Industry Analysis of Telecom Industry - Essay Example

ANALYSIS OF TELECOM INDUSTRY (Verizon, AT&T and T-Mobile) Introduction Telecom industry is the building block of any nation in today's world. As wireless communication is becoming more widespread than the traditional communication, it is growing at a very high rate. According to the US Wireless Communication Association, 3.6 million jobs are directly or indirectly dependent on the US wireless telecommunications industry. It generated $118 billion in revenues and contributed $92 billion to the US GDP in 2004. Even though the wireless industry is today smaller than the computer and automobile industries, in the next five years time, it is expected to take over these industries. The following report will look at three big Wireless telecom companies in US. . I) Verizon Wireless Verizon Wireless owns and operates majority of US wireless network. It is a joint venture of Verizon Communications and Vodafone headquartered in NJ, Verizon. Verizon wireless deals in wireless voice and data services. Verizon has built the nation's first wide-area wireless broadband network and it also delivered the nation's first wireless consumer 3G-multimedia service. It has a broad consumer base. The company generated about US$ 75.11 billion in 2005 in net revenue, with revenue net per share of 27.155. The company quarterly growth is healthy and increased by 5.8 percent in 2005 as it increased its gross profit by 49.64 percent. The total cash flow was $22 billion; further detail can be seen in the table below. Verizon 2005 Source: Yahoo Finance Verizon Business Model Verizon business model focuses on creating value and driving earning and growth. It has proved itself by generating stable margin, solid returns and stable financial performance. The company has extensive connections in the business and government sector and relies on them to generate revenue. The company has targeted costs of $890 million in 2006 to install a fiber optic network, which will be capable of providing Verizon's advanced FiOS data and video services. II) AT&T An AT &T Wirless service was the third largest wireless telephone carrier US. In October 2004, AT&T wireless completed its merger with Cingular to become the largest wireless carrier in the United States. Under the agreement, only the Cingular brand would survive. On November 16, 2004, every single AT&T Wireless store was re-christened under the Cingular banner. It is now renamed as AT&T Inc. The company is based in San Antonio, Texas and formed recently in 2005 by SBC Communications. The company net revenue for year 2005 reached $43.86 billion, with revenue per share 13.023, while the quarterly growth in 2005 remained 26 percent. The company total gross profit reached $24.67 billion. The total operating cash remained at $12.66 billion; further detail can be seen in the table below. Source: Yahoo Finance Business Model In 1907, AT&T president Theodore Vail did not keep it a secret, but made it goal to attain the status of monopolist, which he named as "One Policy, One System, and Universal Service." At the time AT&T started to purchase competitors and retained its monopoly till 1970, but the rise of cheap microwave communications opened opportunity for other competitors. However its monopoly was broken and it was bought over by rivals Verizon, currently it is surviving through mergers. III) T-Mobile T-Mobile is group of mobile phone corporate subsidiaries (under the ownership of Deutsche Telekom), which operates major GMS networks in Europe and US. T-Mobile has about 109 million subscribers, which makes it the world's 3rd largest mobile phone service provider. T-mobile is present in eight European countries (Austria, Croatia, Czech Republic, Germany, Hungary, Great Britain, Netherlands, Slovakia) and USA. T-Mobile USA is the fourth-largest wireless carrier in the U.S. market with 21.7 million customers. In 2004, T-Mobile was able to generate revenue of $9366 million and able to grow at the rate of 12 percent a year. Further detail can be seen in the table below. Business Model The company is expanding through acquisition of a wireless network in California and Nevada from Cingular Wireless. It is also sponsoring many events to create its brand awareness, such s T-Mobile teams etc. T-Mobile has been official sponsor of National Basketball Association, the NBA Rookie Challenge and the Women's National Basketball Association and also sponsoring the 2006 FIFA World Cup games. PORTER'S FIVE COMPITATIVE FORCES According to Porters' model, a business strategy needs to be aligned with the increasing opportunities and threats especially, competitive strategy, which is in constant flux. The Five vital Competitive Forces establish the strength of competition increasing the productivity of the industry. He explains that businesses strategy needs to be adapted in such a way, that these (competitive) forces enhance the productivity of the organization. US wireless services industry generated $118 billion of value add in 2004 (as reflected in figure below) with $92 billion in additional GDP in 2004. Source: David, 2005 The mergers Bell Atlantic and GTE that formed Verizon were among the largest mergers in United States business history, culminating in a definitive merger agreement. Again in 2005, Verizon agreed to acquire MCI, known as WorldCom, especially when it saw SBC Communications to acquire AT&T just a few weeks earlier. The impact of these mergers was two fold: to create a barrier for the smaller companies and making Verizon a stronger player in the market. Other than that, the recent acquisition would also increase, Verizon economy and help it to achieve great productivity by slashing down thousands of jobs.. AT&T was able to maintain monopoly for decades and it kept on buying competitors, which resulted in making it the sole company in US for a very long time. However, it invested little money in research and innovation, which enabled the competitors to take benefits of cheap microwave communications breaking its monopoly. In recent years, AT&T like other corporation has been involved in merging and forming alliance to create barrier for competitors, but it was less than successful, its merger with Cingular made it AT&T Wireless a company which is spearheading the Cingular rather than AT&T. Being a small carrier, T-Mobile USA tends to compete on price, and advertises heavily to the youth market. It also operates hotspot locations providing Wi-Fi Internet access at caf, airport and airports etc. It is also sponsoring many youth or sports related events to create brand awareness among the younger generation, thus penetrating the market through its brand image like Samsung. Conclusion For decades AT&T bought over small rivals and held monopoly, yet competitors overcame this barrier with substitutes in 1970s. The mistake AT&T committed was not to invest in research and development, the rivals found their way through substitute and cheaper products. Verizon had the money; it invested in buying over the rival rather than spending more money in competition. T-Mobile is aware of its status in the US market, instead of direct marketing, it is emphasizing more on brand creation and focusing on the younger segment in the market. Looking at Porter Model, the telecom companies are in constant competition using different techniques and strategies. In all of these three cases, merger is the main area, which is used as a main tool to either acquire the competitors, which shows that in the business world, there is only one thing certain-competition. Reference: Lewin, David. "Impact of the US wireless telecom." The Wireless Association Sep 2005: "Wikipedia." T-Mobile. 31 Mar. 2006 Read More