When thinking of wireless phone or internet service, the first company that probably comes to mind is Verizon Wireless. Verizon officially became a force to be reckoned with in the wireless market in 2000 when Verizon communications and Vodafone merged. Verizon states, “Verizon Communications Inc., headquartered in New York, is a global leader in delivering broadband and other wireless and wire line communications services to mass market, business, government and wholesale customers.” Since entering the market in 2000, Verizon has made itself popular by offering service in more areas than any other wireless network.
Within economics, four types of market structures exist. The four types are: monopoly, monopolistic competition, perfect competition, and oligopoly. Colander (2008) describes market structure as, “the physical characteristics of the market within which firms interact.” Verizon Wireless’ market structure can be defined by a combination of monopolistic competition and oligopoly. Colander (2008) defines monopolistic competition and oligopoly as, “a market structure in which there are many firms selling differentiated products and few barriers to entry—and oligopoly — a market structure in which there are only a few firms and firms explicitly take other firms’ likely response into account.
The wireless industry is smaller that people think and not much competiton exists. For example: Cingular and AT&T are both wireless carriers, but Cingular is a part of AT&T. Essentially, when a consumer spends money with Cingular, it still goes to AT&T. Using an oligopoly structure has worked well for Verizon in the past and currently. Current and future market trends should not have any affect on the market structure of Verizon.
Competition in the wireless industry has always been tough. It seems as though every month or few weeks, a new phone or new service is being unveiled by a well-know company or a company trying to get started. Besides Alltell, Verizon is usually the company the competition seeks to compete with. To compete with Verizon most companies offer a service similar to Verizon for a cheaper price, or they offer a similar phone for a cheaper price. Verizon would not be affected heavily by any new companies entering the market, because Verizon is already established and consumers are already familiar with the brand. Aside from that, Verizon offers a number of services and slogans to keep their consumers interested. Some of the slogans used are: America’s largest and most reliable network, #1 in customer loyalty, and the worry free guarantee. Verizon does not have to worry about the competition, the competition should worry about Verizon.
One of the downsides to having wireless services and phones is the price. Since the introduction of cell phones, the price of phones and the price of service have risen significantly. On average, a contract for cell phone service with two lines would cost anywhere from $160 – $250, depending on the services the customer chooses. That price does not include the price of the phone which could be anywhere from $50 – $900. The prices to maintain the convenience of a cell phone are ridiculous, but it is a necessity that most individuals find it hard to live without. The current and future trend of the wireless industry shows the price of services and phones increasing. With that being said, despite the prices of phones and service, consumers will continue to pay the prices set by Verizon and other wireless companies.
Cell phones and services have definitely evolved over the years. Technology is one of the leading factors when consumers consider purchasing a phone or selecting a company as their wireless provider. Most cell phone users use text messaging, check email, and log onto social networking sites like facebook and myspace from their mobile phones. Like any other invention cell phones have evolved and become an important part of our lives. Televisions went from just being in homes to our cars. Computers were usually found in places such as: homes, offices, and libraries. Now cell phones are the more modern version of computers. Verizon has always made note of the changing trends when it comes to technology and the company has always delivered excellent products the consumer wants or needs.
To maintain the position as the largest and most reliable wireless carrier, Verizon Wireless must spend money. The costs range from building the network, to maintaining the network. Costs include employees, equipment and technology needed to keep the company on top. The company makes decisions based on what the benefit will be in the long run. These decisions are made by researching trends and technology in the wireless market and changing tastes of the consumer. The company knows the catalyst of success is a strong network. The law of diminishing marginal productivity states as more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall (Colander 2008). I was not able to get information specific from Verizon Wireless that would help me graph out this law.
The company has over 86,000 employees and made 56.8 billion dollars in profit for 2008 (about us 2009). Each year bonuses are given to employees based on individual performance and company performance. Last year the bonuses were based on the fact that the company made 12% in profits. In today’s economic times, the e profit achieved was outstanding and was above any other profits made in the wireless industry for 2008.
Cost Structure Wages and Benefits
Employees of Verizon Wireless are compensated well. The employees salary along with the benefits provided are above others employed in the wireless industry, according to David Brown an analyst at Verizon Wireless human resources. At Verizon Wireless a broad-banded structure is used to organize jobs and manage pay. There are six bands that range from A to F. Depending on the skills of the individual, he or she is usually hired in on the F band, which is a customer service representative, or assistant. The duties are usually task oriented.
The next band is E, which is a coordinator or analyst, who are proven to work independently, usually on projects and technical functions. D band consists of level one managers, supervisors etcetera. C through A bands are the higher levels of management and CEO. Jobs are assigned to bands based on similar roles and levels of responsibility.
The jobs themselves can be quite different in terms of what people do. Jobs in the same band are similar in terms of their impact on our business results, the decision-making authority of the employees who hold them, and the knowledge and skills required. VZW classifies a job as either salaried exempt or salaried non-exempt. Verizon Wireless provides medical, dental and vision benefits to employees at a reduced cost, but also provides at no cost an education benefit up to 8,000 per year, 401k contribution matching up to 6% and yearly performance bonuses as well as profit sharing if enrolled in 401k and a long term incentive program that is also based on company performance.
Employees are a vital asset to Verizon Wireless and the salaries along with the benefits are designed to maximize performance.
Cost Structure Fixed and Variable Costs
Fixed costs are defined as costs that are spent and cannot be changed in the period under consideration (2008). Fixed costs for Verizon Wireless include buildings, warehouses used, and upkeep of cellular sites. Variable costs, or costs that change, include workers employed, contracts for equipment production, new technology etcetera. Verizon Wireless is a firm that sells produced goods to individuals, businesses and government (2008). The company’s main output is technology. The fixed costs dived by the variable costs equal the average costs of the company. As was stated earlier, last year Verizon Wireless made a 12% increase in profits from the year before.
Most of the revenue occurred in the 4th quarter of the year with the release of the BlackBerry Storm touch screen device. The device was the answer to the I phone distributed by AT&T. Over 100,000 devices were sold on the first day of release alone. The cost of the device was 199.99, which is around 2 million dollars made in one day. The demand for the devices increased, and the company met the demand with more phones. According to the March 2009 newsletter given to the company for 4th quarter earnings, the CEO Lowell McAdam advised that Storm sales were the factor that significantly raised the company’s profits and set the bar for future ventures.
Price Elasticity of Demand
The relation between the shift in quantity and shift in price of a product is known as price elasticity. “Price elasticity of demand is the calculation of the percentage change in quantity demanded divided by the percentage change in price” (Colander, 2008). Verizon Wireless has to make an effort to stay in synch with the pricing and offerings by their competition. Verizon Wireless must implement services and products that incorporate modern technology and are ground-breaking to compete in the wireless market and affordable in today’s economy.
Impact of Government Regulations
Verizon Wireless realizes the importance in ensuring that all regulations that are established by the Federal Communications Commission. Abiding by these regulations will guarantee that Verizon Wireless will keep providing long-standing benefits for the taxpayer and customers. Verizon Wireless trusts that the present structure “of auctioning spectrum licenses, with clearly defined, exclusive-use and flexible rights, is the right approach to spectrum policy” (Verizon Wireless, 2009). Although clear benefits towards allowing unlicensed use of spectrum is visible, that advance will not create the revenue for the United States Treasury or the best value for American economy. Broadband is one of the services provided by Verizon Wireless. Over the past ten years Broadband services have been used commercially.
During that time the government has acknowledged the significance of implementing market-based motivations to persuade broadband usage and investment. “Rather than applying more-stringent regulations to telecommunications services and infrastructure, the FCC generally has applied an old wires, old rules; new wires, new rules philosophy towards broadband services and networks” (Verizon Wireless, 2009) By doing this, customers will reap in the benefits form the government’s decision to enhance incentives for broadband service providers to invest in better and superior broadband networks and services. “Investment and deployment in next-generation broadband networks – such as Verizon’s FiOS network – is happening at a remarkable pace, and consumers now have more choices than ever before” (Verizon Wireless, 2009).
Verizon Wireless has a substantial amount of competition in the wireless industry. Verizon competes with wireless companies such as T-Mobile, Sprint and AT&T. Verizon Wireless became the largest wireless service provider by beating out AT&T. Nonetheless, Verizon’s landline industry is affected by the large opposition of modern technology and tends to confront challenges from various other competitors with high speed internet and cable companies such as Time Warner Cable. Verizon Wireless has to make an effort to stay in synch with the pricing and offerings of its competitors. The Wireless industry is so competitive, equipment can outdate within a few months. Companies must develop wireless devices that are affordable as well as reliable.
Supply and Demand Analysis
Even with today’s economic challenges, many opportunities to create innovative new products to meet customer demand still abound. In a bold new step the company introduced its line of netbooks, mini lightweight laptop computers that consumers can take with them anywhere. The netbooks have all the functionality of a laptop, with the convenience of a smaller wireless device. The smaller size and the low price the netbooks are offered, is what today’s consumers are demanding. Tapping into this market gives Verizon Wireless a piece of the notebook and laptop market that was only accessible in the past by offering mobile broadband cards. The added revenue from this market keeps Verizon Wireless ahead of the competition.
Verizon Wireless also has the opportunity to expand its coverage globally with the 3G UMTS, Quad Band GSM networks. This means that business travelers as well as consumers will now have access to roam on more networks in over 250 countries across the globe. Verizon Wireless strives to produce the best most reliable wireless voice and data coverage in the industry. In order to obtain that goal the company will have to gain customers faster than the competition, widen the revenue lead and lead in profitability. As long as Verizon stays on the right track, the company should not have any issues presently and in the future.
Colander, D (2008).Economics, Fifth Edition. McGraw-Hill/Irwin, New York, New
York, 10020 Verizon Wireless. (2009). Corporate History/investor relations. Retrieved June 26th, 2009 from www.verizon.com.