write a 1-2 page paper about acquisition and restructuring /
competitive dynamics on the following article, use management
terminology.
"verizon expands its reach"
Over the past 2-1/2 yrs. verizon has spent $35 billion updating its
telephone lines, expanding its wireless network and launching such
technologies as Wi-Fi. Thats more money than any other U.S. company
has plowed into capital expenditures in the same time-more than
General Electric, or any of Detroit's Big Three. Its more than eight
times what Vietnam plans to spend on its telephone netwoek in the next
eight years, and enough cash to pay the bill if you make verizon's
most expensive call, from anywhere in the U.S. to Afghanistan for
$9.51 a minute, and talk for 7,002 years.
Why the spending spree? The telecom business has never been more
competitive. The local-phone service franchise, once thought of as
impenetrable, is under siege from cable companies and long distance
phone rivals. Cable-TV providers are expected to nab 3.7 million
local-phone subscribers by 2005, according to market reseacher Kagan
World Media. On top of this, more telephone subscibers are dropping
land lines in favor of wireless. Then theres the Net threat: A number
of start-ups offer low cost phone service over the internet,
circumventing verizons network altogether.
To combat these trends, the nations largest telephone company, under
the leadership of CEO Ivan Seidenberg, is aggressively attacking
multiple markets. The most ambitious part of verizons effort is a
push to lay high-speed lines to customers doors, which would allow it
to offer cable television. While analyists believe verizons entry
into this market will take some time, it could grab as much as 10%
share in five years- or $4 billion in sales. verizon is coy about its
plans, declining to say when or even if it plans to offer cable. If
it upgrades its copper-wire infrastructure with fiber optic cable,
verizon will have the ability to deliver cable television to a
majority of its customers within 5 years. Some industry watchers
speculate that verizon will strike a resell deal with a cable provider
and enter the pay-TV business sooner.
But verizons vision goes beyond cable. It plans to creatively package
existing services at enticing prices. Verizons already had success
selling additional services to customers- it began offering long
distance in 2001 and in 2 years has become the third largest carrier,
with over 14 million customers. And in January, it began hawking
local and long distance phone service, wireless and internet sservice
all for $125 a month. Verizon says this bundling makes customers less
likely to bolt when competitors dangle lower rates. At the same time,
the additional services bring in more revenue, making its network,
already a cash machine, that much more profitable. "Verizon is doing
exactly what it needs to do", says independent industry consultant
Jeff kagan.
Another area verizon is pouring money into is broadband. In New York
City its broadband customers will have wireless access to the Web
frmom 1,000 hot spots. Verizon is also selling a new wireless service
that will allow mobile phone service that will allow mobile phone and
laptop users to surf the Web at high speeds for $80 a month.
In the 1990's nearly every telelcommunications company had ambitious
spending plans to fend off the inevitable commonditization of its
service. Most ended in ruin. Worldcom and Quest Communications spent
themselves into bankruptcy. At&T attempted the cable telephone
marriage, only to find that the union would be too costly.
Whats different now is that verizons expenditures seem to be boosting
its financial, as well as its competitive, standing. Verizon's cash
from operations more than doubled from 1999 to 2002, to $22 billion.
Last year its business generated the fourth most cash of all U.S.
companies, behind Citigroup, Genreal Electric and Lehman Brothers.
This is up from ninth place five years ago. Although growth is
slowing, verizon still produces far more cash than its rivals. in the
first of '03, it pumped out $11 billion, a bit less than SBC
communications and AT&T combined.
Still, investors remain uncertain about whether verizon can fulfill
its ambition plans. The company shares, at $33, trade well below
their 52 week high of $44 and have a price to earnings ratio of 14
based on estimated earnings 2004. Meanwhile, Cox Commnications, a
cable company that has aggressively moved into the telephone business,
has an '04 P/E of 82.
But as cable companies and telephone companies become more alike, the
multiples of the stocks should converge. On that assumption, Albert
Lin, an analyist at independent firm American Technology Research
thinks verizons shares could reach $50 in the next year. "Verizon is
the dominant player in telecom", says Lin. Add to that a hefty and
secure 4.7% dividend, and verizons shares are worth dialing up. |
