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VERIZON -CASE
ANALYSIS
by Carlos Bardales
UNIVERSITY OF TAMPA
John H. Sykes College of Business
FALL 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-end
switches and routers that support 10Gb and even 100Gb.
External Analysis – Telecom Industry in USA
VERIZON  GOING WIRELESS CONTENT
• ACQUIRE VODAFONE STAKE IN VERIZON
WIRELESS IN 2014(130b), ACQUIRE AOL
TIME WARNER in 2015(4.4b), POSSIBLE
YAHOO EMAIL AND FINANCE in
2017(4.8b), SOLD landline to FRONTIER
2015(3b) and 2016(8.6b)
AT&T  GOING WIRED AND WIRELESS
CONTENT
• 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, Yahoo
finance)
• 51512 Television Broadcasting
• 515210 Producing and distributing a channel of television
programming: AT&T(DirecTV, Time Warner->Cable-CNN, TNT, HBO and
Warner 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 of
the
lifecycle
Type of
products sold
Variation in Sales
•No cyclicality
•No seasonality
•Event oriented
0
20000
40000
60000
80000
100000
120000
2015201420132012
Telecom Industry - Profit Margins (USD Millions)
0
100
200
300
400
500
600
700
800
900
America
Movil
(AMX)
Orange
(ORAN)
Telecom
China
Telefonica
(TEF)
Vodafone
(VOD)
Deutsche
Telekom
(DTEGY)
China
Mobile
Limited
(CHL)
Nippon
Telegraph
&
Telephone
(NTT)
Verizon
Wireless
(VZ)
AT&T (T)
SCOPE OF RIVALRY - Global Competitors (Revenues and No of
users 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 Sales
Revenues)
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 spectrum
license)
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.
312M people covered by 4G
LTE network.
300M people covered by 4G
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 EMAIL
AND 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 network
infrastructure.
• Develop new business models in platforms such as video and the
Internet of Things.
• Create incremental revenue opportunities in applications and
content.
• 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
0.00
0.50
1.00
1.50
2.00
2.50
3.00
12/31/201512/31/201412/31/201312/31/2012
2015201420132012
VERIZON - LIQUIDITY RATIOS
Current ratio Cash ratio Quick ratio
0.00
0.10
0.20
0.30
0.40
0.50
0.60
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
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
12/31/201512/31/201412/31/201312/31/2012
2015201420132012
VERIZON - LEVERAGE RATIOS
Debt/Equity (TD) Debt/Equity (LTD) Debt ratio
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
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)
Verizon AT&T T-Mobile Sprint
-10.00%
0.00%
10.00%
20.00%
30.00%
201520142013
TELECOM INDUSTRY - SALES GROWTH
PERCENTAGE
Verizon AT&T T-Mobile Sprint AVERAGE
-5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2015201420132012
TELECOM INDUSTRY - EBIT (USD Millions)
Verizon AT&T T-Mobile Sprint
0
2,000
4,000
6,000
8,000
2015201420132012
TELECOM INDUSTRY - INTEREST (USD
Millions)
Verizon AT&T T-Mobile Sprint
-12,000
-10,000
-8,000
-6,000
-4,000
-2,000
0
2,000
2015201420132012
TELECOM INDUSTRY - TAXES (USD Millions)
Verizon AT&T T-Mobile Sprint
-5,000
0
5,000
10,000
15,000
20,000
2015201420132012
TELECOM INDUSTRY - NOPAT/Net Income
(USD Millions)
Verizon AT&T T-Mobile Sprint
-5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2015201420132012
TELECOM INDUSTRY - OPERATING CASH (USD
Millions)
Verizon AT&T T-Mobile Sprint
-80,000
-60,000
-40,000
-20,000
0
20,000
40,000
2015201420132012
TELECOM INDUSTRY - FINANCING (USD
Millions)
Verizon AT&T T-Mobile Sprint
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 of
Subscribers
Verizon Wireless AT&T Sprint T-Mobile
VRIO
Resource 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 Time
Warner, Verizon has spent 4.4 billions buying AOL Time Warner and
still deciding if it will buy Yahoo.
• Continue selling not integrated landlines FiOS to operators like
Frontier but creating a company that includes all the workers to avoid
political retaliation. Discontinue operation and maintenance of ADSL
technology (copper) or replace with actual IP technologies: 4G LTE or
FiOS.

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VERIZON - CASE ANALYSIS

  • 1. VERIZON -CASE ANALYSIS by Carlos Bardales UNIVERSITY OF TAMPA John H. Sykes College of Business FALL 2016 / MGT615 – F Prof. Dr. Thomas Pittz
  • 3. 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-end switches and routers that support 10Gb and even 100Gb.
  • 4. External Analysis – Telecom Industry in USA VERIZON  GOING WIRELESS CONTENT • ACQUIRE VODAFONE STAKE IN VERIZON WIRELESS IN 2014(130b), ACQUIRE AOL TIME WARNER in 2015(4.4b), POSSIBLE YAHOO EMAIL AND FINANCE in 2017(4.8b), SOLD landline to FRONTIER 2015(3b) and 2016(8.6b) AT&T  GOING WIRED AND WIRELESS CONTENT • ACQUIRE CINGULAR WIRELESS IN 2006 (86b), ACQUIRE DIRECTV 2014 (48.5b), ACQUIRE TIME WARNER 2016 (85.4b)
  • 5.
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  • 8.
  • 9.
  • 10.
  • 11.
  • 12.
  • 14. 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, Yahoo finance) • 51512 Television Broadcasting • 515210 Producing and distributing a channel of television programming: AT&T(DirecTV, Time Warner->Cable-CNN, TNT, HBO and Warner Bros)
  • 15. 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.
  • 19. Variation in Sales •No cyclicality •No seasonality •Event oriented
  • 22. 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 Sales Revenues) Verizon AT&T T-Mobile Sprint
  • 24. 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
  • 26. 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
  • 28. 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 spectrum license) 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. 312M people covered by 4G LTE network. 300M people covered by 4G 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 EMAIL AND 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
  • 30. INTERNAL ANALYSIS – VERIZON STRATEGY • Deliver of wireless and wired services over their superior network infrastructure. • Develop new business models in platforms such as video and the Internet of Things. • Create incremental revenue opportunities in applications and content. • They perform well in all the key factor, specially in Telecom Assets
  • 32. #1 in Rural Coverage, #2 in Non-Rural Coverage
  • 33. #2 in LTE Download Speed
  • 36. Market Cap. - Comparison with peers
  • 37. Market Cap. - Comparison with Indices
  • 39. 0.00 0.50 1.00 1.50 2.00 2.50 3.00 12/31/201512/31/201412/31/201312/31/2012 2015201420132012 VERIZON - LIQUIDITY RATIOS Current ratio Cash ratio Quick ratio 0.00 0.10 0.20 0.30 0.40 0.50 0.60 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 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 12/31/201512/31/201412/31/201312/31/2012 2015201420132012 VERIZON - LEVERAGE RATIOS Debt/Equity (TD) Debt/Equity (LTD) Debt ratio 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 50.00 12/31/201512/31/201412/31/201312/31/2012 2015201420132012 VERIZON - ACTIVITY RATIOS A/R Turnover A/P Turnover Inventory turnover Avg. Collection Period
  • 41. 0 50,000 100,000 150,000 200,000 2015201420132012 TELECOM INDUSTRY - REVENUE (USD Millions) Verizon AT&T T-Mobile Sprint -10.00% 0.00% 10.00% 20.00% 30.00% 201520142013 TELECOM INDUSTRY - SALES GROWTH PERCENTAGE Verizon AT&T T-Mobile Sprint AVERAGE -5,000 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 2015201420132012 TELECOM INDUSTRY - EBIT (USD Millions) Verizon AT&T T-Mobile Sprint 0 2,000 4,000 6,000 8,000 2015201420132012 TELECOM INDUSTRY - INTEREST (USD Millions) Verizon AT&T T-Mobile Sprint -12,000 -10,000 -8,000 -6,000 -4,000 -2,000 0 2,000 2015201420132012 TELECOM INDUSTRY - TAXES (USD Millions) Verizon AT&T T-Mobile Sprint -5,000 0 5,000 10,000 15,000 20,000 2015201420132012 TELECOM INDUSTRY - NOPAT/Net Income (USD Millions) Verizon AT&T T-Mobile Sprint
  • 42. -5,000 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 2015201420132012 TELECOM INDUSTRY - OPERATING CASH (USD Millions) Verizon AT&T T-Mobile Sprint -80,000 -60,000 -40,000 -20,000 0 20,000 40,000 2015201420132012 TELECOM INDUSTRY - FINANCING (USD Millions) Verizon AT&T T-Mobile Sprint 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 of Subscribers Verizon Wireless AT&T Sprint T-Mobile
  • 43. VRIO Resource 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
  • 44. 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 Time Warner, Verizon has spent 4.4 billions buying AOL Time Warner and still deciding if it will buy Yahoo. • Continue selling not integrated landlines FiOS to operators like Frontier but creating a company that includes all the workers to avoid political retaliation. Discontinue operation and maintenance of ADSL technology (copper) or replace with actual IP technologies: 4G LTE or FiOS.