Good morning,
I need help on this assignment for accounting purposes. Please see here the question you will need to answer:
(1) What trends do you see in overall wireline and wireless industries? Has either, or both, company(s) been reinvesting in its business? Provide your evidence.
Please read the attached case and you can also use the attached spreadsheet to support your answer. Please keep the writing at 1 page with 1.5 spacing and let me know what the cost would be. I would need this by Friday September 18th at 5:00 pm. Thank you!
AT&T Versus Verizon: A Financial Comparison ________________________________________________________________________________________________________________ HBS Professor V.G. Narayanan and Joel L. Heilprin, Professor at Hult International Business School, prepared this case. This case was developed from published sources. Brief Cases are developed solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. Although based on real events and despite occasional references to actual companies, this case is fictitious and any resemblance to actual persons or entities is coincidental. Copyright © 2017 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted without the permission of Harvard Business School. V . G . N A R A Y A N A N J O E L L . H E I L P R I N AT&T Versus Verizon: A Financial Comparison In February 2015, Diane Tagert, a first-year associate with Danagger Capital Management, was covering the communications industry. In her first assignment, she was asked to prepare a report that compared the financial and operating performances of AT&T and Verizon. Although both firms had wireless and wireline businesses offering voice, data, and video solutions, they had experienced widely divergent results. See Exhibits 1A, 1B, 2A, and 2B for AT&T’s and Verizon’s respective income statements and balance sheets. Tagert felt she needed to understand the root cause of these differences to provide a report that could be incorporated into an actionable investment thesis. Communication Industry Overview Over the past two decades, the communications industry had evolved from a set of fragmented technologies, sectors, and firms that employed discrete platforms for delivering voice, data, and video into a converged industry that could deliver multiple forms of communication on a single platform. Numerous technologies could achieve these goals, but the most salient point of differentiation was whether the platform was wireless or wireline. Wireless Sector The wireless communications industry had been intensely competitive and was evolving quickly. Most wireless providers had migrated from 3G to 4G networks, which allowed them to maximize the density of their spectrum.a As they did so, they improved capacity and efficiency and decreased their costs. The resulting improvements had catalyzed the steady move toward 4G devices among consumers. Smartphones represented most new phone activations in the United States, while tablets, navigation, and monitoring devices had continued their rapid market penetration.1 The technological evolution had also ushered in changes in customer and competitor behavior. Most industry observers believed the continued convergence of voice, data, and video on wireless aWireless spectrum refers to the radio frequency bands resulting from electromagnetic radiation. Due to interference, no two stations can occupy the same frequency within the same geographic area at the same time. 9-917-543 J U N E 2 3 , 2 0 1 7 For the exclusive use of N. Williams, 2020. This document is authorized for use only by Ngozi Williams in Financial Reporting and Analyses taught by ABHIJIT BARUA, Florida International University from Aug 2020 to Feb 2021. 917-543 | AT&T Versus Verizon: A Financial Comparison 2 BRIEFCASES | HARVARD BUSINESS SCHOOL platforms represented the next catalyst for industry growth. Providers had responded by bundling services to attract and retain customers. At the same time, the proliferation of internet-enabled products had shifted most customers away from buying subsidized phones that locked them into long-term service contracts.2 Most customers were buying handsets on an installment basis, which allowed them to upgrade their phones more frequently, incur lower monthly service charges, and eliminate service contracts. To discourage customers from dropping their service, providers required customers to pay the outstanding equipment balance in full if they switched phone companies. The shift from subsidized devices toward installment plans had also shifted providers’ revenue models. In the past, carriers had often used equipment as a loss leader and instead maximized service revenues and margins. As customers shifted toward installment plans, however, service revenues and margins had decreased, while equipment revenues and margins had increased.3 Ninety-four percent of the U.S. population lived in an area with at least four providers.4 Apple, Google, Microsoft, and Skype, as well as regional and bulk resellers, enabled customers to make wireless calls.5 Most competition focused on price, network coverage, reliability, customer service, and the availability of new products and services.6 Network utilization and spectrum efficiency were key competitive drivers. Wireline Sector Wireline networks provided voice, data, and video services to consumers, large and small enterprises, and other carriers on a wholesale basis.b Legacy circuit-switched networks had continued to decline as more customers cut the cord, opting for wireless service or Voice over Internet Protocol (VoIP) and data services using cable or fiber optics.c The growth of mobile platforms did not mean, however, that fixed networks would be extinct. Most of a packet’s journey was made over a wire; only the transmission between the device and a cell tower or WiFi router was wireless.d Like in the wireless sector, trends in customer and carrier behavior were intertwined with advances in technology. These advances had improved network capacity, decreasing the marginal cost of moving a packet from point A to point B. In turn, improved efficiency and lower costs made new products and services available. This pattern was most evident in the movement toward IP-based data and video, where streaming entertainment services and use of cloud-based applications had become more popular. In addition, the movement toward IP-based networks changed the competitive dynamic. In most markets, network providers competed on the pricing of bundled services as well as on broadband capacity and reliability.7 Net Neutrality On February 26, 2015, the Federal Communications Commission (FCC) reclassified internet broadband services as telecommunications services. The ruling favored net neutrality, meaning that network providers of fixed broadband could not employ differential pricing or service quality based on application, site, user, or content. Traffic over fixed networks must be handled on a first-come, first- served basis. The ruling mandated the following: (i) internet broadband providers could not block b Wireline, or landline, is physical wire or cable that connects two endpoints in a communications network. The term is synonymous with traditional telephony using twisted pairs of copper wire. c Legacy circuit-switched networks using twist pair refers to the traditional means of establishing a telecommunications channel using copper wires. This type of networking establishes a single physical connection between two endpoints that remains for the duration of a call. d Packets are units of data that are encoded based on internet protocol (IP) and travel along a network. Data packets contain raw information as well as routing information and certain types of metadata. For the exclusive use of N. Williams, 2020. This document is authorized for use only by Ngozi Williams in Financial Reporting and Analyses taught by ABHIJIT BARUA, Florida International University from Aug 2020 to Feb 2021. AT&T Versus Verizon: A Financial Comparison | 917-543 HARVARD BUSINESS SCHOOL | BRIEFCASES 3 access to lawful content, services, applications, (ii) internet broadband providers could not discriminate, or throttle, the transmission of network traffic, (iii) broadband providers could not offer paid prioritization of traffic, and (iv) fixed broadband providers had to be transparent about how they managed their networks.8 Overview of AT&T9 AT&T was a communications network provider. It offered consumers and businesses wireless, wireline, broadband data, and video services along with managed networking and wholesale services. AT&T was organized into two operating units: wireless and wireline. Its wireless business covered every major metropolitan area within the United States, and through roaming agreements, many foreign countries. The wireline segment was the incumbent local exchange carrier (ILEC) in 21 states with retail and wholesale operations.e Wireless Sector AT&T’s wireless networks covered 300 million people, and the company’s total subscriber base had grown from 85.1 million at the end of 2009 to 120.6 million at the end of 2014. (See Exhibit 1C for data on AT&T’s wireless business.) Its most important segment of customers—postpaid subscribers, who usually had a contract and switched carriers less frequently—had grown by a compound annual rate of only 3.3% over the same period. Tagert believed this had led to a less favorable customer mix by decreasing average revenue per user (ARPU). She also noted that AT&T had mentioned spectrum constraints in its public filings. To ameliorate these constraints, AT&T planned to free up spectrum by migrating its 2G customers to the faster 3G and 4G networks. On the expense side, AT&T’s increased equipment sales and continued penetration of smartphones had resulted in a $2.67 billion increase in the cost of goods sold (COGS), reflected in operations and support expense.f Higher network maintenance, energy, and lease expenses had increased the systems costs by another $578 million. Selling, general, and administrative (SG&A) expenses had also increased by $1.1 billion due to higher marketing and customer retention costs, bad debt expense, and higher professional service costs. Tagert believed the confluence of customer mix, ARPU, network constraints, and increasing costs had caused AT&T’s wireless operating margins to shrink by 2.5% from 2013. Wireline Sector AT&T’s wireline business provided traditional and IP-based voice connections,