Previous auctions, including the 2007 auction of the 700 MHz spectrum that Verizon won, came with open-access rules. Verizon is battling the FCC with regards to the regulator's desire for openness rules on all bandwidth, something Verizon considers a threat to be actively combated (Singel, 2009). As a whole, the regulatory environment has become less favorable to the wireless industry of late, with the FCC taking a more active role in micromanaging the industry (Corbin, 2009).
Competitive Environment
An analysis of the competitive environment using Porter's Five Forces model reveals that the competitive environment for Verizon is moderately challenging. There is strong buyer power. The main driver of buyer power in wireless is the low switching cost between providers. Buyers are also savvy and have ample information with which to make their decisions. Buyers are sensitive to both price and service offerings.
Supplier power is moderate. As with most technology industries, the power of suppliers is low for commodity inputs but high for specialized ones. Verizon is a volume buyer, which gives it bargaining power. However, for the most cutting edge of technologies, it is conceivable that the major wireless firms could even compete with each other for contracts, shifting power to the supplier.
There are high barriers to entry. While the legal barriers to entry have largely been removed, there are cost advantages associated with economies of scale that have limited to number of major players in both landline and wireless. The size of the wireless network is an important point of competition, and capital requirements to build a competitive network can be very high. There is a high proprietary learning curve, in particular with respect to the demands of customers. Overall, the barriers to entry are high, which is favorable to Verizon.
Although there are only a handful of reasonable substitutes, and Verizon is involved in each of these in some way, there is a high threat of emerging substitutes. The bulk of the threat comes not from existing technologies but from new ones. The pace of technological change in the telecommunications industry is rapid at present. Not only does thing bring a steady stream of improvements and additions to existing technologies but it also brings with it the threat of new technologies. While it is difficult to determine where the next threat may come from, Verizon needs to view emerging technologies as a serious potential threat and must always be attuned to the cutting edge of telecommunications.
The degree of rivalry in the industry is high. Verizon is engaged in competition in its wireline business, although this is less intense than in the wireless business. There are four national carriers as well as 173 regional and specialty carriers (Megna, 2009). The national carriers all have high exit barriers. There are high corporate stakes in the telecommunications business as well, given the industry concentration at the national level. Moreover, growth in wireless is fast, but is expected to be capped by physical bandwidth requirements unless the FCC frees up more bandwidth. This means that carving out market share now will enable the largest firms to survive, generating intense market share rivalries today.
These five factors make the telecommunications business moderately attractive for Verizon. The business is profitable and is expected to grow for several more years. The competition, however, is intense although there are high barriers to entry at least on the national level. Overall, Verizon's strategy should remain tied to building strength in its competitive environment and finding means of attaining sustainable competitive advantage, which in the telecommunications industry comes from economies of scale and technological proficiency.
Technological Environment
The pace of technological change is rapid. In the next year or two, most major wireless companies in the United States will be migrating to the fourth-generation Long-Term Evolution (LTE) network (Chen, 2009). This is indicative of the industry -- each competitor must keep pace with the technological developments of the industry as a whole, or be left at a competitive disadvantage. There are myriad threats and opportunities inherent in both landline and wireless technological change.
The new cellular network, LTE, is the next step in technological shift and has been developed in response to consumer demand for greater wireless bandwidth. The infrastructure in this case has followed the application, which is found in the sophisticated wireless devices like the Blackberry and iPhone. Developments at the device level therefore spur technological change at the telecommunications level. The device-level developments are in turn spurred by interpretation of consumer demand -- products are created to satisfy needs that, in the case of the wireless industry, may not yet have been articulated by consumers but have been identified by device-makers. Verizon must work with device-makers to understand the needs of devices and of consumers for the coming years, so that Verizon can make the necessary infrastructure investments to meet this demand.
International Environment
Verizon operates domestically. Rules governing the wireless marketplace in other nations tend to be strict, as most governments take an active role in the development of their telecommunications marketplaces. For example, none of the major U.S. carriers have a significant presence even in Canada. As such, the opportunity for expansion is limited, with the possible exception of expansion by acquisition. Thus, the international environment is highly unfavorable and as a result Verizon appears to be exclusively focused on the domestic market.
Conclusion
Verizon faces a rapidly changing external environment. Although the firm's stock price has been hit by the economic downturn and earnings have flatlined in recent quarters, Verizon's business is driven more by shifts in the technological and legal environments. Rapid technological change drives the telecommunications industry, which must response to rapid shifts in consumer needs. The regulatory environment has been a significant challenge of late, with the FCC taking a more active role in the industry.
Despite heavy competition in the industry, Verizon has...
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