Verizon

©2005 Tony Gauvin, UMFK

Verizon

Tony GauvinAll images from www22.verizon.com

Wednesday, March 23, 2005 © 2005 Tony Gauvin, UMFK

Overview Existing Condition

Industry overview New Vision and Mission External opportunities and threats

CPM EFE

Internal strengths and weaknesses IFE

Analysis SWOT Matrix SPACE BCG IE matrix Grand Strategy Matrix QSPM

Possible strategies Recommendations

Strategic implementation and desired results Annual objectives (goal) and polices

Evaluation Procedure


Verizon Overview Verizon Communications Inc. is a provider of communications services with four

operating segments: Domestic Telecom

Domestic Telecom services principally represent Verizon's telephone operations that provide local telephone services in 29 states and the District of Columbia

Domestic Wireless Domestic Wireless products and services include wireless voice and data services

and equipment sales across the United States. Information Services

The Information Services segment encompasses Verizon’s domestic and international publishing businesses, including print SuperPages and electronic SuperPages.com directories, as well as Website creation and other electronic commerce services. This segment has operations principally in North America and Latin America

International The International segment has wireline and wireless communications operations and

investments primarily in the Americas, as well as investments in Europe.


History Formed on June 30, 2000, with the merger

of Bell Atlantic Corp. and GTE Corp. GTE

7.1 million wireless customers 35 million land lines in US, Canada and Caribbean

Bell Atlantic 43 million mobile customers World’s largest directory information service

Trades as VZ on NTSE


Stock Price Performance


Industry overveiw (2005) More than 40 percent of long-distance telephone use and more than a third of local

telephone use has been supplanted by new technologies. By 2004 the number of long-distance calls made over wireless networks exceeded

those made over wireline networks. Wireless minutes of use exceeded 1 trillion in 2004.

More than 180 million Americans have wireless phones - approximately one in five of whom use their mobile phones as their main communications device.

More than 70 percent of American households are connected to the Internet, and by 2010 an estimated 62 percent will use broadband access.

80 percent of American adults under age 50 use the Internet. Instant messages, which already outnumber e-mails, are not only becoming the

principal means of communication for young people, but have evolved beyond text to voice and video.

Nationwide wireless networks and Internet-based communications have changed traditional distinctions between "local" and "long-distance" services.


Compare to Industry


A Global Market


Key Facts 32.5 Million customers In 49 of the top 50 US markets Revenue is flat for 2000-2003 Income is flat for 2000-2003 Spent 12 billion in 2002 to build out fiber

plant (DSL)




Goals and Objectives Verizon had no published Mission and Vision, The following is from 2004

Annual report Verizon is creating the future of communications by ushering in a new era in wireline

and wireless broadband connectivity. We are transforming our networks, products and services to provide our customers with the best possible communications experience at home, work or on the go … now and in the future.

Our strategic investments have created the nation’s most reliable wireless voice network, delivered a portfolio of innovative mobile products and produced over 43 million loyal customers. We are also transforming our wireline networks to deliver superior broadband services. Because of our commitment to innovation and investment, our customers are better informed, better entertained and better connected to the things that matter most to them.

By creating the future for our customers, we are also creating the future for ourselves. We are transforming our revenue base around the growth markets of the future and positioning ourselves to compete for an increasing share of the new markets being created by broadband and wireless technologies.


Proposed Vision At Verizon, our vision is to be the market

leader in delivering innovative, integrated communications solutions to customers at home, at work and on the go.


Proposed Mission At Verizon, our mission is to be the market leader in delivering

innovative, integrated communications solutions to customers at home, at work and on the go. The more people connected to a network, the more valuable it is to users. That’s the idea that underlies our business. It’s also the philosophy behind our commitment to our communities. Our aim is to mobilize and empower the millions of individuals and organizations —employees, retirees, customers and nonprofits —that comprise the Verizon community, putting the tools for progress into the hands of people who can make a difference on the local level. We promote employee volunteerism through matching gift programs that recognize contributions of money and time. And we are helping build a strong and lasting infrastructure for progress by making sure people have the fundamental skills —like literacy and access to technology —to succeed in the digital era.”


External opportunities and threats

1. 141 million possible customers in Europe, UK, and Germany 2. Strengthening foreign currencies vs. dollar- Euro advantages 3. Increased usage of wireless services4. Small wireless providers are consolidating with larger providers due to

increased competition5. Increased desire for high-speed internet service

Opportunities

1. New regulatory complaints (new phone # portability)

2. Rising costs of healthcare3. Global unrest- economic monetary and financial4. Consumer privacy rights under attack5. Weak consumer spending6. Decreasing demand for traditional voice lines and fixed lines7. Increasing overlap of telecommunication territories8. Increasing competition for providers of web search directories9. Increasing providers of wireless services10. Brand recognition

Threats


EFE

Opportunities Weight Rating Weighted Score1. 141 million possible customers in Europe, UK, and Germany 0.06 1 0.062. Strengthening foreign currencies vs. dollar- Euro advantages 0.06 1 0.063. Increased usage of wireless services 0.02 4 0.084. Small wireless providers are consolidating with larger providers due

to increased competition0.06 2 0.12

5. Increased desire for high-speed internet service 0.10 4 0.40

Threats Weight Rating Weighted Score1. New regulatory complaints (new phone # portability) 0.10 2 0.202. Rising costs of healthcare 0.07 2 0.143. Global unrest- economic monetary and financial 0.12 2 0.244. Consumer privacy rights under attack 0.02 4 0.085. Weak consumer spending 0.10 2 0.206. Decreasing demand for traditional voice lines and fixed lines 0.05 4 0.207. Increasing overlap of telecommunication territories 0.06 3 0.188. Increasing competition for providers of web search directories 0.02 2 0.049. Increasing providers of wireless services 0.06 4 0.2410. Brand recognition 0.10 4 0.40

1.00 2.64TOTALS

EFE Matrix


CPMCompetitive Profile Matrix

Verizon

Alltel SBC(Cingular)

Critical Success Factors

Weight Rating Weighted Score

Rating Weighted Score

Rating Weighted Score

Market SharePriceFinancial PositionConsumer LoyaltyBrand Awareness

0.100.250.200.300.15

43224

0.400.750.400.400.60

24333

0.201.000.600.900.45

32433

0.300.500.800.900.45

Total 1.00 2.55 3.15 2.95


Internal strengths and weaknesses

1. Top wireless provider in the U.S. serving 49 of the top 50 markets

2. High-speed data network in all major markets3. Largest provider of local, long distance, data, and broadband services in 2/3 of

the top 100 markets in the U.S.4. Leading print and on-line directory publisher with 2100 in U.S. and 13 other

countries

5. Verizon invested $12 billion in 2002 in 400,000 miles of fiber-optic cable.6. Marketing campaign – brand awareness

Strengths

1. $49 billion in long term debt

2. Lack of international presence3. Revenue only increased 4 percent since year end 2000.

Weaknesses


IFE

Strengths Weight Rating Weighted Score1. Top wireless provider in the U.S. serving 49 of the top 50 markets 0.17 4 0.682. High-speed data network in all major markets 0.13 3 0.393. Largest provider of local, long distance, data, and broadband services

in 2/3 of the top 100 markets in the U.S.0.10 4 0.40

4. Leading print and on-line directory publisher with 2100 in U.S. and 13 other countries

0.10 3 0.30

5. Verizon invested $12 billion in 2002 in 400,000 miles of fiber-optic cable.

0.15 4 0.60

6. Marketing campaign – brand awareness 0.10 4 0.40

Weaknesses Weight Rating Weighted Score1. $49 billion in long term debt 0.10 1 0.102. Lack of international presence 0.05 2 0.103. Revenue only increased 4 percent since year end 2000. 0.10 1 0.10

1.00 3.07TOTALS

IFE Matrix


Key RatiosVerizon Industry Sector S&P 500

Valuation RatiosP/E Ratio (TTM) 28.99 27.9 28.9 24.01P/E High - Last 5 Yrs NA 36.84 48.47 45.41P/E Low - Last 5 Yrs 9.04 10.16 16.09 16.26Beta 0.97 1.28 0.96 1Price to Sales (TTM) 1.5 1.93 2.8 3.33Price to Book (MRQ) 3.03 2.59 3.89 4.29Price to Tangible Book (MRQ) N/A 4.36 6.6 7.56Price to Cash Flow (TTM) 5.94 6.92 17.03 17.32Price to Free Cash Flow (TTM) 16 16.18 33.11 28.97% Owned Institutions 54.54 38.23 50.48 64.19



DividendsDividend Yield 4.21 4.2 2.14 2.04Dividend Yield - 5 Yr Avg 3.4 2.34 1.43 1.48Dividend 5 Yr Growth Rate 0 -0.87 -0.89 6.48Payout Ratio (TTM) 120.6 33.73 15.54 26.78

Verizon Industry Sector S&P 500Growth Rates %Sales (MRQ) vs Qtr 1 Yr Ago 0.72 2.36 14.39 13.4Sales (TTM) vs TTM 1 Yr Ago 0.67 3.55 15.92 11.9Sales - 5 Yr Growth Rate 3.49 12.49 17.25 9.3EPS (MRQ) vs Qtr 1 Yr Ago N/A -17.21 15.43 28.69EPS (TTM) vs TTM 1 Yr Ago -25.06 -4.84 16.37 21.92EPS - 5 Yr Growth Rate -7.98 -1.81 15.23 12.15Capital Spending - 5 Yr Growth Rate -1.5 -2.37 2.61 4.06


Key ratiosVerizon Industry Sector S&P 500

Financial Strength Quick Ratio (MRQ) 0.48 1.01 0.93 1.26Current Ratio (MRQ) 0.69 1.22 1.47 1.76LT Debt to Equity (MRQ) 1.18 0.84 0.74 0.68Total Debt to Equity (MRQ) 1.36 0.95 0.82 0.85Interest Coverage (TTM) 2.68 3.18 7.84 11.86

Verizon Industry Sector S&P 500Profitability Ratios %Gross Margin (TTM) 67.85 60.97 42.84 47.32Gross Margin - 5 Yr Avg 57.39 54.17 42.06 47.01EBITD Margin (TTM) 31.16 31.75 22.32 20.79EBITD - 5 Yr Avg 39.98 30.7 21.97 20.82Operating Margin (TTM) 11.06 12.99 12.9 20.33Operating Margin - 5 Yr Avg 20.77 13.72 11.21 18.35Pre-Tax Margin (TTM) 7.03 10.68 10.37 17.27Pre-Tax Margin - 5 Yr Avg 14.12 10.56 11.77 17.54Net Profit Margin (TTM) 5.18 7.03 7.54 13.12Net Profit Margin - 5 Yr Avg 8.79 5.18 7.62 11.59Effective Tax Rate (TTM) 26.3 29.08 32.18 31.31Effective Tax Rate - 5 Yr Avg 41.35 35.99 36.04 34.2



Management Effectiveness %Return on Assets (TTM) 2.09 3.21 5.91 6.4Return on Assets - 5 Yr Avg 4.17 2.87 5.49 6.79Return on Investment (TTM) 2.51 3.84 7.98 9.97

Return on Investment - 5 Yr Avg 5.37 3.7 7.59 10.93Return on Equity (TTM) 10.25 13.28 13.51 18.71Return on Equity - 5 Yr Avg 19.36 9.79 13.18 19.22

EfficiencyRevenue/Employee (TTM) 333,589 405,314 479,338 622,866Net Income/Employee (TTM) 17,277 102,467 90,606 81,707Receivable Turnover (TTM) 6.28 7.39 17.23 9.76Inventory Turnover (TTM) 15.92 21.63 17.53 10.46Asset Turnover (TTM) 0.4 0.47 1.17 0.92

www.investor.stockpoint.com


SWOT Matrix1.Top wireless provider in the U.S. serving 49 of the top 50 markets2.High-speed data network in all major markets3.Largest provider of local, long distance, data, and broadband services in 2/3 of the top 100 markets in the U.S.4.Leading print and on-line directory publisher with 2100 in U.S. and 13 other countries5.Verizon invested 12 billion in 2002 in 400,000 miles of fiber-optic cable.6.Marketing campaign – brand awareness

1.49 billion dollars in long term debt2.Lack of international presence3.Revenue only increased 4 percent since year end 2000.

S-O Strategies W-O Strategies

1.141 million possible investors in Europe, UK, and Germany2.Strengthening foreign currencies vs dollar- Euro advantages 3.Increased usage in wireless services4.Small wireless providers are consolidating with larger providers due to increased competition5.Increased desire for high-speed internet service

1.Expand wireless services into Europe, UK and/or Germany (S1, O1, O3)2.Expand high speed internet service in Europe, UK and/or Germany (S2,O5)3.Acquire small domestic wireless providers such as Powertel or Aerial (S1, O4)4.Invest capital into fiber optic cable to compete with cable companies. (S5, O5)

1.Purchase international wireless providers such as MMO2 (W2, O4)

2.Offer services to people in Europe to increase revenue due to the difference in foreign currency (W1, O2)

S-T Strategies W-T Strategies

1.New regulatory complaints (new phone # portability)2.Rising costs of healthcare3.Global unrest- economic monetary and financial4.Consumer privacy rights being attacked5.Weak Consumer spending6.Decreasing demand for traditional voice lines and fixed lines7.Increasing overlap of telecommunication territories8.Increasing competition for providers of web search directories9.Increasing providers of wireless services10.Brand recognition

1.Enter into a joint venture with MCI to offer a package deal (S1, T12)2.Proceed with legal battles to serve local markets to increase traditional voice and fixed lines.(S3, T7)

1.Expand globally in Europe (W2, T7)2.Liquidate the Telecommunications Services such as fixed lines and traditional lines business to reduce long-term debt. (W1, T6)


Space Matrix

SPACE MatrixY axis Financial strength +4 +1 worst to + 6 best Y axis: 4 + (-2) = 2 Environmental stability -2 -1 best to -6 worstX axis Industry strength 5 +6 best to +1 worst X axis: 5 + (-1) = 4Competitive advantage -1 -6 worst to –1 best

(2, 4)

Conservative Aggressive

Defensive Competitive


BCG

High +20 Star Question Mark

Wireless

IndustrySalesGrowth Medium 0 Cash Cow DogRate(Percentage)

Telecom

Low -20

High Medium Low1.0 .50 0.0

Relative Market Share Position

70%

30%

70%

30%


IE Matrix4.0 I II III

High

3.0 IV V VI

TheEFETotal Medium

WeightedScores

Wireless

VerizonTelecom

2.0 VII VIII IX

Low1.0

Strong Average Weak4.0 to 3.0 2.99 to 2.0 1.99 to 1.0

The Total IFE Weighted Scores

70%

30%

70%

30%


GSM RAPID MARKET

GROWTH

Quadrant II Quadrant I

Verizon

WEAK STRONG COMPETITIVE COMPETITIVE

POSITION POSITION

Quadrant III Quadrant IV SLOW MARKET

GROWTH

1. Market Development 2. Market Penetration 3. Product development 4. Forward Integration 5. Backward Integration 6. Horizontal Integration 7. Concentric diversification


Matrix Analysis and SWOT SummaryAlternative Strategies IE SPACE GRAND COUNT

Forward Integration X X X 3

Backward Integration X X X 3

Horizontal Integration X X X 3

Market Penetration X X X 3

Market Development X X X 3

Product Development X X X 3

Concentric Diversification X 1

Conglomerate Diversification X X 2

Horizontal Diversification X 1

Joint Venture 0

Retrenchment 0

Divestiture 0

Liquidation 0


Possible Strategies

Grow Fiber plant to increase domestic sales opportunities (again)

Move into European markets Wireless High Speed Internet

Acquire smaller wireless providers to grow US markets

Joint venture with large provider for Wireless


QSPM

Threats Weight AS TAS AS TAS1. New regulatory complaints (new phone # portability) 0.10 0 0.00 0 0.002. Rising costs of healthcare 0.07 0 0.00 0 0.003. Global unrest- economic monetary and financial 0.12 0 0.00 0 0.004. Consumer privacy rights under attack 0.02 3 0.06 2 0.045. Weak consumer spending 0.10 0 0.00 0 0.006. Decreasing demand for traditional voice lines and fixed lines 0.05 0 0.00 0 0.007. Increasing overlap of telecommunication territories 0.06 0 0.00 0 0.008. Increasing competition for providers of web search directories 0.02 2 0.04 3 0.069. Increasing providers of wireless services 0.06 0 0.00 0 0.0010. Brand recognition 0.10 0 0.00 0 0.00

Opportunities Weight AS TAS AS TAS1. 141 million possible customers in Europe, UK, and Germany 0.06 2 0.12 4 0.242. Strengthening foreign currencies vs. dollar- Euro advantages 0.06 0 0.00 0 0.003. Increased usage of wireless services 0.02 4 0.08 2 0.044. Small wireless providers are consolidating with larger providers due

to increased competition0.06 0 0.00 0 0.00

5. Increased desire for high-speed internet service 0.10 0 0.00 0 0.00

Enter into a joint venture with MCI to

offer a bundled wireless package

Invest capital in fiber optic

cable


QSPM

Strengths Weight AS TAS AS TAS1. Top wireless provider in the U.S. serving 49 of the top 50 markets 0.17 2 0.34 3 0.512. High-speed data network in all major markets 0.13 2 0.26 4 0.523. Largest provider of local, long distance, data, and broadband services

in 2/3 of the top 100 markets in the U.S.0.10 2 0.20 3 0.30

4. Leading print and on-line directory publisher with 2100 in U.S. and 13 other countries

0.10 4 0.40 2 0.20

5. Verizon invested $12 billion in 2002 in 400,000 miles of fiber-optic cable.

0.15 4 0.60 2 0.30

6. Marketing campaign – brand awareness 0.10 2 0.20 3 0.30

Invest capital in fiber optic cable

Enter into a joint venture with MCI to offer a bundled wireless package

Weaknesses Weight AS TAS AS TAS1. $49 billion in long term debt 0.10 4 0.40 3 0.302. Lack of international presence 0.05 3 0.15 4 0.203. Revenue only increased 4 percent since year end 2000. 0.10 1 0.10 2 0.20

2.95 3.21TOTALS


Decisions Primary

Grow US wireless market by performing Joint Bundling wireless effort with MCI

Alternatives Buy smaller wireless providers Move in Foreign Markets Increase Optical Fiber capacity


Show me the Money!

Recession Normal Boom Recession Normal BoomEBIT 5,000,000,000 10,000,000,000 15,000,000,000 5,000,000,000 10,000,000,000 15,000,000,000Interest 0 0 0 50,000,000 50,000,000 50,000,000EBT 5,000,000,000 10,000,000,000 15,000,000,000 4,950,000,000 9,950,000,000 14,950,000,000Taxes 1,750,000,000 3,500,000,000 5,250,000,000 1,732,500,000 3,482,500,000 5,232,500,000EAT 3,250,000,000 6,500,000,000 9,750,000,000 3,217,500,000 6,467,500,000 9,717,500,000# Shares 2,805,000,000 2,805,000,000 2,805,000,000 2,765,000,000 2,765,000,000 2,765,000,000EPS 1.16 2.32 3.48 1.16 2.34 3.51

Common Stock Financing Debt Financing

Recession Normal Boom Recession Normal BoomEBIT 5,000,000,000 10,000,000,000 15,000,000,000 5,000,000,000 10,000,000,000 15,000,000,000Interest 15,000,000 15,000,000 15,000,000 35,000,000 35,000,000 35,000,000EBT 4,985,000,000 9,985,000,000 14,985,000,000 4,965,000,000 9,965,000,000 14,965,000,000Taxes 1,744,750,000 3,494,750,000 5,244,750,000 1,737,750,000 3,487,750,000 5,237,750,000EAT 3,240,250,000 6,490,250,000 9,740,250,000 3,227,250,000 6,477,250,000 9,727,250,000# Shares 2,793,000,000 2,793,000,000 2,793,000,000 2,777,000,000 2,777,000,000 2,777,000,000EPS 1.16 2.32 3.49 1.16 2.33 3.50

70 Percent Debt - 30 Percent Stock70 Percent Stock - 30 Percent Debt

EPS/EBIT AnalysisAmount Needed 1,000MInterest 5%Tax Rate 35%Share Price $25Shares Outstanding 2,765M


Implementation Objectives

Increase income by 40% in next 3 years Increase revenue by 25% in next three years Decrease cost by increasing efficiencies to match

income goals Decrease long–term debt

Use increased income to pay down debt Match sector avg’s within 3 years


Goals & Policies Telecom division

5% reduction in expenses per annum

Wireless 15% increase in sales per annum


Evaluations Qtr & Yearly financial reports Balanced Scorecard Yearly strategic meeting of division

management and corporate management


2004 Financial Statistics

Operating Revenues $71.3 billion Net Income $7.0 billion EPS (diluted basis) $2.51 Capital Expenditures $13.3 billion Total Debt $39.3 billion Cash Flow from Operating Activities

$21.8 billion Weighted Average Shares Outstanding

$2.77 billion Shareowners 2.7 million


2004 Financial Statistics Operating Revenues $75.1 billion Net Income $7.4 billion EPS (diluted basis) $2.65 Capital Expenditures $13.3 billion Total Debt $39 billion Cash Flow from Operating Activities

$22 billion Weighted Average Shares Outstanding

$2.9 billion Shareowners 2.7 million


Press Releases January 8, 2004

Verizon Wireless Announces Roll Out of National 3G Network June 27, 2004

Verizon Communications Reports 6% Second-Quarter Revenue Growth, Led by Wireless Revenue Growth of 25%

October 21, 2004 Verizon Deploying Fiber Optics to Homes and Businesses in 6 More

States in Northeast and Mid-Atlantic March 13, 2005

Verizon-MCI Transaction Creates New Competitor in Large-Business, Government Markets, Seidenberg Says

January 26, 2006 Verizon Communications Reports Strong 4Q 2005 Results, Driven by

Continued Growth in Wireless and Broadband

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