Verizon and T-Mobile are both major companies competing as wireless telecommunications carriers in the US. Their industry provides services such as cellular mobile phone services, wireless internet access, and wireless video services. The primary activities of this industry include providing wireless network communication service for local, long-distance and international calls, providing wireless internet services, and providing messaging services, such as short message services (SMS) and multimedia messaging services (MMS). Other activities include wholesaling wireless infrastructure capacity to telecommunications resellers and selling cell phones and other wireless devices. The major products and services of this industry include advanced PCS services, cellular voice services, text messaging, other data services, and other non-data services.
Industry Analysis: Porter’s Five Forces Model
Rivalry Among Existing Firms
Competition is high and the trend is steady. Within the industry, competition is based on price, services offered, geographic coverage, and product innovation. Price is a major basis of competition because product differentiation is difficult. Intense price competition has caused major operators to give benefits to consumers in the form of lower prices. New subscribers are attracted by cutting the prices on voice and text messaging which increases the demand for wireless products and services. Services offered are another important basis because customers are focusing on service reliability and problem resolution. Carriers are trying to differentiate themselves by offering better service quality, network coverage, and offering support service to increase customer loyalty.
Geographic coverage is another competitive weapon because carriers are trying to maximize their area coverage. The more area coverage they have, the more customers they have throughout the nation. Lastly, product innovation is important because as technology advances, usage rates increase and new customers want to subscribe and use what’s new. Carriers offering the latest products and services encourage customers to become multi-product users.
Threat of New Entrants
Barriers to entry are high and increasing. Spectrum availability, cost, and regulations are the tougher barriers to entry into the wireless industry. There is a limit to the number of players in each market. Wireless communications signals travel over the air via radio frequency which is spectrum. Spectrums are scarce and once all licenses have been allocated within an area, then no other entrants are allowed until the next spectrum is up for auction. The cost of the spectrum licenses is high (billions) which shows the pressure that demand for access to data networks is putting on the existing airwaves. Licenses are a prohibitive expense. Therefore, there is a substantial cost of establishing a wireless company. New players will face much higher costs per customer. The threat of new entrants is low.
Threat of Substitute Products
In the wireless industry, the threat of substitute products is high. This can be seen from two different views. As far as just the products themselves, there are technology substitutes such as internet telephony service providers. They offer digital telecommunications services based on Voice over Internet Protocol (VoIP) that are provisioned via the Internet. Another view would be the substitution of carriers and their services. For example, lower prices from competitors will attract a consumer and make them switch to the cheaper phone/service carrier. Even if a carrier has less coverage or the other company has better reception, the customer’s financial situation can definitely be the tie breaking decision between the cheaper or more expensive company.
Another issue is that the Federal Communications Commission permits customers to unlock their mobile phone to use a competitor’s network. This is a disadvantage to the carrier who sold the equipment because they would only gain the equipment revenue and lose the service revenue to the competitor.
Bargaining Power of Buyers
This force is high in the wireless industry. One of the reasons is because switching costs between carriers are low. Not only is it inexpensive but competitors also run promotions offering to pay early termination fees to switch from their carriers. Switching carriers is also easy to do. Customers can switch to another carrier within an hour and also keep their cell phone numbers which also facilitates the process for consumers. There is low differentiation between services and the increasing number of choices between telecom products and services also gives buyers high bargaining power.
Bargaining Power of Sellers
Suppliers in this industry have low bargaining power as they represent an insignificant threat to the wireless companies. Carriers have a big selection of suppliers and it is easy for them to change who they purchase from. Large equipment vendors dilute the bargaining power of sellers. These companies use strategic sourcing which is a procurement process that continuously improves and re-evaluates the purchasing activities of a company. The sizes of these wireless companies are so big that it is easy for them to negotiate with sellers; sellers wouldn’t want to lose contracts with huge vendors or prestigious companies. Sellers can miss out on big profits when they lose a carrier as their customer in this industry.
Verizon Competitive and Corporate Strategy
Verizon follows the wireless and differentiation strategy through reliable wireless coverage and excellent customer care. Verizon has been able to earn higher market share, increase profitability, and maintain the lowest level of customer disappointment. The focus of the company is on providing a high-quality service. The company’s strategy involves Verizon Communications, covering a population of 260 million within the United States, and Vodafone Group, which is the largest mobile telecommunications network company in the world. Verizon is known to have a better variety of equipment and also offers FiOS, which is a bundled internet access, telephone, and television service.
T-Mobile Competitive and Corporate Strategy
T-Mobile declared itself an un-carrier, “a wireless telecommunications carrier that does not act like one”. The company uses a cost leadership strategy that has several key components: Simple Choice plans, which eliminated annual service contracts; Just Upgrade My Phone (JUMP! On Demand), a faster way to lease and upgrade an eligible handset, and reduced United States to international calling rates and roaming fees. It also includes data roaming while traveling abroad in more than 100 countries at no extra cost for Simple Choice customers and the reimbursement of early termination fees when customers switch from other carriers and trade in their devices. T-Mobile ended overages, offers unlimited music and video streaming, and offers all unlimited plans with taxes and fees included.
Verizon SWOT Analysis
Verizon is a mature company and one of the leading players in the US telecom market. Their strengths include market leadership, positive revenue from FiOS, reception quality, and variety of equipment. According to industry estimates, Verizon Wireless holds about 36% of the US market share and dominates the US wireless industry. Market leadership achieved from large scale of operations provides significant economies of scale and bargaining power. They have a large customer base and have a strong brand recognition which provides Verizon with cross-selling opportunities. The company’s scale has allowed it to spend aggressively on their network, customer service and new products and services which keeps them dominant in the market. FiOS has generated revenues with a total of about 7 million FiOS internet and 5.8 million FiOS video connections at the end of 2015. Verizon is known to have the best reception quality along with a better variety of equipment to choose from. This helps them differentiate themselves in the market. Customers rather pay more as long as they have Verizon’s service.
The company’s weaknesses include its substantial long-term debt, their high prices, and the need to respond quickly to technological advances. As of December 31, 2016, Verizon had approximately $105.4 billion of outstanding indebtedness. High debt increases the vulnerability to declining cash flows. The company’s high level of debt obligations could impact its ability to obtain additional financing to support its expansion plans. This puts the company at a possible competitive disadvantage compared to competitors that have better access to capital resources. Verizon is also known for having the highest prices compared to their competitors. Customers want to pay way less than the prices they charge for their service. Being that the company is mature and a market leader, they must be able to respond quickly to technological advances; putting pressure on the company to keep up with the cheaper carriers.
Verizon’s opportunities include increasing their cloud computing services, expanding internationally, and capitalizing on their acquisition with Yahoo and AOL. The demand for cloud computing services is expected to grow within the next few years. Verizon already offers enterprise cloud, Verizon cloud, and cloud professional services. Its services include computing, storage, backup, recovery and application platform. Their increasing presence in the cloud computing market while the market is also growing provides Verizon with an opportunity to gain new customers in the future. Although the company is already in many countries, expanding more internationally can help them gain more market share and more customers as well.
Lastly, another opportunity for Verizon is capitalizing on their acquisition with Yahoo and AOL. The addition of Yahoo to Verizon and AOL will create one of the largest portfolios of owned and partnered global brands with extensive distribution capabilities. Combined, AOL and Yahoo will have more than 25 brands in its portfolio for continued investment and growth. According to the company, the acquisition put Verizon in a highly competitive position as a top global mobile media company and would help accelerate its revenue stream in digital advertising.
Verizon operates in a highly competitive wireless market in the US. The rapid development of new technologies, services and products has eliminated many of the differences among wireless, cable, internet, local and long distance communication services. These factors also brought new competitors to the markets, including other telephone companies, cable companies, wireless service providers, satellite providers, application and device providers, electric utilities and providers of VoIP services. The company competes on the basis of network quality, capacity and coverage, the pricing of the products and services, the quality of customer service, development of new products and services, the reach and quality of sales and distribution channels, and its capital resources. The primary competitors of the company include AT&T, Sprint and T-Mobile. The increasing competition along with price competition will continue to put pressure on pricing and margins as companies compete for potential customers.
Another threat is that the company’s domestic operations are subject to regulation by the Federal Communications Commission (FCC) and other federal, state and local agencies, and its international operations are regulated by various foreign governments and international bodies. These regulatory governments restrict the company’s ability to operate in or provide specified products or services in designated areas and require the company to maintain licenses for its operations. Any new regulations could restrict the company’s ability to compete in the marketplace and limit the return it can expect to achieve on past and future investments. Changes in the regulatory framework under which the company operates could negatively affect its business forecasts or results of operations.
T-Mobile SWOT Analysis
T-Mobile adopted an aggressive pricing model and a low-cost strategy that enabled the company to drive significant subscriber growth. The company’s un-carrier initiative enabled it to offer low cost offers to its customers. The aggressive promotion strategies enabled the company to drive strong growth in its revenue customer base. The company’s price cutting strategy helped it endure competition. Regarding its subscriber growth, the revenues across these service lines increased.
The company is also focused on expanding its network coverage through an . As part of this strategy, T-Mobile acquired 700 megahertz (MHz) A-Block, advanced wireless service (AWS) and personal communications services (PCS) spectrum licenses, from Verizon in 2014. The company also intends to acquire spectrum licenses in private party transactions and future Federal Communications Commission (FCC) spectrum license auctions. T-Mobile’s significant investments in network infrastructure enabled it to expand its network coverage and establish itself as one of the fastest 4G services providers in the US. In addition, a well-established network provides competitive advantages to the company enabling it to penetrate into competitor’s markets and strengthen its leadership position in the US wireless communications market.
T-Mobile’s weaknesses include their network quality, declining ARPU, lack of scale compared to competitors, and slow responses to technological advances. They are known for having bad reception in most areas which cause customers to switch to the top two carriers, Verizon and AT&T. T-Mobile has had a significant decline in its average revenue per user (ARPU) over the last few years. The decrease was primarily due to the continued growth of customers on Simple Choice plans, which have lower monthly service charges compared to traditional bundled plans, and promotions for services. The significant decline in postpaid ARPU could impact the profitability of T-Mobile and affect its future business forecasts. They also have a lack of scale compared to their competitors, Verizon and AT&T. Verizon generates five times the revenue that T-Mobile generates and also offers cloud services, FiOS, and other services. T-Mobile is focused on wireless services which limits their presence in the industry; this lack of scale and slow responses to technological advances reduces its bargaining power.
T-Mobile’s opportunities include expanding and improving their wireless network, increasing equipment variety, and increasing Wi-Fi coverage nationwide. The company is not known to have the best reception and service as Verizon is said to have it. Their cost leadership strategy seems to be effective regarding subscriber growth. Using that revenue to improve reception and Wi-Fi coverage nationwide by investing in new and enhanced cell towers can help the company compete even more with their top competitors Verizon and AT&T. Increasing equipment variety and giving customers more options to choose from can make T-Mobile more attractive.
The wireless telecommunications industry in the US, in which the company operates, is highly competitive. The company’s competitors include national carriers and other providers who offer similar communications services, such as voice and messaging, using alternative technologies or services. The competition is based on pricing, service and product offerings, customer experience, network investment and quality, development of technologies, availability of spectrum licenses, and regulatory changes. T-Mobile’s major competitors include AT&T and Verizon. Further, these two players are significantly larger than T-Mobile and have scale advantages. They also serve a significant percentage of all wireless customers and hold significant spectrum and other resources. Intense competition can negatively impact the company’s market share. Another threat is that T-Mobile is subject to regulatory oversight by the FCC, FTC, and/or other federal agencies. Since the company operates across the US, Puerto Rico and the US Virgin Islands it is subject to regulatory and legislative action by applicable local, state and federal governmental entities.
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