netrashetty
Netra Shetty
Verizon Communications Inc. (NYSE: VZ, NASDAQ: VZ) is a global broadband and telecommunications company and a component of the Dow Jones Industrial Average. It started in 1983 as Bell Atlantic (based in Philadelphia) with a footprint covering New Jersey to Virginia and NYNEX (based in New York City) with a footprint spanning from New York to Maine that emerged as part of the 1984 AT&T breakup into seven "Baby Bells." Prior to its transformation into Verizon, Bell Atlantic merged with Regional Bell Operating Company, NYNEX, in 1997. The name Verizon is a portmanteau of veritas and horizon,[2] and its pronunciation rhymes with horizon. The company's headquarters are located in the Verizon Building at 140 West Street in Lower Manhattan, New York City.[3]
Verizon Communications (NYSE: VZ) is a U.S. telecommunication company and provider of fixed-line, wireless, television, and data services. Its wireless division, Verizon Wireless, is a joint venture with Vodafone and represents the largest subscriber base with 93.2 million customers and 101.1 million total connections as of the end of 3Q10[1]. After Verizon completed its $28.1 billion acquisition of Alltel in January 2009, Verizon Wireless became the largest wireless carrier in the United States. Although AT&T, Verizon's closest competitor in the wireless space, has been slowly narrowing the gap since the acquisition, news on October 2010 that their exclusivity contract with Apple would end and that the iPhone product line would be carried by Verizon Wireless starting early 2011 are likely have kept Verizon atop subscriber tables[2]. The Wall Street Journal reported in January 2011 that beginning less than a month later on February 10 Verizon will sell iPhones for $199, the same price charged by current partner, AT&T[3]. To jumpstart its wireline business segment, which has experienced increased competition as customers switch to wireless products or less expensive alternatives such as VoIP technology, VZ has delved deeply into its Fiber-to-the-Home (FTTH) service, FiOS, investing north of $20 billion in 2010[4]. FiOS provides advanced data, video, and telephony products, offering "triple play" services and utilizing a fiber optic transmission that allows for download speeds upwards of 50Mbps. As of the end of FY2009, Verizon boasted 3.4 million total FiOS Internet customers and 2.9 million total FiOS TV customers[5].
Contents
1 Company Overview
1.1 Business and Financial Metrics
1.2 Business Segments
1.2.1 Verizon Wireless (58% of revenue ($15.7 billion) in 1Q10[7])
1.2.2 Wireline (42% of revenue ($11.2 billion) in 1Q10[7])
2 Trends and Forces
2.1 Maturing Market
2.2 Rising Data Revenues Shift Focus Away from Voice
2.3 Long Term Evolution
2.4 Regulatory Environment
3 Competitors
4 References
Company Overview
Verizon Communications was formed in 2000 with the merger of Bell Atlantic and GTE Corp, and offers a wide array of wireline and wireless voice and data transmission services via approximately 41.4 million residential and commercial access lines throughout the United States.
Business and Financial Metrics
In 3Q10, Verizon reported total revenues of $26.5 billion, a 2.9% YoY decrease from 3Q09. However, cash flow generation grew at Verizon, with free cash flow totaling $13.4 billion for the first three quarters of 2010, a significant increase from 2009's $10.7 billion. Verizon also demonstrated discipline in reducing its mounting piles of debt, with net debt reduced by $12.5 in the first three quarters of 2010 and its net debt to adjusted EBITDA ratio falling to 1.4[1]. Additionally, two-thirds of Verizon's revenue came from what are deemed high growth areas, primarily FiOS and wireless data[1]. Other quarterly highlights include 101.1 million total base wireless connections with 1.2 million net additions.
Annual Financial Data, in millions[6] FY2005 FY2006 FY2007 FY2008 FY2009
Revenue $75,112.0 $88,144.0 $93,469.0 $97,354.0 $107,808.0
Gross Profit $49,643.0 $53,150.0 $55,922.0 $58,347.0 $63,509.0
Operating Income $14,814.0 $13,373.0 $15,578.0 $16,884.0 $14,027.0
Net Income $7,397.0 $6,197.0 $5,521.0 $6,428.0 $3,651.0
Business Segments
Verizon Wireless (58% of revenue ($15.7 billion) in 1Q10[7])
Verizon Wireless is the largest provider of wireless voice and data services in the United States[8]. The business segment is a joint venture between Verizon and Vodafone; with Verizon holding a 55% stake in Verizon Wireless, and Vodafone holding the remaining 45%, it has controlling power over the company’s operations.[9]. Its services include basic local and long distance wireless voice services, text messaging, music downloads, navigation and Internet access, V CAST Music and V CAST Mobile TV. The company has more than 25 multimedia phones that allow customers to browse and download songs, and the first true mobile TV service in the nation. (See 3G concept page for additional information on third-generation wireless technology.)
As of the end of 3Q10, the company boasts a customer network of approximately 93.2 million customers[5]. It has also positioned itself as the go-to Android smartphone provider, with over 9 million subscribers as of September 2010[10].
In July 2010, Verizon announced the completion of Frontier Communications' acquisition of Verizon's 14 state-wide local wireline operations, known as New Communications Holdings[11].
Wireline (42% of revenue ($11.2 billion) in 1Q10[7])
In 3Q09, Verizon's management team consolidated Verizon Telecom and Verizon Business to form a single Wireline segment that competes with cable operators in advanced data, video, and telephony products. Through this consolidation, Verizon is now the leading provider of Fiber-to-the-Home (FTTH) and boasts an ARPU of $135 per month[12]. As of the end of FY20009, its FiOS service passed approximately 15.4 million homes and held 9.2 million broadband connections [5].
Trends and Forces
Maturing Market
Revenues from voice traffic for a wireless carrier are driven by its number of subscribers and the average revenue generated per customer (ARPU). While the wireless business has been the driver behind Verizon's recent revenue growth, this growth has decelerated as the U.S. market continues to mature, with U.S. wireless subscription penetration topping 89% as of June 2009[14]. Total U.S. subscriber counts grew at an annual rate of 11% in the 2000's, compared to 33% in the 1990's[15], an indication that there is very little room left for organic growth.
In an effort to compensate for the deceleration in growth, Verizon acquired Alltel for $28.1 billion. The merger was approved by the FCC and the Department of Justice in November 2008[16]and completed in January 2009, adding 13 million new customers and ousting its competitor AT&T as the top player in the U.S. market[17]. As part of the deal, Verizon will divest 105 markets worth between $3 billion and $4 billion to eliminate its overlapping network with Alltel[18].
Verizon's announced partnership with TESSCO Technologies in September 2009 aims to take advantage of the nation's largest 3G wireless network and a comprehensive set of Machine-to-Machine (M2M) hardware solutions. This will benefit Verizon Wireless consumers by reducing their costs when purchasing from multiple vendors and maximizing efficiencies in remote monitoring[19]. Additionally, a joint venture with Apple to launch an Internet security suite for Mac users subscribing to Verizon's internet services. With Mac users representing a growing segment of the broadband community, Verizon is looking to increase its triple service customer base by enhancing their online experience[20].
Rising Data Revenues Shift Focus Away from Voice
In February 2010, Verizon announced a partnership with Skype to offer the Internet company's free calling service on nine of its smartphones, including those using Google's Android software. The Skype mobile application already exists through the iPhone, but requires a wi-fi connection and is not supported by AT&T's mobile network. The use of Skype would use a customer's unlimited data plan instead of voice minutes, so the major telecommunications companies have been hesitant to adopt its technology since it could cannibalize voice revenues[21]. With the advent of data-intensive communication devices such as smartbooks and e-book readers, and the gradual development of 4G networks, consumes find data more attractive and consumption has skyrocketed. In 4Q09, mobile SMS and internet revenue per subscriber for Verizon rose by 19% to $16[22]. Verizon's projections to unleash LTE's 4G technology in up to 38 markets in December 2010 and in through its entire 3G coverage network in 2013 will make mobile Internet access faster and increase multimedia's consumer-friendliness, driving data revenues per customer even higher once LTE-based smartphones are offered in 2011[23]. It will also serve as a competitive advantage relative to ATG's LTE deployment given first mover advantage and relative to Sprint's WiMax 4G given higher download speeds[23].
Long Term Evolution
On December 5th, 2010, Verizon launched the first large-scale 4G network, making its Long Term Evolution Mobile Broadband network the fastest in the world and up to ten times faster than its 3G network[24]. LSE is a joint attempt by multiple telecommunications companies to increase the capacity and speed of mobile telephone networks. With faster Internet access, LTE allows for enhanced video quality and quicker mobile applications. Ericsson and Alcatel-Lucent are the contractors in charge of developing Verizon's underlying network infrastructure. Verizon's LTE initially launched in 38 major metropolitan areas, and is projected to completely supplant its 3G footprint by 2013[24][25].
Regulatory Environment
The telecommunications industry is a heavily regulated market. In the U.S., communications services are subject to regulation at the federal level by the FCC and in certain states by public utilities commissions, or PUCs. With regards to wireless, the FCC regulates the licensing, construction, operation, acquisition and sale of all wireless operations and wireless spectrum holdings. With regards to wireline, The Telecommunications Act of 1996 was designed to promote competition and eliminate legal and regulatory barriers for entry into local and long distance communications markets. It also required companies to allow resale of specified local services at wholesale rates, negotiate interconnection agreements, provide nondiscriminatory access to unbundled network elements, and allow co-location of interconnection equipment by competitors. It speaks for itself that in such a heavily regulated market, any significant regulatory change could have a major impact on the company or industry as a whole.
In early July 2009, both the FCC and DOJ have been asked by Senator Herb Kohl of Wisconsin to investigate anti-competitive practices in the cell phone industry [26]. The concern is that 4 companies (AT&T, Sprint, T-Mobile USA, and Verizon) control 90% of the market. Kohl has expressed concern about price increases by the four main carriers for text messaging at the same time. Kohl would also like to see better rates for roaming, a stop to exclusive deals with handset manufacturers, and acceptable rates in the so-called "special access" market where wireless companies pay other carriers to connect to central phone and Internet arteries. Senior officials across the telecom industry have responded to Senator Kohl's concerns by saying that 95% of the consumers in the U.S. can choose between at least three different wireless providers, thus not violating competitive practices.
Competitors
Both of Verizon Communications’ business segments are competitive players in the telecommunications industry. Its wireless business, which boasts the largest subscriber bae, competes with other U.S. wireless carriers, including AT&T, Sprint, and T-Mobile. Its wireline business, which constantly faces challenges from new and potentially disruptive technologies, include non-wireline telecommunications providers such as VoIP, high-speed internet companies, and cable companies such as Time Warner Cable and Cablevision Systems (CVC).
FY2009 Monthly ARPU (4Q09 only) Post-Paid Churn Rate Pre-Paid Churn Rate Customers (in millions) Total Revenue (in millions)
Sprint Nextel $56.00 48.1 27,786
MetroPCS $40.70 6.6
Verizon Wireless[13] 1.44% 91.2 62,131
AT&T $61.13 85.1
Leap Wireless
Operator Customer Base, as of latest quarterly filing (in millions)
Verizon Wireless 92.8
AT&T 87.0
Sprint Nextel 48.1
T-Mobile 33.7[27]
Unconsolidated Minorities and Unidentified Others 8.1
MetroPCS 7.3[28]
U.S. Cellular 6.2
Leap Wireless 4.6
Centennial Communications 1.1
Verizon Communications (NYSE: VZ) is a U.S. telecommunication company and provider of fixed-line, wireless, television, and data services. Its wireless division, Verizon Wireless, is a joint venture with Vodafone and represents the largest subscriber base with 93.2 million customers and 101.1 million total connections as of the end of 3Q10[1]. After Verizon completed its $28.1 billion acquisition of Alltel in January 2009, Verizon Wireless became the largest wireless carrier in the United States. Although AT&T, Verizon's closest competitor in the wireless space, has been slowly narrowing the gap since the acquisition, news on October 2010 that their exclusivity contract with Apple would end and that the iPhone product line would be carried by Verizon Wireless starting early 2011 are likely have kept Verizon atop subscriber tables[2]. The Wall Street Journal reported in January 2011 that beginning less than a month later on February 10 Verizon will sell iPhones for $199, the same price charged by current partner, AT&T[3]. To jumpstart its wireline business segment, which has experienced increased competition as customers switch to wireless products or less expensive alternatives such as VoIP technology, VZ has delved deeply into its Fiber-to-the-Home (FTTH) service, FiOS, investing north of $20 billion in 2010[4]. FiOS provides advanced data, video, and telephony products, offering "triple play" services and utilizing a fiber optic transmission that allows for download speeds upwards of 50Mbps. As of the end of FY2009, Verizon boasted 3.4 million total FiOS Internet customers and 2.9 million total FiOS TV customers[5].
Contents
1 Company Overview
1.1 Business and Financial Metrics
1.2 Business Segments
1.2.1 Verizon Wireless (58% of revenue ($15.7 billion) in 1Q10[7])
1.2.2 Wireline (42% of revenue ($11.2 billion) in 1Q10[7])
2 Trends and Forces
2.1 Maturing Market
2.2 Rising Data Revenues Shift Focus Away from Voice
2.3 Long Term Evolution
2.4 Regulatory Environment
3 Competitors
4 References
Company Overview
Verizon Communications was formed in 2000 with the merger of Bell Atlantic and GTE Corp, and offers a wide array of wireline and wireless voice and data transmission services via approximately 41.4 million residential and commercial access lines throughout the United States.
Business and Financial Metrics
In 3Q10, Verizon reported total revenues of $26.5 billion, a 2.9% YoY decrease from 3Q09. However, cash flow generation grew at Verizon, with free cash flow totaling $13.4 billion for the first three quarters of 2010, a significant increase from 2009's $10.7 billion. Verizon also demonstrated discipline in reducing its mounting piles of debt, with net debt reduced by $12.5 in the first three quarters of 2010 and its net debt to adjusted EBITDA ratio falling to 1.4[1]. Additionally, two-thirds of Verizon's revenue came from what are deemed high growth areas, primarily FiOS and wireless data[1]. Other quarterly highlights include 101.1 million total base wireless connections with 1.2 million net additions.
Annual Financial Data, in millions[6] FY2005 FY2006 FY2007 FY2008 FY2009
Revenue $75,112.0 $88,144.0 $93,469.0 $97,354.0 $107,808.0
Gross Profit $49,643.0 $53,150.0 $55,922.0 $58,347.0 $63,509.0
Operating Income $14,814.0 $13,373.0 $15,578.0 $16,884.0 $14,027.0
Net Income $7,397.0 $6,197.0 $5,521.0 $6,428.0 $3,651.0
Business Segments
Verizon Wireless (58% of revenue ($15.7 billion) in 1Q10[7])
Verizon Wireless is the largest provider of wireless voice and data services in the United States[8]. The business segment is a joint venture between Verizon and Vodafone; with Verizon holding a 55% stake in Verizon Wireless, and Vodafone holding the remaining 45%, it has controlling power over the company’s operations.[9]. Its services include basic local and long distance wireless voice services, text messaging, music downloads, navigation and Internet access, V CAST Music and V CAST Mobile TV. The company has more than 25 multimedia phones that allow customers to browse and download songs, and the first true mobile TV service in the nation. (See 3G concept page for additional information on third-generation wireless technology.)
As of the end of 3Q10, the company boasts a customer network of approximately 93.2 million customers[5]. It has also positioned itself as the go-to Android smartphone provider, with over 9 million subscribers as of September 2010[10].
In July 2010, Verizon announced the completion of Frontier Communications' acquisition of Verizon's 14 state-wide local wireline operations, known as New Communications Holdings[11].
Wireline (42% of revenue ($11.2 billion) in 1Q10[7])
In 3Q09, Verizon's management team consolidated Verizon Telecom and Verizon Business to form a single Wireline segment that competes with cable operators in advanced data, video, and telephony products. Through this consolidation, Verizon is now the leading provider of Fiber-to-the-Home (FTTH) and boasts an ARPU of $135 per month[12]. As of the end of FY20009, its FiOS service passed approximately 15.4 million homes and held 9.2 million broadband connections [5].
Trends and Forces
Maturing Market
Revenues from voice traffic for a wireless carrier are driven by its number of subscribers and the average revenue generated per customer (ARPU). While the wireless business has been the driver behind Verizon's recent revenue growth, this growth has decelerated as the U.S. market continues to mature, with U.S. wireless subscription penetration topping 89% as of June 2009[14]. Total U.S. subscriber counts grew at an annual rate of 11% in the 2000's, compared to 33% in the 1990's[15], an indication that there is very little room left for organic growth.
In an effort to compensate for the deceleration in growth, Verizon acquired Alltel for $28.1 billion. The merger was approved by the FCC and the Department of Justice in November 2008[16]and completed in January 2009, adding 13 million new customers and ousting its competitor AT&T as the top player in the U.S. market[17]. As part of the deal, Verizon will divest 105 markets worth between $3 billion and $4 billion to eliminate its overlapping network with Alltel[18].
Verizon's announced partnership with TESSCO Technologies in September 2009 aims to take advantage of the nation's largest 3G wireless network and a comprehensive set of Machine-to-Machine (M2M) hardware solutions. This will benefit Verizon Wireless consumers by reducing their costs when purchasing from multiple vendors and maximizing efficiencies in remote monitoring[19]. Additionally, a joint venture with Apple to launch an Internet security suite for Mac users subscribing to Verizon's internet services. With Mac users representing a growing segment of the broadband community, Verizon is looking to increase its triple service customer base by enhancing their online experience[20].
Rising Data Revenues Shift Focus Away from Voice
In February 2010, Verizon announced a partnership with Skype to offer the Internet company's free calling service on nine of its smartphones, including those using Google's Android software. The Skype mobile application already exists through the iPhone, but requires a wi-fi connection and is not supported by AT&T's mobile network. The use of Skype would use a customer's unlimited data plan instead of voice minutes, so the major telecommunications companies have been hesitant to adopt its technology since it could cannibalize voice revenues[21]. With the advent of data-intensive communication devices such as smartbooks and e-book readers, and the gradual development of 4G networks, consumes find data more attractive and consumption has skyrocketed. In 4Q09, mobile SMS and internet revenue per subscriber for Verizon rose by 19% to $16[22]. Verizon's projections to unleash LTE's 4G technology in up to 38 markets in December 2010 and in through its entire 3G coverage network in 2013 will make mobile Internet access faster and increase multimedia's consumer-friendliness, driving data revenues per customer even higher once LTE-based smartphones are offered in 2011[23]. It will also serve as a competitive advantage relative to ATG's LTE deployment given first mover advantage and relative to Sprint's WiMax 4G given higher download speeds[23].
Long Term Evolution
On December 5th, 2010, Verizon launched the first large-scale 4G network, making its Long Term Evolution Mobile Broadband network the fastest in the world and up to ten times faster than its 3G network[24]. LSE is a joint attempt by multiple telecommunications companies to increase the capacity and speed of mobile telephone networks. With faster Internet access, LTE allows for enhanced video quality and quicker mobile applications. Ericsson and Alcatel-Lucent are the contractors in charge of developing Verizon's underlying network infrastructure. Verizon's LTE initially launched in 38 major metropolitan areas, and is projected to completely supplant its 3G footprint by 2013[24][25].
Regulatory Environment
The telecommunications industry is a heavily regulated market. In the U.S., communications services are subject to regulation at the federal level by the FCC and in certain states by public utilities commissions, or PUCs. With regards to wireless, the FCC regulates the licensing, construction, operation, acquisition and sale of all wireless operations and wireless spectrum holdings. With regards to wireline, The Telecommunications Act of 1996 was designed to promote competition and eliminate legal and regulatory barriers for entry into local and long distance communications markets. It also required companies to allow resale of specified local services at wholesale rates, negotiate interconnection agreements, provide nondiscriminatory access to unbundled network elements, and allow co-location of interconnection equipment by competitors. It speaks for itself that in such a heavily regulated market, any significant regulatory change could have a major impact on the company or industry as a whole.
In early July 2009, both the FCC and DOJ have been asked by Senator Herb Kohl of Wisconsin to investigate anti-competitive practices in the cell phone industry [26]. The concern is that 4 companies (AT&T, Sprint, T-Mobile USA, and Verizon) control 90% of the market. Kohl has expressed concern about price increases by the four main carriers for text messaging at the same time. Kohl would also like to see better rates for roaming, a stop to exclusive deals with handset manufacturers, and acceptable rates in the so-called "special access" market where wireless companies pay other carriers to connect to central phone and Internet arteries. Senior officials across the telecom industry have responded to Senator Kohl's concerns by saying that 95% of the consumers in the U.S. can choose between at least three different wireless providers, thus not violating competitive practices.
Competitors
Both of Verizon Communications’ business segments are competitive players in the telecommunications industry. Its wireless business, which boasts the largest subscriber bae, competes with other U.S. wireless carriers, including AT&T, Sprint, and T-Mobile. Its wireline business, which constantly faces challenges from new and potentially disruptive technologies, include non-wireline telecommunications providers such as VoIP, high-speed internet companies, and cable companies such as Time Warner Cable and Cablevision Systems (CVC).
FY2009 Monthly ARPU (4Q09 only) Post-Paid Churn Rate Pre-Paid Churn Rate Customers (in millions) Total Revenue (in millions)
Sprint Nextel $56.00 48.1 27,786
MetroPCS $40.70 6.6
Verizon Wireless[13] 1.44% 91.2 62,131
AT&T $61.13 85.1
Leap Wireless
Operator Customer Base, as of latest quarterly filing (in millions)
Verizon Wireless 92.8
AT&T 87.0
Sprint Nextel 48.1
T-Mobile 33.7[27]
Unconsolidated Minorities and Unidentified Others 8.1
MetroPCS 7.3[28]
U.S. Cellular 6.2
Leap Wireless 4.6
Centennial Communications 1.1
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