Competitor Environment
A. Future Objectives :

Communications companies are battling with each other to increase the number of subscribers. Companies like Verizon, Comcast, Charter Communications, Cox and AT & T are coming up with innovative ideas to provide customers with affordable fast internet connection, clear phone lines and great TV programming. Consumers will benefit immensely from the rivalry in this industry. Verizon and Comcast are at the forefront of this rivalry with Verizon entering markets dominated by Comcast. Verizon has been working on installing fiber-optic networks around cities which will be able to provide high speed internet and TV services to the subscribers at phenomenal speed. Verizon spokesman Phil Santoro says that “so much more can be done on optical fiber and that Verizon can leapfrog the incumbent cable companies, steal their customers and give them more and better service”, (Kirk -2008). Comcast, Verizon, Cox and Charter communications offers all three services i.e., phone, TV and internet connection. Consumers have the choice to buy separate services or they can bundle up and receive all three services in one package. What is different is the method that the services are delivered. Verizon uses fiber optic cables for its internet and phone lines while its TV service comes from DirecTV which is an independent satellite TV operation. Verizon is depending on the abilities of FiOS (Fiber Optic Service) system to compete with rivals. This new system will be able to carry 100 megabytes of data per second and will be twenty times as fast as a typical cable line (Sullivan,2006).


Verizon is spending approximately $23 billion on fiber-optic network in cities in 16 states around the country. The key service that Verizon offers is FiOS TV which is a multichannel video service which competes directly with incumbent cable operators’ offers. Other cable companies such as Comcast, Cox, Adelphia and Time Warner are raising cable modem speeds to compete with FiOS. Competitors are feeling the threat of competition from FiOS and thus, are forcing the cable operators to devote their time and money in developing new cable modem technologies. Future objectives of the competitors will be to compete more vigorously on multi product bundle offers as well (Barnett, 2007).

B. Current Strategy : Verizon, Comcast, Cox, Charter Communications, Time Warner and AT & T also have sufficient financial resources and experience to compete in the market for phone, internet, TV and wireless services. Comcast, Charter and Cox offer the triple play package which consists of phone, TV and internet services. Verizon is one step up by providing a quadruple package that includes the basic three with wireless phone service as an addition. Bundled services will enable customers to simply have one monthly bill (Verizon, 2008). Verizon and Comcast especially are battling for customers with low introductory rates for the bundled services. For the first twelve months Comcast offers all three services for $99 which might rise to $130 or more after that depending upon the type of service. The introductory rate of Verizon is $104.99 and can be locked for one or two years, or not locked at all according to Verizon spokesman Phil Santoro (Kirk – 2008). For promotional strategy, Verizon is offering free movie on demand to download in Massachusetts.


Verizon even offered free TVs and Circuit City gift cards to first-time subscribers at one point. It is a great strategy to attract the customers. FiOS is the major current strategy for Verizon. They are gradually installing this fiber-optic network capable of providing TV, telephone, and internet to millions of customers at lightning quick speed without compromising quality. In Massachusetts, Comcast had 1.65 million subscribers by the end of last year, which was 11,000 subscribers less than the previous year. In the same area Verizon had 78,406 subscribers in 61 cities and towns which was an increase in the subscribers by 11,982 from the year before. This year Verizon plans to spend $200 million to bring FiOS to 53 more communities (Kirk, 2008). With $23 billion investment in FiOS it will make a good business sense for Verizon to compete for voice, video and broadband services (Barnett,2007). Other cable operators such as Cablevision and Comcast have pressured landlords to exclude wireline competitors. A survey of property owners in the areas in Tampa, Florida conducted by Verizon found that almost 42 % of the area was covered by exclusive contracts. Comcast has obtained exclusive agreements in the Washington, D.C. metropolitan area which gives them the exclusive right and license to construct, install, operate and maintain multi-channel video distribution facilities unless required by law (Barnett – 2007).


C. Assumptions: Due to intensified competition the lines between the cable companies and telecom companies are getting blurry as they invade each other’s area to gain more customers. Comcast has increased its customer base with the popularity of its triple play bundle. But companies like Verizon and AT&T are fighting back. It is very likely that we will soon see a quadruple play bundle. By the end of 2008 AT&T estimates that its U-Verse service will reach 17 million homes and by the end of 2010 the service will reach to 30 million homes (Seeking Alpha – 2008).

According to Dallas Clement, senior vice president of strategy and development for Cox, the other cable companies are not loosing too many customers because of the Verizon’s FiOS. He believes that Verizon has invested too much money in FiOS and doubts if they can see a return on this (Wilkerson – 2008). Marc Goodman, Comcast spokesman, says that his company isn’t worried much about Verizon because of the competitors that already exists in this sector. He claims that Comcast has strong and steady customer base with more than 1.6 million in 2007. According to him Comcast also has fiber optic cables in most areas and their download speed is as fast as Verizon’s (Kirk – 2008). D. Capabilities The telecommunications industry’s move to faster networks is the next battleground for market share (Bartash, 2008). The fast network capability has enabled companies to role out services they had not been able to including television programming, online games and internet phone services (Searcey, 2006). Players in this industry need to differentiate themselves from


their competition in order to increase their market share since customers will not switch service to a different provider unless their service is superior. Developments in optic fiber technology have allowed optic fiber cables to serve as the pipeline for an array of new services from online games to television with more interactive features (Searcey, 2006). Verizon is at the forefront of harnessing this technology and has embarked on a $20 billion project that will wire optic fiber cables straight to the customer’s home (Verizon Communications, 2007). At present, this technology is available in only a few cities and there are phenomenal capabilities for players in this industry to switch from using coaxial copper cable to the newer optic fiber cables. Verizon is counting on fiber to prepare for an age when consumers are expected to demand super-high-speed bandwidth to download video, photos and applications that don't exist today (Latour, 2004) Optic fiber technology will allow companies in this industry to offer dual network phones that run on a cellular network outdoors and automatically switch to a home network once the user enters the home (Searcey, 2006). According to Searcey this idea will help customers save cellphone minutes without forcing them to switch to a different phone (Searcey, 2006). E. Responses The communications industry is currently involved in fierce competition with some players currently using copper cables to transmit data and voice services while Verizon has pioneered the optic fiber revolution. Hill notes that in states where Verizon and Comcast are competing

for TV customers, the rivalry has focused less on price and more on improved services with occasional offers of free channels and marketing stunts such as wine party in the woods (Hill, 2006).


Satellite TV providers have also provided some competition to cable with an emphasis on inexpensive television programming despite their inability to offer bundled services (Hill, 2006). At the present moment most players in the industry have decided to improve their service quality with the resources that they have while they try to play catch up to the Fios technology. Comcast decided to hire 400 new employees in order to meet its demand for its triple-play package of television, cable and internet (Hill, 2006). Cablevision has launched a Wi-Fi initiative that will enable its broadband subscribers in New York to check e-mail and surf the web for free using Wi-Fi enabled laptops or mobile devices anywhere in their neighborhood (Fung, 2008). Cablevision’s strategy is aimed at using the Wi-Fi initiative as a retention tool of its customers in response to the competition brought by Verizon.

Dominant Economic Characteristics
Market size and growth rate: Among the numerous firms in the United States, Verizon is one of the leading companies in today’s industry. Verizon’s revenue in 2007 was 93,469 million, and in 2006, the revenue was 88,144 million (Verizon Communications Inc. Search Results, 2008b). These figures show that Verizon’s revenue was continually growing over the past two years. Number of rivals: According to Verizon Communications Inc. Search Results (2008d), in the telecommunication service, today’s industry is highly concentrated by the fifty largest companies, which hold 90 percent of the market. This is a competitive industry. Under the intensity of rivalry, Verizon has to compete with various small or large companies in order to obtain the maximum profit from the given market. The main rivals are AT&T, BellSouth,


Comcast, Cox Communications, Cablevision and Charter communications. (Verizon Communications Inc. Search Results, 2008a). …..

Scope of competitive rivalry: Under the competitive rivalry, Verizon is the second largest company in this industry. Based on a record in 2007, Verizon’s sale in United States was 89,504 million, which accounts for 95% of total sales, and the rest of 5% sales came from the operation of other countries (Verizon Communications Inc. Search Results, 2008e). The main target focuses on local and national markets………. Number of buyers: In the industry, customers can be classified into three categories: individual consumers, small business and large business. In the wireline segment, enterprise in the Verizon business accounts for 14,677 million and 15% of its total, which means that either small business or large business play an important role in Verizon’s annual revenues (Verizon Communications Inc. Search Results, 2008e). These buyers have bargaining power to ask for special needs and even have influence on Verizon’s strategy and performance……. Degree of product differentiation: As a result of numerous competitors in the industry, customers can easily switch to another supplier based on their personal needs. Verizon keeps on providing new innovative products and services, and also continuously maintaining its unique strengths for its consumers in order to survive in this industry. For example, in the wireline segment, Verizon provides customers with a “hands-on” demonstration through the use of a retail store presence before the customer makes a purchase (Verizon Communications Inc. n.d.,b, p.5). In addition, pricing will be used as an important differentiation strategy to distinguish a company from its competitors. In Verizon’s 10k report, it noted that pricing can capture market share from


incumbents in order to compete with other cable and telecommunications companies. The pricing strategy also gives existing non-traditional modes of communication service a competitive benefit when Verizon tries to obtain more market shares (Verizon Communications Inc. n.d.,b, p.5)….. Product innovation: With the help of advanced technology, all companies strive to offer customers innovative products. Therefore, Research & Development plays an important role in this area. In 2006 and 2007, Verizon invested $204 billion and $214 billion in equipment, plant and property to create innovative products and a good quality of service for its consumers (Verizon Communications Inc. n.d.,b, p.14). Companies have to overcome difficulties with products that exhibit a short product life cycle and therefore, being the first-to-market with next generation products is one way to increase market share. Continual improvement is the only way to stay on top of the industry.

Driving Forces
Decreasing popularity of fixed line phones: Individuals are replacing their fixed line phones with mobile phones. This has led to the fixed lines approaching the end of their lifecycle and as a result a reduction in profits is looming. Companies have tended to offer bundled services with a goal to counteract losses in revenue from dwindling fixed line phones subscribers. Rising industry growth rate: The communications industry is growing steadily. Verizon managed to increase the number of subscribers to its services from 51.3 million in 2006 to 59.1 million in 2006 and 65.7 million in 2007. The revenues also increased from 32.3 billion in 2005 to 43.9 billion dollar in 2007. Analysts estimates that the demand will continue to grow further,


which will eventually increase the revenues of the companies in this industry (Annual Report, 2007). Increasing demand for HD and Fios TV: According to Harlin, consumers want to use HD TVs for their gaming systems, DVD players, set top boxes and other peripherals (Harlin, 2008). The quality of the HD TV is far better than regular TVs and once the potential customer see the difference; they give up from other spending and buy a HD TV. In 2007, U.S. households with HD TV were 30 million and it is forecasted to be 60 million by 2010. The content and the applications on HD TV requires fiber network in order to get the best quality. With Verizon’s Fios TV the best quality is provided to its customers. The price was relatively high when HD TVs were introduced but has since dropped with innovations in technology making it more affordable to purchase HD TVs. Increasing demand for HD TV enables cable TV companies to charge higher and this has a positive impact on revenues. Fios TV had approximately 1.8 million customers by the end of 2007. On demand services are available on Fios TV and it enables consumers to watch movies without the necessity of going to the video rental store. In addition to monthly fees, growing interest in on demand TV provides more income. Spreading Laptop Usage: Consumers are becoming more attracted to laptops. Wireless broad band applications like downloading music, watching movies, sharing photos and connecting to the internet are becoming popular with laptop usage. In 2007, U.S. households with laptops were 40 million and estimated number for 2010 is close to 60 million. Increasing demand for laptops will have a positive impact on companies in the communication industry (Annual Report, 2007).


Key Success Factors

Deployment Targets: Verizon has intended to spend $23 billion on rolling out FiOS within the United States. The initial FiOS deployment target for 2010 is 18 million homes. Currently, Verizon has 1.2 million subscribers (PC World, 2008). AT&T on the other hand reported 379,000 U-Verse subscribers as of April. They project to have 1 million by the end of 2008 (PC World, 2008). With the billions of dollars invested in the new infrastructure, it is imperative that these companies hit their projections. Shareholders are anxious and want to make sure that they see a return on their investment and that the new strategies are profitable. Also, the higher amount of subscribers that the company has, the more leverage they will have with the programmers for negotiating contracts.

Bandwidth: Currently, there is enough bandwidth to offer the average residential customer offer a great online experience. Companies like Verizon FiOS have the ability to turn on 100MBit package however most residential users would not be able to take advantage of those speeds. The big reason is that there aren’t online applications that can support or even need to use those high speeds. Verizon has a huge advantage of the cable companies with the upload potential. If more applications can be developed in the next few years that are highly bandwidth intensive, this would put a lot of pressure of the cable companies to have competitive offerings. This would also make Verizon’s offerings more attractive as people could utilize the speed. Applications in the next couple years that could make this happen could be online video


conferencing, data backups, and viewing high definition online. The cable operators need to ensure that they will be able offer enough bandwidth for the consumer. They believe this will be achieved with DOCSIS 3.

High Definition: According to Informa Media and Telecom, “Rapid growth over the next five years will see 106.2 million HDTV sets in the world’s homes by end-2010 – around three times the 2005 figure. At the same time those homes receiving high definition programming will accelerate quickly to reach 80 million.” With this in mind, high definition will be part of an important strategy. Consumers will want to watch HD content and will be looking for providers who will carry a high amount of HD. There will be races among the providers as to who can offer the most high definition channels.

Wireless: While cable operators have introduced triple play in the last few years, telecom operators including AT&T and Verizon are beginning to offer quadruple play including video, digital telephone, high speed internet, and wireless. Verizon has recently offered a bundled discount for any customers subscribing to their wireless and video services (Verizon, 2008). Cable operators are looking to either create a new wireless network or create a joint venture such as WiMax. Recently, cable operators including Comcast, Time Warner, Cox Communications had formed a joint venture with Sprint to sell wireless services however there were problems due to provisioning. A large amount of wireless spectrum was recently auctioned off by the FCC. Being able to offer quadruple play can help increase convergence among their devices.


Strategic Group Map

H igh

Time Warner


Lo w

Few Localities

Many Localities

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