Can you hear me now, because
I am in CHINA?
Verizon goes to China…
Project Managers:
• Jeff Pearson
• Mary Schluter
• Ryan Shockley
Verizon’s mission
• The MJ Consulting Firm has been hired to
assess the prospects of a joint venture
between Verizon Communication’s and a
telecommunication’s company already
established in China or of attempting to go
it alone into China. A joint venture would
increase the probability of success in the
area.
Target Market
• The company is targeting Chinese within
the ages of 15 and 45
• This group makes up almost one third of
the population
• This group is also very technologically
savvy
Verizon’s Resources
• In 2004, Verizon reported operating
revenues of $71.3 billion
• They also reported a net income of $7
billion
• This was an increase of 5.7% over 2003
Continued…
• Recently revenues have increased by 19%
• Verizon employs more than 200,000 people
in four business units (Verizon wireless,
Domestic Telecom, Information Services,
International) in 29 states
• These serve 43.8 million voice and data
customers in the United States
Revenue of each business unit
• Verizon Wireless- $27.7 billion
• Domestic Telecom- $38.6 billion
• Information Services- $3.6 billion
• International- $2.0 billion
Growth
• Revenues from DSL were 2 billion for the
fourth quarter of 2004 compared with 1.9
billion in 2003, an increase of 9.2%
• Long distance revenues for the fourth
quarter of 2004 were 1.1 billion compared
with 1.0 billion, an increase of 5.8%
• International revenues for the fourth quarter
of 2004 were $544 million, compared to $477
million in 2003
Growth continued
• Total revenues for 2004 were $2 billion, as
compared to 1.9 billion in 2003
Other notable figures
• In 2004, cash expense per customer
declined by 2.5% (this is noteworthy
because of the record high of new
customers)
• Wireline services shrunk from 54% in 2003
to 48% in 2004
• Wireless services increased from 46% in
2003 to 52% in 2004
Verizon’s markets
• In the US, Verizon is the largest provider
of wireline and wireless services
• It is also one of the worlds leading
providers of communication and
information services
Internationally
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Verizon’s international presence is
primarilly in the Americas and Europe
They have a stake in Tellus Corp. in Canada
They also have a part in Grupo Iusacell, a
Mexican wireless business
• They also have an information service that
provides sales, publishing, and related Yellow
pages services in Austria, Hungary, Malasia,
Poland, Slovakia and Sri Lanka
Internationally continued
• In the fourth quarter of 2004 Verizon sold
its interest in Tellus and EuroTel Bratislava
• This reflects efforts to realign its portfolio
and focus primarily on the Caribbean and
Latin American regions
Trends
• In 2004 Verizon Wireless added 6.3 million
net new customers
• Its total number of customers grew 16.8%
to 43.8 million, including 41.8 million retail
customers
• In 2004 Verizon launched V Cast, a third
generation consumer multimedia service,
delivering high quality video, 3D games
and music to 3G handsets
• Verizon owns and operates the nations
most reliable wireless network
• This network serves 43.8 million voice and
data customers across the US
Products and Services continued
• In addition, Domestic Telecom serves
customers based in 29 states with wireline
telecommunications services, including
broadband and nationwide long distance
service
• Information Services operates a directory
publishing businesses and provides
electronic commerce services
Products and Services continued
• International services include wireless
operations and investments primarily in
the Americas and Europe
• Verizon offers a variety of cell phone
plans, DSL, and broadband internet
access
Competition in China
• Nokia will be their biggest competition,
since they have been in China for nearly
twenty years
• Motorola, Siemans AG, and Samsung
have also already established themselves
in China
Competition continued
• Verizon may be the largest wireless
provider in the US, but moving into China
will be an uphill battle, since each of their
competitors have been there for a while
• Verizon will also be competing against
China’s state run communication providers
Problems and Opportunities
• The biggest decision Verizon has to make
is whether to go in on their own or whether
to go in with a joint venture
• Another problem is that the Chinese
telecom market remains heavily regulated
and controlled
• The government views wireless service as
a possible threat to national security
One quote states…
• “China will allow foreign carriers to enter the
traditional fixed-line market for the first time.
Under the new rules telecom operators will be
permitted to take a maximum 25% stake in fixedline joint ventures with Chinese companies in
three major cities: Beijing, Shanghai and
Guangzhou. The rules also will let foreign
carriers, already permitted to invest in Chinese
wireless companies in 17 cities, to own a 49%
stake, up from the 35% currently allowed”
Other problems
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Confusing regulations
Government meddling
High cost of market entry
Foreign carriers are not allowed to sell
service under their own brands
• Another problem is…
Cell phone towers
• Can Verizon piggyback off of
another company’s tower? or
• Do they have to build their own?
• Building a tower will cost roughly
$250,000
Problems and Opportunities…
• Contract negotiations
• In a joint venture, they will need to spell
out the percentages of the joint venture,
specify terms of payment, performance
standards, and also ensure that any profits
are convertible
• They will need to protect their intellectual
property rights as well
Problems and opportunities
continued
• They need to make sure that whoever they
negotiate with is authorized to make
decisions
• Do not take for granted the enforcement or
non-enforcement of government rules in
the provinces
If they should choose to go into
China alone…
• They must find factory workers, sales
people, and managers for retail outlets
• It would be best to find these people within
China because they would be more
familiar with the economic environment
and employment customs
• Another way to protect themselves would
be to not sell on credit
Opportunity
• The biggest opportunity is the enormous
potential to tap into the Chinese market
• Out of the target market of 1.3 billion
people, only 25% currently have cell
phones
• In other words, there is a huge potential
market in China for this company
• If successful, Verizon could stand to make
a great deal of money
Promotional Objectives
• Our target market are people between the ages
of 15 and 45
• This group makes up about 1/3 of the Chinese
population
• Problems could arise depending on what
government regulations are with advertising both
in television and print ads
• It’s important to remember that the ads that work
so well for Verizon in the US may not work as
well if at all in China, so a new set of advertising
ideas may have to be created for this region
Quantifiable Objectives
• In the country of China there are 1.3 billion
people
• 95% of the population lives in the Southeast part
of the country
• The average Chinese makes about 1,000 US
dollars a year
• Figuring that the average American makes
approxamitely $38,000 a year and spends about
1.9% of their salary on cell-phone coverage…
What does this mean?
• With an exchange rate of about 8.2765
Yuans to one US dollar…
• The average Chinese person will end up
spending roughly 12.66 Yuans a month on
cell phone coverage
Sales Objectives
• Verizon’s goal in their first year is to gain 6-8
million new Chinese cell phone users
Communications objectives
• Verizon must discover how much Chinese
people use their cell phones, including using
them to access the internet and to send text
messages
• Find out how well known Verizon is in China, if at
all
• Devise plans to fit the needs of the Chinese from
the most basic service requirements to service
for the advanced consumer
The service plans should include…
• Basic services
• Since family is very important in China, they
must consider having some sort of advanced
family plan while considering different definitions
of the word ‘family’
• Plans for people interested in having the latest
technology
• They should also create pamphlets with detailed
information on the different plans available and
the prices of each plan
Budget
• Should Verizon decide to go it alone it is
estimated to cost $250,000,000 during the
first year
• This price includes cell phone towers,
factories, land, managers and employee
wages, raw materials as well as retail
space to be able to sell them
Should Verizon seek a joint
venture?
• A joint venture may significantly lower the
cost of entering China if successful,
making profits that much more obtainable
• A joint venture will also make it easier for a
company such as Verizon to reach the
Chinese market
• Verizon should definitely consider a joint
venture in China
Guidelines for successful alliances
• Choose a partner with compatible strategic
goals and objectives
• Seek alliances where complementary skills,
products, and markets will result
• Work out with the partner how you will each deal
with proprietary technology or competitively
sensitive information
• Recognize that most alliances last only a few
years and will probably break up once a partner
feels that it has incorporated the skills and
information it needs to go it alone
That being said, a few likely joint
venture partners might be
• Ningbo Bird Company
• China Mobile Communications
• Legend Holdings
Legend Holdings
• This company is the largest PC manufacturer in China
and have just recently decided to go into the cell phone
field
Positives…
• Legend Holdings is a huge company with
a great deal of business experience
• They are international and even have
parts of the company in America (CA),
which would make a joint venture that
much easier for Verizon
• They have connections in China already
due to their thriving PC business
The downside…
• Legend has no experience in the cell
phone industry whatsoever and due to the
high abundance of cell phone
manufacturers in China, there is a high
probability that their venture into the field
of cell phones will fail
China Mobile Communications
• This is the largest telecom operator with
$46.7 billion in assets, $23.2 billion in
revenues, and employing 121,000 people
Positives…
• China Mobile Communication’s amount of
assets and revenues amount to a
decently-sized partner
The downside…
• China Mobile is only active in China
• This company is a pre-paid service that offers
calling cards, internet access and data services
through a third-party provider
• While a large company, their expertise and goals
do not really mesh with those of Verizon
Ningbo Bird Company
• This company is currently the second
largest supplier of telecommunications
products in China
Positives…
• This company has the largest market
share of cell phone service in China with
9.48% of the market
• Revenues were $1.2 billion in 2004
• They have a distribution system of 41
branches, 400 representative offices,
15,000 authorized dealers, and 50,000
retailers across China
Positives continued…
• Ningbo Bird Company is also an international
company that is currently pursuing sales in India,
Russia, and Eastern Europe
• They are very innovative and plan on launching
50 new models this year
• Their rapid rise is attributed to a strong
emphasis on product development and
innovation and intimate knowledge of consumer
demand
The downside…
• The only real downside to this company is that
unlike a company like Legend Holdings, whose
main attraction was their offices in America, no
part of Ningbo’s business is done in America,
and they will therefore be a little bit harder to
reach a joint venture with
• All things considered, this is the company that
Verizon should consider a joint venture with
Conclusion
• Moving business in China will give Verizon
a great deal of room to grown and a wide
market to grow in
• This market has huge potential and is
widely untapped, giving Verizon incentive
to try and capture the market there
Conclusions continued…
• A joint venture with the Ningbo Bird
Company would benefit both parties
• If done properly, Verizon could gain quick
access to the Chinese market, and Ningbo
could gain access not only to Verizon’s upto-date technology, but also to Verizon’s
network in Europe, the Carribean as well
as the Americas
• In short, a joint partnership would not only
be beneficial to Verizon, but also to
Ningbo!
QUESTIONS…