Can you hear me now, becauseI am in CHINA?

Verizon goes to China…

Project Managers:

• Jeff Pearson

• Mary Schluter

• Ryan Shockley

Verizon’s mission

• The MJ Consulting Firm has been hired to assess the prospects of a joint venture between Verizon Communication’s and a telecommunication’s company already established in China or of attempting to go it alone into China. A joint venture would increase the probability of success in the area.

Target Market

• The company is targeting Chinese within the ages of 15 and 45

• This group makes up almost one third of the population

• This group is also very technologically savvy

Verizon’s Resources

• In 2004, Verizon reported operating revenues of $71.3 billion

• They also reported a net income of $7 billion

• This was an increase of 5.7% over 2003

Continued…• Recently revenues have increased by 19%

• Verizon employs more than 200,000 people in four business units (Verizon wireless, Domestic Telecom, Information Services, International) in 29 states

• These serve 43.8 million voice and data customers in the United States

Revenue of each business unit

• Verizon Wireless- $27.7 billion

• Domestic Telecom- $38.6 billion

• Information Services- $3.6 billion

• International- $2.0 billion

Growth

• Revenues from DSL were 2 billion for the fourth quarter of 2004 compared with 1.9 billion in 2003, an increase of 9.2%

• Long distance revenues for the fourth quarter of 2004 were 1.1 billion compared with 1.0 billion, an increase of 5.8%

• International revenues for the fourth quarter of 2004 were $544 million, compared to $477 million in 2003

Growth continued

• Total revenues for 2004 were $2 billion, as compared to 1.9 billion in 2003

Other notable figures

• In 2004, cash expense per customer declined by 2.5% (this is noteworthy because of the record high of new customers)

• Wireline services shrunk from 54% in 2003 to 48% in 2004

• Wireless services increased from 46% in 2003 to 52% in 2004

Verizon’s markets

• In the US, Verizon is the largest provider of wireline and wireless services

• It is also one of the worlds leading providers of communication and information services

Internationally

• Verizon’s international presence is • primarilly in the Americas and Europe• They have a stake in Tellus Corp. in Canada• They also have a part in Grupo Iusacell, a

Mexican wireless business• They also have an information service that

provides sales, publishing, and related Yellow pages services in Austria, Hungary, Malasia, Poland, Slovakia and Sri Lanka

Internationally continued

• In the fourth quarter of 2004 Verizon sold its interest in Tellus and EuroTel Bratislava

• This reflects efforts to realign its portfolio and focus primarily on the Caribbean and Latin American regions

Trends

• In 2004 Verizon Wireless added 6.3 million net new customers

• Its total number of customers grew 16.8% to 43.8 million, including 41.8 million retail customers

• In 2004 Verizon launched V Cast, a third generation consumer multimedia service, delivering high quality video, 3D games and music to 3G handsets

• Verizon owns and operates the nations most reliable wireless network

• This network serves 43.8 million voice and data customers across the US

Products and Services continued

• In addition, Domestic Telecom serves customers based in 29 states with wireline telecommunications services, including broadband and nationwide long distance service

• Information Services operates a directory publishing businesses and provides electronic commerce services

Products and Services continued

• International services include wireless operations and investments primarily in the Americas and Europe

• Verizon offers a variety of cell phone plans, DSL, and broadband internet access

Competition in China

• Nokia will be their biggest competition, since they have been in China for nearly twenty years

• Motorola, Siemans AG, and Samsung have also already established themselves in China

Competition continued

• Verizon may be the largest wireless provider in the US, but moving into China will be an uphill battle, since each of their competitors have been there for a while

• Verizon will also be competing against China’s state run communication providers

Problems and Opportunities

• The biggest decision Verizon has to make is whether to go in on their own or whether to go in with a joint venture

• Another problem is that the Chinese telecom market remains heavily regulated and controlled

• The government views wireless service as a possible threat to national security

One quote states…

• “China will allow foreign carriers to enter the traditional fixed-line market for the first time. Under the new rules telecom operators will be permitted to take a maximum 25% stake in fixed-line joint ventures with Chinese companies in three major cities: Beijing, Shanghai and Guangzhou. The rules also will let foreign carriers, already permitted to invest in Chinese wireless companies in 17 cities, to own a 49% stake, up from the 35% currently allowed”

Other problems

• Confusing regulations

• Government meddling

• High cost of market entry

• Foreign carriers are not allowed to sell service under their own brands

• Another problem is…

Cell phone towers

• Can Verizon piggyback off of another company’s tower? or

• Do they have to build their own?

• Building a tower will cost roughly $250,000

Problems and Opportunities…

• Contract negotiations

• In a joint venture, they will need to spell out the percentages of the joint venture, specify terms of payment, performance standards, and also ensure that any profits are convertible

• They will need to protect their intellectual property rights as well

Problems and opportunities continued

• They need to make sure that whoever they negotiate with is authorized to make decisions

• Do not take for granted the enforcement or non-enforcement of government rules in the provinces

If they should choose to go into China alone…

• They must find factory workers, sales people, and managers for retail outlets

• It would be best to find these people within China because they would be more familiar with the economic environment and employment customs

• Another way to protect themselves would be to not sell on credit

Opportunity

• The biggest opportunity is the enormous potential to tap into the Chinese market

• Out of the target market of 1.3 billion people, only 25% currently have cell phones

• In other words, there is a huge potential market in China for this company

• If successful, Verizon could stand to make a great deal of money

Promotional Objectives

• Our target market are people between the ages of 15 and 45

• This group makes up about 1/3 of the Chinese population

• Problems could arise depending on what government regulations are with advertising both in television and print ads

• It’s important to remember that the ads that work so well for Verizon in the US may not work as well if at all in China, so a new set of advertising ideas may have to be created for this region

Quantifiable Objectives

• In the country of China there are 1.3 billion people

• 95% of the population lives in the Southeast part of the country

• The average Chinese makes about 1,000 US dollars a year

• Figuring that the average American makes approxamitely $38,000 a year and spends about 1.9% of their salary on cell-phone coverage…

What does this mean?

• With an exchange rate of about 8.2765 Yuans to one US dollar…

• The average Chinese person will end up spending roughly 12.66 Yuans a month on cell phone coverage

Sales Objectives

• Verizon’s goal in their first year is to gain 6-8 million new Chinese cell phone users

Communications objectives

• Verizon must discover how much Chinese people use their cell phones, including using them to access the internet and to send text messages

• Find out how well known Verizon is in China, if at all

• Devise plans to fit the needs of the Chinese from the most basic service requirements to service for the advanced consumer

The service plans should include…

• Basic services• Since family is very important in China, they

must consider having some sort of advanced family plan while considering different definitions of the word ‘family’

• Plans for people interested in having the latest technology

• They should also create pamphlets with detailed information on the different plans available and the prices of each plan

Budget

• Should Verizon decide to go it alone it is estimated to cost $250,000,000 during the first year

• This price includes cell phone towers, factories, land, managers and employee wages, raw materials as well as retail space to be able to sell them

Should Verizon seek a joint venture?

• A joint venture may significantly lower the cost of entering China if successful, making profits that much more obtainable

• A joint venture will also make it easier for a company such as Verizon to reach the Chinese market

• Verizon should definitely consider a joint venture in China

Guidelines for successful alliances

• Choose a partner with compatible strategic goals and objectives

• Seek alliances where complementary skills, products, and markets will result

• Work out with the partner how you will each deal with proprietary technology or competitively sensitive information

• Recognize that most alliances last only a few years and will probably break up once a partner feels that it has incorporated the skills and information it needs to go it alone

That being said, a few likely joint venture partners might be

• Ningbo Bird Company

• China Mobile Communications

• Legend Holdings

Legend Holdings

• This company is the largest PC manufacturer in China and have just recently decided to go into the cell phone field

Positives…

• Legend Holdings is a huge company with a great deal of business experience

• They are international and even have parts of the company in America (CA), which would make a joint venture that much easier for Verizon

• They have connections in China already due to their thriving PC business

The downside…

• Legend has no experience in the cell phone industry whatsoever and due to the high abundance of cell phone manufacturers in China, there is a high probability that their venture into the field of cell phones will fail

China Mobile Communications

• This is the largest telecom operator with $46.7 billion in assets, $23.2 billion in revenues, and employing 121,000 people

Positives…

• China Mobile Communication’s amount of assets and revenues amount to a decently-sized partner

The downside…

• China Mobile is only active in China

• This company is a pre-paid service that offers calling cards, internet access and data services through a third-party provider

• While a large company, their expertise and goals do not really mesh with those of Verizon

Ningbo Bird Company

• This company is currently the second largest supplier of telecommunications products in China

Positives…

• This company has the largest market share of cell phone service in China with 9.48% of the market

• Revenues were $1.2 billion in 2004

• They have a distribution system of 41 branches, 400 representative offices, 15,000 authorized dealers, and 50,000 retailers across China

Positives continued…

• Ningbo Bird Company is also an international company that is currently pursuing sales in India, Russia, and Eastern Europe

• They are very innovative and plan on launching 50 new models this year

• Their rapid rise is attributed to a strong emphasis on product development and innovation and intimate knowledge of consumer demand

The downside…

• The only real downside to this company is that unlike a company like Legend Holdings, whose main attraction was their offices in America, no part of Ningbo’s business is done in America, and they will therefore be a little bit harder to reach a joint venture with

• All things considered, this is the company that Verizon should consider a joint venture with

Conclusion

• Moving business in China will give Verizon a great deal of room to grown and a wide market to grow in

• This market has huge potential and is widely untapped, giving Verizon incentive to try and capture the market there

Conclusions continued…

• A joint venture with the Ningbo Bird Company would benefit both parties

• If done properly, Verizon could gain quick access to the Chinese market, and Ningbo could gain access not only to Verizon’s up-to-date technology, but also to Verizon’s network in Europe, the Carribean as well as the Americas

• In short, a joint partnership would not only be beneficial to Verizon, but also to Ningbo!

QUESTIONS…