Wireless Telecommunications Industry Analysis
Nickoli Rosinski
Taylor Nunn
Luke Andrew
Luke Allen
Table of Contents
PART I: 1 …………………………………………………………………………... 3
PART I: 2 …………………………………………………………………………... 3
PART I: 3 …………………………………………………………………………... 5
PART II: 1 ………………………………………………………………………….. 8
PART II: 2 ...………………………………………………………………………... 8
PART III: 1 ………………………………………………………………………..... 8
PART III: 2 ………………………………………………………………………… 11
PART III: 3 ………………………………………………………………………… 11
PART III: 4 ………………………………………………………………………… 12
PART III: 5 ………………………………………………………………………… 12
PART IV: 1 ………………………………………………………………………… 13
PART IV: 2 ………………………………………………………………………… 13
PART IV: 3 ………………………………………………………………………… 14
SOURCES ………………………………………………………………………….. 15
2
Part I: Describe Two Publicly Traded Business Rivals
1.
For two publicly traded business rivals in the same industry, give the following information:
a) Their corporate addresses
AT&T Corporate Headquarters is located at 208 South Akard St. Dallas, Texas 75202. Their corporate
telephone number is (210-821-4105). Verizon Wireless Headquarters is located at 30 Independence Blvd.
Warren, NJ 07059. You can contact Verizon Wireless Customer Service at 800-922-0204.
b) Description of the businesses in which they compete against each other
Wireless cellular service plan providers compete in offering wireless plans for cell phones, tablets, and
data plans with wireless connectivity cards to people and organizations worldwide. Companies such as
AT&T and Verizon compete to increase their customer base while decreasing costs by providing the
latest technology for wireless service plans. The latest innovative technology in this industry is the
introduction of the 4G-network. The 4G-network is the fourth generation of cellular wireless standards.
It is the successor of the 3G-network paving the way for the next generation of innovative wireless
technology. The 4G-network provides increased speed, advanced productivity, and comprehensive
mobile broadband solutions. New technology Tablets such as the iPad, the Motorola Zoom, and the
Samsung Galaxy are using these wireless service plans to provide access to the Internet as well as a wide
range of applications through the use of Data Plans. Wireless service providers have also created Data
Plans that operate through the use of wireless connectivity cards. These connectivity cards make the
Internet available anywhere at anytime on your personal laptop or computer without the need for a Wi-Fi
connection.
2. What are the employment prospects in the industry in which these businesses compete?
According the Bureau of Labor Statistics, employment within the Telecommunications Industry is likely
to decline by 9% through 2018. This number is throughout the entire telecommunications industry and is
comprised of four parts: wired, wireless, satellite, and other telecommunications establishments. As a
whole, the telecommunications industry provides roughly one million employees with salary or wage
work, and the wireless industry is responsible for only 5% of total employees employed within the
3
telecommunications industry (roughly 202,700 employees). Within the wireless industry, employment is
only projected to decline by 1% in this same time period. The need for installation, maintenance, and
repair occupations will decrease as expansion decreases. Other occupations, including customer service
and research and development (R&D), will continue to increase in order to accommodate expansion and
the development new technologies.
Occupation
Percent Change,
2008-18
Employment, 2008
Number
1,021.5
Percent
100.0
-8.8
Management, business, and financial occupations
General and operations managers
Management analysts
110.1
10.1
8.8
10.8
1.0
0.9
-8.1
-19.7
-10.5
Professional and related occupations
Computer software engineers
Computer support specialists
Computer systems analysts
Engineers
190.5
28.3
18.0
12.6
32.4
18.7
2.8
1.8
1.2
3.2
-5.4
-2.2
-19.3
-10.6
-10.0
Sales and related occupations
Supervisors, sales workers
Retail salespersons
Sales representatives, services, all other
177.7
17.7
43.7
69.9
17.4
1.7
4.3
6.8
-9.5
-10.0
0.3
-10.2
Office and administrative support occupations
Telephone operators
Financial clerks
Customer service representatives
267.7
15.1
20.4
132.5
26.2
1.5
2.0
13.0
-8.0
-12.0
-5.5
-0.2
Installation, maintenance, and repair occupations
Telecommunications equipment installers and repairers,
except line installers
Telecommunications line installers and repairers
NOTE: Columns may not add to totals due to omission of
occupations with small employment.
SOURCE: BLS National Employment Matrix, 20082018
267.3
133.2
26.2
13.0
-11.5
-11.3
97.4
9.5
-11.8
All Occupations
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3. Over the period 2006-2011, what has been the trend in strategic and financial ratios for each of
these two businesses?
AT&T
2010
2009
2008
2007
2006
0.17103
0.12352
0.13335
0.10366
0.063667
Stock Price
$29.38
$28.03
$28.50
$41.56
$35.75
Total Assets
$ in millions
Operational
Efficiency
268,488
$268,752
$265,245
$275,644
$270,634
0.8425
0.8253
0.8141
0.8284
0.819
28.60%
29.80%
28.50%
27.40%
26.90%
2010
2009
2008
2007
2006
0.06609
0.08823
0.15413
0.10893
0.11355
$35.78
$30.96
$31.68
$40.63
$34.63
$220,005
$226,907
$202,185
$186,959
188,804
0.822
0.8699
0.814
0.8333
0.8386
33.20%
31.90%
26.70%
26.10%
25.60%
Return On Equity
Share of Industry
Value
Verizon
Return on Equity
Stock Price
Total Assets
$ in millions
Operational
Efficiency
Share of Industry
Value
5
Stock Price
$60.00
$40.00
Stock Price
$20.00
$0.00
2010
2009
2008
2007
2006
Return On Equity
0.20000
0.15000
0.10000
Return On Equity
0.05000
0.00000
2010
2009
2008
2007
2006
Total Assets in Millions
280,000
270,000
Total Assets
260,000
2010
2009
2008
2007
2006
Share of Industry Value
31.00%
30.00%
29.00%
28.00%
27.00%
26.00%
25.00%
Share of Industry
Value
2010
2009
2008
2007
2006
Operational Efficiency
0.86
0.84
0.82
0.8
0.78
Operational
Efficiency
2010
2009
2008
2007
2006
6
Share of Industry Value
40.00%
30.00%
20.00%
Share of Industry
Value
10.00%
0.00%
2010
2009
2008
2007
2006
Operational Efficiency
0.9
0.85
Operational
Efficiency
0.8
0.75
2010
2009
2008
2007
2006
Total Assets in Millions
$300,000
$200,000
Total Assets
$100,000
$0
2010
2009
2008
2007
2006
Return on Equity
0.2
0.15
0.1
Return on Equity
0.05
0
2010
2009
2008
2007
2006
Stock Price
$60.00
$40.00
Stock Price
$20.00
$0.00
2010
2009
2008
2007
2006
7
Part II: Opportunity
1) Define or describe the industry that these businesses compete in
The wireless Telecommunications Carrier industry has been growing exponentially since 2005, as
consumers have become dependant on cellular phones for communication needs. As of 2009, 91.3% of
the US population subscribes to wireless telecommunications industry services. From 2005 to 2010
subscriber numbers increased an average of 9.1% per year, increasing industry revenue at an average rate
of 4.6% annually. Intense competition in the wireless industry has caused the increase in revenue rate to
fall behind the increase in subscriber growth rate.
2) In the industry as you defined it, which geographic area is there currently the largest amount of
demand? How large is the amount of demand in this geographic area? How fast is demand
growing in this geographic area?
According to industry data provided by IBISWorld 2011, the current demand within the United States is
exponentially increasing. From 2002 - 2005 demand grew 39.1%, and from 2006 - 2010 it grew another
23.3%; earning 193.5 billion dollars worth of revenue in 2010. The number of subscribers in 2006 was
229.6 million subscribers growing to 289.7 million subscribers in 2010. The market over the last 9 years
has grown revenue over 60% and added approximately 60 million subscribers. Over the next five years,
revenue is projected to grow another 20.5%, with revenue topping 236 billion dollars in 2015.
Part III: Industry Analysis
1. Do a “5-forces” Analysis for the industry. For each force, state its power magnitude as either
High, Moderate, or Low; and explain why you assigned it that magnitude of power
We are focusing on the wireless cellular “service” plans industry and not the actual wireless device
industry. As such, the industry analysis for the service plans differs from that of the overall wireless
telecommunication industry. The industry analysis is as follows:
A) Buyer Power
The buyer threat in the wireless telecommunications industry is a MODERATE power threat to the
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profitability of an average competitor. Although buyers can choose from more than two suppliers,
Verizon, AT&T, Sprint, T-Mobile, and smaller resellers, the switching costs associated with changing
service providers is high. Buyers infrequently buy large orders (two year contracts), but contract
termination fees are in excess of $200. This signals a moderate buyer power threat. Also, there is little
differentiation among products, but buyers are likely to be loyal to service providers. This shows a
moderate buyer power threat to profit.
B) Supplier Power
The supplier power in the wireless telecommunications industry is a MODERATE threat to the
profitability of an average competitor. There are many major suppliers in this industry, including
suppliers from industries in computer manufacturing, computer monitor and peripheral manufacturing,
communication equipment manufacturing, and alarm, horn and traffic control equipment manufacturing.
While this creates a large amount of suppliers for wireless telecommunication service providers there is
nothing stopping these suppliers from attempting a forward integration strategy. Thus because of these
two factors, we believe the supplier threat is a moderate threat in the wireless telecommunications
industry.
C) Substitutes
The threat of substitutes is a LOW power threat to the profit of an average competitor in the wireless
telecommunications industry. There is no other product in any other industry that offers all the same
services and products as the service contracts in the wireless telecommunications industry provide. No
other industry can provide wireless service plans. While customers could choose to substitute their
wireless provider with a wired telecommunications provider, it does not offer the same mobility (the
customer is only able to use it in the confounds of their home). Although prepaid wireless plans are
growing, we believe those prepaid plans are a rivalry power. This is because Sprint, AT&T, Verizon and
T-Mobile own the major providers of the prepaid plans. Therefore, prepaid plans are not considered
substitutes.
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D) Rivalry Power
The threat of rivalry is a HIGH power threat to the profitability of an average competitor in the wireless
telecommunications industry. There are more than 2 major suppliers and when one of the competitors
makes an innovative move, the other competitors are very quick to imitate. “There is a rapid rate of
technological innovation in the field of wireless telecommunications. This means technology life cycles
are particularly short, which makes it essential for carriers to quickly embrace technology developments”
(IBISWorld 26). For example, when Sprint came released the innovative 4G-network, Verizon, AT&T,
and T-Mobile immediately imitated the 4G-network. This shows how quickly rivals can imitate
innovative moves in the telecommunications industry; making it very difficult to diversify within this
industry. The wireless telecommunications industry has also seen a high concentration among the major
rivals in the industry. “In 2002, the US Census Bureau estimated that the top four industry participants
accounted for 61.1% of industry revenue and the twenty largest firms, 89.2% of industry revenue. In 2010
the top four major players in this industry (AT&T Mobility, Verizon Wireless, Sprint Nextel and TMobile USA) will account for 90.5% of industry revenue” (IBISWorld 25). This increasing concentration
of major rivals portrays a rise in competition, resulting in a high power threat. Also, customers buy twoyear contracts, signaling infrequent and large buys. Price-based competition is high and increasing
making rivalry power a high threat forcing providers to compete on price and quality. Finally, 20% of the
wireless telecommunications industry is made up of pre-paid service plans. The major service providers
in the industry own these pre-paid plans in large part. Therefore, as competition increases among prepaid plans, rivalry power continues to increase as well.
E) Threat of Entry
The threat of entry on the wireless telecommunication industry is a LOW threat to he profitability of an
average competitor. Although there has been a high rate of sales growth in the industry, the top four
major players now own 90.5% of the revenue. With extreme concentration among the major players, they
are achieving economies of scale with each merger or acquisition signaling a low threat of entry.
“Industry incumbents have established well entrenched positions, making market entry particularly
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difficult” (IBISWorld 30). “Spectrum licenses are not the only prohibitive expense. The cost associated
with building base stations, towers and other network infrastructure is exorbitant, particularly for those
seeking national coverage in which case it runs into billions” (IBISWorld 30). With contract terminations
costing consumers in excess of $200, the switching cost for buyers are extremely high. This makes the
threat of entry low because of the high difficulty of switching providers.
2. Count the LOW-power forces you identified in your 5-forces analysis and use the count to make
a conclusion about whether the expected profitability for the average rival is High, Moderate, or
Low. Briefly explain what that magnitude of profitability means financially
After conducting an industry analysis on the service plans of the telecommunications industry we came to
the conclusion that there are two LOW power threats in this industry. Therefore, the expected
profitability of a competitor in the wireless telecommunications industry that is average on all key success
factors will be about equal to the cost of capital. In order for a company to be profitable in this industry
they will need to differentiate themselves from its competitors by strengthening itself in the key success
factors identified in this industry.
3. Explain the meaning of the term “Key Success Factor?” List and describe (in words, like a
definition) at least four Key Success Factors that any competitor in this industry must be good at to
be profitable
Key success factors are any “specific resources and activities a competing company must be good at if
they are going to be profitable satisfying demand and defending against hi-power competitive threats”
(Young, 2/22 lecture). In order for a company in the wireless telecommunications industry to be
profitable and competitive they must be good at the following four key success factors:
a) G*
This is an index of Sustainable growth of a company; this index tells the rate at which a company can
grow without changing its financial structure. A higher number for this index is better for companies with
a growth strategy, as well as to support economies of scale.
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b) Economies of Scale
The cost per unit will decrease as the size of production increases. Therefore, companies can reduce costs
without decreasing critical product features. A lower number is better for a company in a growth strategy
or cost-based strategy.
c) Network Service Reliability
The reliability of a wireless service provider is a major factor for customers choosing which service
provider to purchase a contract with. If service providers do not get their customers they will not make
money. Therefore, it is extremely important to have a reliable network for all customers.
d) Churn Rate
The churn rate is a critical ratio for companies in the telecommunications industry. If companies are not
able to keep customers their profits will decrease. If customers are not happy they will be willing to pay
the switching costs and will leave one company for a rival.
4. Give a calculation that you can use to measure each KSF, and then for each of the two
competitors do each calculation with data from a credible source available online at NCSU library.
Key Success Factor
G*:
=[1-dividend payout ratio]*ROE
Economies of Scale:
=Costs/Total Assets
Network Service Reliability:
=Data from national survey by NovaRum
Inc.
Churn Rate:
=Customers Lost/Total Customers
(Fraser, Pumerantz, Horan Slide 2)
Verizon Wireless
(1-2.14)*0.0661=
-0.075354
($106,565-$14,645)/$220,005=
0.42
89.8%
AT&T
(1-0.5)*0.01779=
0.008895
($124,280-$19,753)/$288,488=
0.36
68%
-1.02%
-1.15%
5. For two KSF you listed, explain how each separately protects profit from one Hi-Power Threat
you listed in (III.1)
Two of the most important key success factors to the wireless telecommunications industry are the churn
rate and the network service reliability. The majority of the profit a company in this industry makes come
from the customers that purchase contracts. Without customers, a company will not make any money and
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will actually start to lose money. Therefore the first and most important key success factor a company
needs to focus on is to make their network as reliable as possible. This is usually the driving force for
customers choosing which service provider to sign a contract with. If the network reliability is low,
companies will have a difficult time attracting customers to their network, thus losing profit.
Once companies attract their customers they need to do everything possible to keep their customers. The
key success factor churn rate measures the rate of customers lost to each company in the wireless
telecommunications industry. It is extremely important for companies in this industry to keep this
measure as low as possible. It is always cheaper for companies to keep current customers than it is to lose
a customer and try to replace them, keeping their profits higher. Therefore in order to protect the profits in
the wireless telecommunications industry, a company needs to focus on keeping their network reliability
as high as possible and the churn rate as low as possible.
Part IV: Strength Assessment
1. For two publicly traded business rivals in the same industry, present a table
Key Success
Factor
G*
Economies of
Scale
Network Service
Reliability
Churn Rate
Verizon
Wireless
-0.075354
0.42
VZ
Raw Score
1
5
AT&T
AT&T Raw Score
0.008895
0.36
5
1
89.8%
5
68%
1
-1.02%
5
-1.15%
1
2. Present another table that shows the following information
Key Success Factor
G*
Economies of Scale
Network Service Reliability
Churn Rate
Average
Verizon Wireless
1
5
5
5
4
AT&T
5
1
1
1
2
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3. Use the strength assessment to identify the rival that is most likely to create and sustain
competitive advantage against the other
Based on our specified key success factors of the telecommunications industry and the strength
assessment of Verizon Wireless and AT&T, we have concluded that Verizon Wireless has the
competitive advantage. After averaging the scaled scores of Verizon and AT&T, Verizon yielded a higher
strength assessment score (4 versus AT&T’s 2). Therefore, we conclude that Verizon will be more
profitable while defending against from its high-powered threats from rivals. The only low strength that
was assessed to Verizon Wireless was for the G* key success factor. We believe that the reason for this
low score is simply due to the fact that Verizon has recently invested millions of dollars in the new 4Gnetwork (Tampone, 2010). While this may reduce the G* value, it also means that they are ahead of their
competitors and will not need a large G* value in the future to expand to a 4G network.
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