels network

FiOS Internet•5.1 million subscribers •Speeds up to 300 Mbps (megabits per second) downstream and 65 Mbps upstream •8.8 million total broadband connections, including 3.6 million High Speed Internet (HSI) connections with speeds up to 15 Mbps

Products and Services Continue …• Flex View lets customers download TV shows and movies from a

library of more than 20,000 titles, and then access their media on-the-go.

• Verizon’s My FiOS app connects customers to FiOS from just about anywhere, providing easy access to Flex View movies, photos and music, DVR and TV listings.

• Access hundreds of live games with premium sports channels from the NFL, NBA, NHL and MLB, as well as ESPN 3D —the first 3D sports network in the U.S.

Market Share

“Verizon’s mission is to enable people and businesses to communicate with each

other. We are also committed to providing full and open communication

with our customers, employees and investors.”

Mission Statement13

Vision Statement14

“For our Core Goals, we decided on just one: To create the most respected brand in

communications.”

• Employees Own Their Career- Company knows improvement of company & workforce

- Company wants workforce to have careers not just jobs - “Customers like current affair & passion.” - Melissa (customer service supervisor) - Trained to be team spirited. Helped each other & help employees to see & overcome

challenges

• Employee Training - Tools & framework available to resolve any customer problems - Support - Passion & Training

• Place to Grow

• Get Degree Verizon Pay

• Medical / Health Benefits compensation for tuition

• Day care program/Mother’s Room

Organizational Culture

Verizon credo

Continue……

Price Performance30

Financial AnalysisMetric Verizon26 AT&T27 Industry29

Market Cap (in Billions) 129.85 223.61 465.5

Earnings per Share (TTM) 1 0.75 1.02*

Earnings per Share Growth 12.28% 10% -12.7*

Price / Earnings Ratio (TTM) 43.72 49.73 14.7

EBITDA Margins(TTM in billions) 32.57 27.87 37.71*

Revenue (TTM in billions) 113.14 127.38 30.16*

Return on Equity(ROE) 12.72% 4.3% 14.10

Leaders are in bold

* Average of ten largest companies (by market cap) in industry

Key Ratios

Ratios Verizon Industry S&P 500

P/E 44.49 14.7 17.34

ROE% 12.72 14.10 12.33

Dividend Yield % 4.7 4.94 2.86

Long Term Debt to Equity 57.94 80.76 82.53

Price/Book Value 3.44 -4.64 3.72

Price/Free Cash Flow 27.43 180.50 -3.75

Price/Sales 1.13 1.89 2.35

Price/Cash Flow 4.6 7.7 12.4

Debt/Equity 1.41 1.04 0.95

Current Ration 1 2.6 1.4

Quick Ratio 1 0.4 1

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Acquisition & Merger

• January 2006 - Verizon Communications closed its $8.44 billion acquisition of long-distance carrier MCI

• January 2009 - Verizon Wireless' $28.1 billion acquisition of regional carrier Alltel Wireless is finally complete, making the combined company the largest wireless carrier in the United States.

• April 2011 - Verizon Communications (VZ) has closed its $1.4 billion acquisition of Terremark Worldwide, clearing the way for Verizon to lead the rapidly evolving global managed IT infrastructure and cloud services market.

• August 2011 - Verizon Communications Inc. announced today that it has acquired CloudSwitch, an innovative provider of cloud software technology, in a deal that will simplify the move to the enterprise cloud and help to boost industry adoption

• June 2012 - Verizon Acquires Hughes Telematics for $612M in Cash

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Current Key Strategies

Internal Factor Evaluation (IFE)

Key Internal Factors Weight Rating Score

Strengths

Reliable / Robust Wireless Network 0.20 4 0.80

Marketing / Brand Awareness 0.12 4 0.48

Corporate Strategy - Joint Venture 0.12 3 0.36

Financial Performance / Position 0.08 3 0.24

Advanced Fiber Network 0.05 3 0.15

Weaknesses

Geographic Concentration 0.15 1 0.15

CDMA Technology 0.15 1 0.15

Declining Access Lines 0.05 2 0.10

TV services limited / shared 0.05 2 0.10

Fee Structure 0.03 1 0.03

Total 1.00 2.56

External Factor Evaluation (EFE)

Key External Factors Weight Rating Score

Opportunities  

1.) Increasing usage of wireless broadband applications 0.13 4 0.52

2.)

Increasing percentage of their capital expenditures toward growth-oriented ventures, through reduced debt load.

0.12 4 0.48

3.)

Ability to bring cost structures more in line with revenues through consolidations, as work forces are reduced, businesses streamlined, and services further bundled

0.12 3 0.36

4.) Price reductions for broadband service coupled with demand for faster connections (to support working from home, online gaming, and watching videos ex. YouTube) 0.09 2 0.18

5.) Using new size to reach further in the U.S. but mainly to expand into Europe 0.12 1 0.12

   

Threats      

1.) Competitor’s adaptation of Verizon’s core competency in customer service 0.08 3 0.24

2.) Technological advances and regulatory reforms 0.09 2 0.18

3.) Economic slowdown resulting in weaker consumer spending 0.08 2 0.16

4.) Competition: AT&T’s contract with Apple 0.07 2 0.14

5.) CDMA technology’s cost benefits coming to an end with advances in GSM 0.10 1 0.10

Total 1.00   2.48

External Factor Evaluation (EFE)

IE Matrix

Competitive Profiles Matrix (CPM)

    Verizon AT&T Century Link

Critical Success Factors Weight Rating Weighted Score Rating Weighted Score Rating Weighted Score

Global Expansion 0.12 1 0.12 2 0.24 1 0.12

Market Share 0.16 4 0.64 3 0.48 2 0.32

Customer Loyalty 0.14 4 0.56 3 0.42 2 0.28

Financial Position 0.10 3 0.30 4 0.40 2 0.20

Service Quality 0.16 4 0.64 3 0.48 2 0.32

Customer Service 0.12 4 0.48 2 0.24 2 0.24

Price Competitive 0.09 3 0.27 3 0.27 3 0.27

Management 0.11 3 0.33 3 0.33 2 0.22

Total 1.00   3.34   2.86   1.97

Competitive Profiles Matrix (CPM)

SWOT MatrixSWOT Matrix

Internal Strategy Position External Strategy Position

Competitive Advantage(CA) Industry Strength(IS)-1 Product Quality 4 Barriers to Entry

-1 Market share 5 Growth potential

-1 Brand & Image 6 Access to Financing

-1 Product Life Cycle 5 Consolidation

Financial Strength(FS) Environmental Stability(ES)5 Return On Asset -4 Inflation

3 Leverage -1 Technology

4 Liquidity -1 Demand Elasticity

4 Cash Flow -2 Taxation

SPACE Matrix

(2, 4)

Conservative Aggressive

Defensive Competitive

Y axis Financial strength +4 +1 worst to + 6 best Y axis: 4 + (-2) = 2 Environmental stability -2 -1 best to -6 worstX axis Industry strength 5 +6 best to +1 worst X axis: 5 + (-1) = 4 Competitive advantage -1 -6 worst to –1 best

SPACE Matrix

Verizon’s Top Three Strategies

• Pursue 4G Technology– Transition from CDMA GSM 31

Recommended Strategies:

• Be the first to bring FiOS into the home nationally– Increased Speed, Quality, & Flexibility 32

– Opportunity for premier quad bundling

• Increase Investment in R&D – Long Term Evolution– Fiber Optic Service

Pursue 4G Technology Bring FioS into Increase Investment in R&D

Based on GSM home to offer high service towards future technology

Key Factors   Weight AS TAS AS TAS AS TAS

OPPORTUNITIES from EFE (= weight x AS) (= weight x AS) (= weight x AS)

1. Increasing usage of wireless broadband applications 0.13 4.00 0.52 3.00 0.39 2.00 0.26

2. Increasing % of their capital expenditures towardgrowth-oriented ventures, through reduced debt load. 0.12 4.00 0.48 3.00 0.36 2.00 0.24

3. Ability to bring cost structures more in line with revenues through consolidations, as work forces are reduced, businesses streamlined, and services further bundled. 0.12 2.00 0.24 1.00 0.12 4.00 0.484. Price reductions for broadband service coupled with demand for faster connections.

0.09 2.00 0.18 4.00 0.36 3.00 0.275. Using new size to reach further in the U.S. but mainly to expand into the foreign markets. 0.12 4.00 0.48 3.00 0.36 2.00 0.24

THREATS

1. Competitor's adaptation of Verizon's core competency in customer service. 0.08 - 0.00 - 0.00 - 0.00

2. Technological advances and regulatory reforms. 0.09 4.00 0.36 2.00 0.18 3.00 0.27

3. Economic slowdown resulting in weaker consumer spending. 0.08 4.00 0.32 3.00 0.24 2.00 0.16

4. Competition: AT&T's contract with Apple 0.07 4.00 0.28 1.00 0.07 3.00 0.21

5. CDMA technology's cost benefits coming to an end with advances in GSM 0.10 4.00 0.40 1.00 0.10 3.00 0.30

1.00

AS= Attractiveness Score: TAS= Total Attractiveness Score

Attractiveness Score: 1= not attractive; 2= somewhat attractive; 3= reasonably attractive; 4= highly attractive

Quantitative Strategic Planning Matrix

Pursue 4G Technology Bring FioS into Increase Investment in R&D

Based on GSM home to offer high service towards future technology

Key Factors Weight AS TAS AS TAS AS TAS

Strengths from IFE

1. Reliable/ Robust Network 0.20 4.00 0.80 1.00 0.20 2.00 0.40

2. Corporate Strategy- Joint Venture 0.12 4.00 0.48 2.00 0.24 1.00 0.12

3. Marketing/ Brand Awareness 0.12 4.00 0.48 3.00 0.36 2.00 0.24

4. Financial Performance/ Position 0.08 4.00 0.32 3.00 0.24 2.00 0.16

5. Advanced Fiber Network 0.05 1.00 0.05 4.00 0.20 3.00 0.15

Weaknesses

1. CDMA Technology 0.15 4.00 0.60 1.00 0.15 3.00 0.45

2. Geographic Concentration 0.15 4.00 0.60 3.00 0.45 2.00 0.30

3. Declining Access Lines 0.05 1.00 0.05 4.00 0.20 3.00 0.15

4. TV services limited/ shared 0.05 1.00 0.05 4.00 0.20 3.00 0.15

5. Fee Structure 0.03 3.00 0.09 4.00 0.12 1.00 0.03Sum Total Attractiveness Score

1.006.78 4.54 4.58

AS= Attractiveness Score: TAS= Total Attractiveness ScoreAttractiveness Score: 1= not attractive; 2= somewhat attractive; 3= reasonably attractive; 4= highly attractive

Quantitative Strategic Planning Matrix

• Pursue 4G technology (Long Term Evolution) with the transition from CDMA GSM

• Initial Target: Europe/ Asia• “Any apps, Any device” 33

• Free and wide open network

• Expand coverage network

• Expand customer base 34

• Opportunity to dominate

Final Recommended Strategy

Product Positioning Map

Price

Quality

Target Market Description

• Geographic: Mostly U.S.; more prevalent in the North Eastern region of the U.S.

• Age: Male and female, young teens (12-17), college students (18-24), recent college grads (25-30), and families1.

• Ethnicity: Caucasian, Hispanic, African-American, and other non-Hispanic.

• Education: High school diploma and college grads.• Occupation: Students, blue collar and white collar, young and

older professionals, executives, business owners.• User status: Regular user• Usage rate: Medium and Heavy users• Loyalty status: Strong• Attitude towards product: Positive

Target Market

• Current Market Position– Heavily saturated market with a massive user base of over

106.3 million users– They differentiate themselves from others through network

quality and customer service as shown in ads and also slogans: “We never stop working for you” and “Can you hear me now?”

• Revised Market Position (the above plus)– Integrate marketing divisions in different regional areas to

better focus on the target market in the area.

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Strategy Evaluation Report: Balanced Scorecard13

Area of Objective Measure or Target Time

Expectation

Primary

Responsibility

Customers

1.Increase Compatibility of Verizon

Devices

2.Increase Number of Compatible

GSM Devices.

+ 10%

+10% of Data Users

Q4 2012

Q4 2012

Product Development

Market Penetration

Managers/Employees

1.Improve Product Knowledge. Reduce repeated call level by< 20%

Q4 2012 Management

Operations Processes

1. Decrease Workforce

2. Improve Efficiency

< 2%

+ 10%

Q4 2012

Q4 2012Everyone

Financial

1.Increase Revenues

2.Increase Operation Income

110870 –121815.9+(10%)

+ 20%

Q4 2012

Q4 2012

Finance

Thank You

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32. Hardy, Ed (2007, December 7). Verizon Picks LTE for its 4G Wireless Network. Retrieved June 30, 2008, from Brighthand Web site: http://www.brighthand.com/default.asp?newsID=13547

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