Five Forces Analysis
Management Information Systems
Verizon Wireless is one of the leading wireless providers in the United States. Of the major four carriers in the United States, Verizon has been able to maintain the lead in all areas such as the network, customer service and products. Established in a joint venture between Vodafone and Verizon Communications in the year 2000 after diluting the company formally known as Bell Atlantic, Verizon “is the standard-bearer for the industry and leader in delivering the benefits of our empowering technology to the world” (About Verizon, 2013). With the other major carriers, AT&T, T-Mobile, and Sprint, it can be seen how Verizon has been able to stay ahead of the competition using Porters Five Force Model. In Michael Porters Five Force Model, the first force he describes is new entrants into the industry. This force pertains to how the development of the internet now makes it easier for new or smaller companies to compete in the industry. Within the wireless industry, the advancement in technology and the internet has made it much easier for smaller, start-up companies to compete. In the past, many companies such as Nextel and Boost have emerge, but just as quickly as those businesses were established, they were acquired by one of the major carriers.
Recently, there has been the emergence of Metro PCS, which has started to gain leverage with its customer base among other smaller carriers such as H2O. Since its founding in 1994, it is now the fifth largest wireless carrier in the United States and is now owned by T-Mobile (Reuters, 2012). The key to success of Metro PCS was that they were marketing their services to those who already had cellular devices. This was a huge risk for the company due to the fact that the wireless industry has been classified as saturated. Metro PCS allowed consumers to take their currently devices and sign up for service online and pay a flat rate for unlimited talk, text and data. This came at an integral time for the industry with both Verizon and AT&T no longer offering unlimited plans. To the consumer who was looking to cut costs they didn’t have to purchase a new device and they would be able to pay less for monthly service with no limitations.
The company aimed it marketing efforts at “cost-conscious, high-volume minute users and is a good option for customers with big wireless bills” (M/C Partners, 2012). Despite Metro PCS only having stores in twenty-four major cities, much of their success is due to their online transactions. Giving consumers the option to purchase devices from their limited selection or use a phone from a different carrier has given them an advantage over not only other smaller carriers, but the major ones as well. It has become that store location is no longer a limiting factor with over 9 million subscribers (T-Mobile Buys MetroPCS, Adding 9 Million Customers In One Fell Swoop, 2013). The best way for Verizon to combat the success of Metro PCS would be to put more emphasis on their pay-as-you-go options. Although the company does offer a flat rate for their pay-as-you-go smart phones, it isn’t highly marketed. Today’s consumer is looking for the most cost effective price with no surprises on their bill. Much of the company’s focus is on their 4G network however it isn’t offered on their prepay options.
Their only offering is on their locked 3G network with a very limited product line-up. Allowing consumers to use bring in their own devices would open up a large client base that Verizon has never had access to. The second force the Porter discusses is the bargaining power of buyer (Porter, 2008). In short this focuses on the power of the buyer and how they seek high quality products and/or services at competitive prices. An example of this in the wireless industry became evident with Ebay, Craigslist and Newegg.com. Consumers no longer have to limit their purchase of their devices to their service provider. With the influx of dotcom businesses and auction sites, consumers now have the option of purchasing their devices elsewhere, making the pricing more competitive.
The consumer would still have access of using a particular carrier such as Verizon; however have a way of negotiating the price of their device. With the companies setting their retail prices of their devices to cover a majority of the subsidies of the device not making it the most economical option for some consumers. The internet has created a selling atmosphere where individuals are able to sell their used devices on websites like Craiglist or participate in auctions for new devices on Ebay. Options like these have become increasingly viable due for consumers who don’t want or don’t have the option of signing a contract without paying the large subsidy of the device. Due to Verizon Wireless being a service provider, this particular force doesn’t have much of a negative impact on the carrier. Regardless of where the consumer chooses to purchase their device, it still has to be services by the assigned provider. This force in turn has a positive impact on the company because it saves the company on the subsidies that it would have had to pay the manufacture. The downside of this is that the carrier is not able to lock the consumer into a contract, guaranteeing a monthly service fee, giving the consumer more flexibility but denying the company loyalty.
The third force according to Porter is the bargaining power of the supplier. McNurlin describes this as the enabling of smaller companies to compete against large ones in uncovering requests for bids and bidding on them – leveling the playing field. (McNurlin, 2009, p. 148) A great example of this could be seen by the launch of Apple’s iPhone. Originally exclusive with only one major carrier, AT&T, the other major carriers and smaller carriers were excluded from carrying the popular device in their line-up. This major supplier was now controlling the market and consumers were turning to the carrier who offered the device. With 146,000 devices being sold the first weekend of its launch, it was clear that the iPhone was in high demand (Marsal, 2007). With the conclusion of the exclusivity contract with AT&T, Apple was able to reach an agreement with Verizon Wireless to add the product to their line-up. This partnership with Verizon and AT&T almost led to the demise of smaller carrier T-Mobile due to its inability to establish the popular device on its own network. It wasn’t until 2012 that smaller carriers had access to the device and were able to “unlock” them to be used on various networks. Companies such as H2O Wireless allowed customers to start service with them by taking their unlocked iPhones and providing the consumer with new sim cards.
These new sim cards would now activate the device on their network and offer the consumer a flat rate of service on the popular device. Verizon’s inability to gain the exclusive contract with AT&T did increase subscription churn for the carrier, however it was able to compete with its focus on the Android device selection. Although companies like H2O have not hindered the major carriers’ subscriptions, these unlocked devices will take a long term effect on the carrier. The company does currently lead in network reliability and reception, but with the growth of the 4G market, its competitors are able to offer service in major markets and consumers may eventually look for service providers who can offer the same reliability but at competitive prices. Lastly, Porter details the threat of substitute products and services and rivalry among competitors (McNurlin, 2009). This works for the example used previously. With smaller companies unable to carry popular devices, they are able to duplicate services by putting their services into devices they may technically be exclusive to other carriers. H2O Wireless and internet based company, is the perfect example for this. Although H2O Wireless has no actual storefront, they are able to not only duplicate the services of the major carriers nationally, but able to reach their consumers globally and with competitive rates.
Their inability to carry the iPhone did not stop them from duplicating the services that Verizon and AT&T were offering. They were able to develop a sim that would use that same device and initiate their service on that device. In turn, saving the consumer money, since they did not have to purchase a new phone and increasing the carriers’ subscription rate. The downside to this is some of the smaller companies are not able to compete with the major carriers due to product feature limitations and network reliability. Through Porters Competitive Forces Model, Verizon as well as the other major wireless carriers have been impacted by the advancement of the internet; not only making the carrier compete with the other three major carriers, but having smaller companies such as Metro PCS and H2O Wireless viable competition in the market. As we have seen the internet has made it easier for new and smaller companies to enter the market and gives the consumer more options.
About Verizon. (2013). Retrieved September 15, 2013, from Verizon Wireless: http://about.verizon.com/index.php/about/our-company M/C Partners. (2012). Case Study: Metro PCS. Retrieved September 15, 2013, from M/C Partners: http://www.mcpartners.com/for_entrepreneurs/case_studies/ Marsal, K. (2007). iPhone to become fastest selling Apple product in history. AppleInsider , 7-8. McNurlin, B. (2009). Information Systems Management in Practice. Upper Saddle River: Prentice Hall. Murphy, D. (2013, September 7). PC Magazine. Retrieved September 8, 2013, from www.pcmag.com Porter, M. (2008). The Five Competitive Forces That Shape Strategy”. Harvard Business Review . Reuters.
(2012, October 3). T-Mobile USA, Metro PCS to Combine. Chicago Tribune , p. 1. T-Mobile Buys MetroPCS, Adding 9 Million Customers In One Fell Swoop. (2013, May 1). Retrieved September 15, 2013, from Huffington Post: http://www.huffingtonpost.com/2013/05/01/t-mobile-metropcs_n_3191876.html
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