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Wireless Industry Analysis

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Submitted By Mikey931
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A few very powerful providers control the mobile communications industry. The industry is forever evolving and changes can be dramatic. Just recently AT&T announced their plans to acquire T-Mobile, Google announced plans to purchase Motorola Mobility and new LTE technologies are making waves in the mobile data sector. Since these providers rely on advanced technologies only the most innovative and reliable networks survive.
Verizon currently dominates the market and services 31.9% of American mobile users. The company was established in 2000 as a joint venture between Vodafone and Verizon Communications. One of the Verizon’s largest acquisitions was the purchase of Alltell Wireless in 2009 for $28.1 Billion; this purchase expanded their network coverage and increased their market share. Verizon operates a CDMA Radio network which does not require the use of SIM cards.
The company’s service quality is a competitive advantage and Verizon invests about $5.7 Billion per year to expand and upgrade their network services. Verizon boasts “America’s largest and most reliable network” and has over 160.3 Million subscribers. They recently added the iPhone to their product line in early February which has allowed the company to take a significant portion of sales away from AT&T. Verizon is one of the most expensive networks and appeals to customers who are willing to pay a premium for advanced network technology. In other news the FCC has accused Verizon of illegally adding charges to customers’ bills. The company was ordered to repay $52.8 million in funds back to customers in early October of 2010.
AT&T wireless is the second largest service provider with 98.6 Million users in the U.S., Puerto Rico and Virgin Islands. The company has a more economic pricing structure and promotes rollover minutes. AT&T operates a GSM network, which is the world dominant cellular technology and uses SIM cards to locate and store customer data. In March 2006 AT&T purchased Bell South, the owners of Cingular Wireless Networks and the companies merged under “The New AT&T” brand name. AT&T also secured exclusive iPhone rights from June 2007- February 2011; this agreement has significantly strengthened AT&T’s revenues and has helped AT&T become the second largest network. Because of the company’s lack of data coverage and the rise of Android software, Apple has opened sales to additional companies including Verizon. In an effort to stay competitive and dominate the market AT&T announced on March 20th, 2011 that they intend to purchased T-Mobile for $39 Billion Dollars. T-Mobile is currently owned by Deutsche Telekom and together AT&T will have the largest network of 130 million subscribers and almost 40% of total market share. The FCC has yet to approve the merger, but if allowed they may hamper innovation and allow for steady price increases for consumers.
Sprint Wireless is the third largest network in the United States with 52 million subscribers and 11.9% market share. Sprint implements a differentiation strategy that focuses on broadband internet service for medium to large companies as well as cellular services. It is a majority owner of Clearwire, the largest wireless broadband network and runs CDMA, iDen & WiMAX 4G technologies. Sprint is constantly innovating and boasts the first and fastest 4g network. Sprint has a strategic partnership with RadioShack which has helped sell more than 20 million cell phones. In 2004 Sprint announced that it would merge with NEXTEL creating the Sprint NEXTEL network.
In 2010 Sprint introduced three prepaid divisions including Boost Mobile, Virgin Mobile and Assurance Mobile. Since Sprint owns their entire network and does not have to pay fees to other corporations they also wholesale their wireless capacities to smaller companies. It has been rumored that Verizon will purchase the company in the next year, but no announcements have been made yet. Since the company is currently losing money a merger may be best for both parties.
Currently GSM technologies dominate the industry with 1 Billion customers worldwide. Since GSM coverage is a merger of acquired networks it causes service inconsistencies, but allows for discounted service abroad. CDMA networks are owned outright by providers and although provide more coverage they lack SIM cards and have very high international rates. Over the next few years the industry will see an increase in applications available to mobile users and data usage will increase as well. All networks are looking to expand their data speeds and will introduce LTE technologies shortly. LTE reduces download times and allows for streaming movies and web surfing at broadband speeds. As more users choose mobile phones over home computers the industry is bound to change again as technology and speeds advance.

Michael Porter’s Five Forces

Michael Porter’s Five Forces was developed by Professor Michael Porter. Michael Porter from Harvard Business School invented the competitive position model to assess and analyze the competitive strength/ position of a business organization. The five forces include competitive rivalry among existing firm, threat of new market entrants, bargaining power of buyers, bargaining power of suppliers, and threat of substitute products.
The model helps in developing analyses about different industries that can sustain different level of profitability. It shows that risk exists and is constant across industries and firms. The potential profit in an industry is caused by the strength that an industry competes in. Industry that takes advantage of weaker forces helps them to earn major wealth by utilizing the market opportunities really well. Industries face threats from different aspects such as rivalry from different firms, threat of new entrants, bargaining suppliers, bargaining buyers, and product substitute pressure. Therefore, it can cause competition and reduction in profitability for an industry. An industry can be a dominant industry if it acquires competitive positioning which assists in protecting itself from the different industries competition. Above average profits are attainable by industries that have excellent competitive positioning making the industry an attractive industry.

Competitive Rivalry
Rivalry represents the current competitors in an industry who compete against each other to gain the utmost profit possible. Competitive rivalry amongst the industries causes barriers to industries to earn above average profits. Intense competition among rival firms causes decrease in profits to low as zero.
The competitive rivalry among the three wireless carriers Verizon, AT&T, and Sprint is high. There are 22 other competitors in the industry which makes the competition intense. One of the competitors are U.S Cellular and T-Mobile. Verizon, AT&T, and Sprint are one of the three best wireless carriers in the industry. Verizon is the nation’s largest wireless provider that dominates the industry, AT&T is the second largest, and then Sprint the third largest. There are a number of prepaid wireless providers such as Metro PCs and other ones that also compete for a market share in the wireless industry. Mergers lead to concentrated pricing power in the hands of fewer companies. The recent merger of AT&T and T-Mobile is considered to be one of the biggest mergers surpassing Verizon who currently has the highest subscriber of 102.2 million. The competition is weakens when one wireless carrier company acquires another wireless company. Companies in this industry are competing in advanced communication technology. Similar products and services that are being offered in the industry makes the competition more intense. Many companies try to attract buyers through the means of lowered cost and improved products thus creating tremendous industry rivalry.

Threat of Substitute Products
The threat of substitute products is the threat when consumers can distinguish alternative products which are being offered from different firms in the market. Different products and substitutes being offered easily from different firms can cause consumers to seek substitute products. It causes limit for the firms to raise prices in order to gain higher profits because of the substitute products which weaken the firm’s power.
The threat in this industry is moderate and seems to be increasing. There are alternatives for the industry’s products. Similar products in the wireless communication industry give access to consumer for alternative products. The substitute product offers the same kind of service which causes threat. Other substitute for wireless communication is landline which is slowly decreasing, but still gives an alternative to the wireless communications. The other substitutes for the wireless products are written communications such as e-mail, social networking sites, and chat alternatives which are easily attainable at lower or no prices. As the technology advances, it is much more accessible and possible to use internet and portable laptops as means of free communication that could easily be a substitute for wireless network services. An example would be Skype program which is used all over the world at no cost communication service through the means of internet. It has advantage with features that shows a visual image of the person you are having the conversation with.

Threat of New Entrants Industries face different kinds of threats and one of them is the threat of new entrants. The industry which are doing well and attractive will have new entrants who will try to seek entrants in the industry. New entrants can easily enter the market and weaken the position of an existing firm if it cost little money or time to effectively enter the market and compete. It threatens the profitability for the existing firms to gain profits if the existing firms do not try to avoid the threats of new entrants. Different aspects create barriers for new entrants to enter the market. These aspects are economies of scale, capital requirements, brand loyalty, experience curve effects, government regulations, switching costs, and access to key supplies/ distribution channels. The threat of new entrants is low. The startup cost for wireless carriers are extremely expensive. In order to invest, a great amount of principal is required to obtain the economies of scale. It is difficult to enter the market with existing firms already operating on cost and differentiation strategies. The wireless communication industry is highly concentrated. Almost, 75% of the market is controlled by AT&T, Verizon, and Sprint which makes it difficult for the new entrants to come and compete in the market.

Bargaining Power of Suppliers The bargaining power of suppliers in this industry is low. Wireless companies such as AT&T, Verizon, and Sprint demand high volume orders from their suppliers. These wireless companies seek orders that have the latest technologies and more features on the products. The demand and requirements from these wireless carriers threaten to increase the pressure on suppliers. The pressure on suppliers pushes them to enhance their innovation and productivity to the industry. It builds trust and keeps the companies to thrive to their utmost to bring to their consumers. Suppliers have to make sure that the wireless carrier’s demands are being met according to the orders that they receive in order to keep their business with companies such as AT&T, Verizon, and Sprint or else they will lose their business. Therefore, supplier’s bargaining power is low.

Bargaining Power of Buyers The bargaining power of buyers is moderate. It is common for the wireless communication industry companies to require a contract from the buyers in order to create and control switching costs in case customers decide to switch to another company. The early termination fees posted by wireless companies hurt buyers. Buyers feel locked out because of the fact that they would have to pay $150 to $250 dollars early termination fees per wireless line. This makes consumer reluctant to change to other carriers had they want to change for lower price or better service. Buyers do have other options for other wireless carriers such as the prepaid services which fulfills the need of using wireless communication the same way. The option to use the prepaid wireless service allows consumer to use the wireless service without having to worry about signing contracts, early termination fees, and being locked out with one wireless carrier. Many consumers are beginning to use to prepaid services which allows them to have some power in terms of power of buyers.

SWOT Analysis

“AT&T is positioned to lead the wireless industry in one of its most significant transformation since Alexander Graham Bell’s invention of the telephone more the 130 years ago. AT&T offers a wide range of telecommunications services, including local exchange services, wireless communication services and long-distance telephony services among others. It offers its services and products to consumers in the US and to businesses and other providers of telecommunications services worldwide.” (AT&

Strengths * Leading Market Position * Significant Brand Image * Diversification of Technology * Meaningful Innovation * Debt Reforms | Weaknesses * Declining Human Capital * Loss of iPhone exclusivity * Late Entrant to 4G and LTE Rollout | Opportunities * U-verse Network * Cloud Competing * Video Streaming * Data Traffic Compatibility * T-Mobile Merger | Threats * Intense Competition * Carriage Contracts * Price Wars |

Internal Analysis:

The strengths and weaknesses illustrated in the above matrix address the internal structure of the company. AT&T strives to acclimatize a sustainable competitive advantage that is effectively unique and arduous for competitors to mimic. Leading Market Position and Significant Brand Image: To reiterate, AT&T is the second largest wireless provider in the market, earning a leading market share in enterprise telecommunications. As of 2010, the company earned the 7th largest revenue figure in the United States, and placed as the 4th largest non-oil company in the United States. Catering to over 9.2 million mobile customers, AT&T has consistently built its brand and improved it services making it one of the most preferable service providers. Strategic acquisitions, such as the recent Qualcomm buyout have allowed the company to increase its consumer base to include businesses and reaching a global market. It offers a diversification of technology providing wireless services globally. It has the capabilities and infrastructure, which enables it to deliver services and solutions to businesses and multinational companies in, both emerging and developed markets worldwide. Implementing degrees of Ansoff’s product development growth strategy, AT&T gained significant market share. Through integrated services and large product portfolio the company has positioned itself among the leaders in providing strategic enterprise solutions.” AT&T has built strong market presence in most of the segments it operates in.” Recent praise has allowed AT&T to grow and build a significant brand image. In 2010 the company was ranked among the 50 most admired companies by Fortune magazine. (Awards, AT& In addition to market leadership, AT&T also reap benefits through its diversified revenues base. AT&T redeems profit over a spectrum of products to customer relationship management. Diversification allowed the companies to tap different segments including businesses, individuals, and government agencies. “Market leadership attained from large scale of operations provides significant economies of scale and bargaining power. Other associated advantages of addressing a large customer base and strong brand recognition will also lead to effective penetration of new products and also several cross selling opportunities. AT&T’s strong market position and diversified revenue stream provide competitive advantages for the company.” (EBSCOhost)
Diversification of Technology: AT&T is a leader of telecommunication technologies offering products and services design specifically to do more than just talk. Innovation allows its products to induce a sense of status, style, and image, as research and development ensures functionality and ease of usability to each and every unique user. Technology enables the company to offer wireless phone services, landlines, broadband, internet, and of course television. AT&T understands truly about the impact of innovation and technology. “Technology unleashes possibilities. We are committed to investing in and deploying innovative technologies that empower people to improve out world.” (AT& This commitment and drive has been embedded to the company slogan establishing a brand personality. The company is continuously improving its network, services and research to provide the best experience possible with its U-verse launch, 4G evolution, broadband updates, telematics, and other technologies securing long term benefits.
Debt Reforms: AT&T ended the year 2010 with a debt of $66,167 million, a decline from
$72,081 million in 2009 and $74,990 million in 2008. The company has been proactively reducing the debt which will have a positive impact on the. Industry analysis illustrated that accordingly the debt ratio declined from 41.4% in 2009 to 37.1% in 2010. The reduction in debt reflected positively in the reduction of interest expense by 11.1% in 2010. Reduction of debt can be leveraged to enhance profitability as the interest expense, which is a recurring fixed expense, will reduce. Also, reduced debt ratio will also provide financing flexibility for future expansions. Reduced debt will therefore improve the bottom line and will also facilitate financing of future expansions.

Although AT&T enjoys a leading marking share and a headstrong reputation changes within the industry and the company itself presented internal drawbacks.
Declining Human Capital: As of recent the company has been facing declines in human capital leaving employees without a job and less than satisfactory retirement and pension plans. These increased lay-offs of employees, while it may save money short term, it decrease the company’s overall corporate synergy. Employees with unsatisfactory work benefits lowers work productivity, thus decreasing innovation other essential elements that ensures functionality of the business. Research and data illustrates that the company has reported high unfunded status for pension and post-retirement benefits in the past two years. It has recorded unfunded pension benefits of $3,977 million and $3,994 million at the end of 2009 and 2008, respectively. Also, AT&T recorded unfunded post retirement obligations of $24,712 million and $27,356 million in 2009 and 2008, respectively”. This obliges the company to make additional cash contributions to its pension and post retirement plans which will result in further increase of net pension and post retirement costs. This can weaken the company’s credit quality. High unfunded status for pension and post-retirement benefits may adversely affect the company’s results of operations and its margins.(Industry Analysis EBSCOhost) Loss of iPhone exclusivity: In the recent months, AT&T loss exclusive rights to Apple moneymaker iPhone to Verizon Wireless. According to industry analysis, Apples’ venture with Verizon for the iPhone, can cost the company 10% or more of its iPhone subscribers. Verizon has also invested heavily in powerful cell tower gear and new fiber-optics line to connect towers to the internet in attempt to alleviate the pits of increased traffic, in which AT&T has failed to effectively address. Investments indicate that Verizon is equipped to deal with the increase in traffic which a disadvantage for AT&T. Verizon decisions to supplement the tools associated with high data traffic throws AT&T in the back seat based on consumer preferences of network for the iPhone. Despite the company’s measures to supplement the loss of iPhone exclusivity by enhancing the sales of other smartphones, AT&T will face issues of customer migration and volatile revenues. “In a mature market, customer migration will be detrimental for growth and will also be a competitive disadvantage. Additionally, this also highlights that decisions made by Apple and other leaders in mobile hardware segment will have a damaging impact on AT&T’s business.”
Laggard to 4G and LTE networks: Simply put, AT&T was too slow to promote new preferable and improved networks as compared to its competitors Sprit and Verizon. “As of January
2011, Sprint has rolled out 4G services based on WiMax network in 70 markets, Verizon has rolled out 4G services on long term evolution (LTE) network in 38 markets and 60 major airports. Not only was AT&T a late entrant in the market but also is offering only an intermediate version 4G services called HSPA+ instead of its 4G services on actual LTE network as the network is not yet in place.” The LTE network roll out for AT&T is expected only in 2012. Verizon and Sprint are likely to benefit from this late entry of AT&T to acquire customers based on the roll out of faster network, while the company will find it difficult to acquire existing customers of Verizon and Sprint when it rolls out 4G services on LTE network. (EBSCOhost)

External Analysis
The opportunities and threats illustrated in the above matrix addresses the external structure of the company. AT&T scans the environment to envision future plans and to safeguard itself from competitors.
U-Verse Fiber Network: With the current launch of the U-verse fiber network, AT&T can target a new segment and improve services to current segments delivering a new digital television experience. U-verse offers a bundle service of landline/phone services, digital television and internet as a fully integrated experience. The company strives to continuously improve these services to sustain and compete against Verizon. Utilizing process innovation, the company is planning to incorporate pair bonding technology to expand U-verse’s availability to more consumers, passing 30 million homes by end of 2011. Pair bonding is essentially extending the reach of our fiber technology to neighborhoods and then using already–installed copper wiring to deliver a fantastic video and broadband experience. It helps us to deliver on some new, unique features, such as My Multiview, Total Home DVR, and Mobile Remote Access. With pair bonding, two copper wire pairs (instead of one) are assigned to each customer. A device is then installed outside the home to connect these wires and bring the signal in and out of the home. This allows us to increase the network capacity and deliver U–verse services to homes that didn’t have access before. In fact, we’re one of the first providers to deploy this technology at this scale. (EBSCOhost)
Cloud Computing: AT&T is extensively investing to optimally take advantage of a new technological buzz called cloud computing. The worldwide demand for cloud computing services is forecast to record strong growth in coming years. Cloud computing is a computing infrastructure model, which enables delivery of software as a service (SaaS).”This reduces the upfront royalty or licensing payments, investment in hardware and other operating expenses. As result of its benefits, the global cloud computing services market is forecast a high percentage of growth. ( “The demand for cloud computing has been increasing in the US. As the organizations increasingly adopt cloud computing practices, the penetration of cloud computing will increase from 44% in 2010 to about 54% by the end of 2012.” (EBSCOhost) According to industry estimates, the global cloud computing market is expected to grow from $37.8 billion in 2010 to $121.1 billion in 2015 at a CAGR of 26.2% from 2010 to 2015. The predictions also suggest that while global IT spend will increase by 6% in 2011, spending on public cloud computing services will grow five times faster. This indicates that the adoption of cloud computing will outpace the demand for IT services world over. Similar trends have been observed in the US which is also a growing market for cloud computing.” As a result AT&T has strategized plans to adapt cloud computing services and has announced enhancements to its cloud-based offers for the year. Strategic relationship with companies such and IBM and VMware consolidate resources to build the best program and offers of cloud-based products. AT&T is well positioned to capture this growth as it has experience in managing networks and the company’s infrastructure allows it to offer these services to existing enterprise customers. AT&T can cross-sell its cloud-based services for the existing customers. Furthermore, the existing relationships and sales channels will be added advantages and cloud computing would give AT&T another source of revenue from existing clients. “Additionally, the collaboration with VMware positions the company to meet the rapidly growing demand for hybrid cloud architectures that integrate customers' existing cloud systems with public cloud solutions. The company forayed into cloud computing in 2008 with ‘AT&T Synaptic Hosting’. AT&T has vast IP and IT resources, mobile and fixed networks, and long-term relationships with computing and applications giants, which will be key competitive advantages when providing cloud based services to enterprises.”
Demands for Video Streaming Content: There has been an increase in the popularity of viewing video content through Internet. According to recent industry estimates, the time spent viewing video on personal computers from home and work locations. The company has been focusing on the growth of AT&T U-verse, an integrated set of services —high-quality TV, high speed internet, and voice — all delivered over an advanced IP network. AT&T deployed this IP network to more than 27 million living units, and the subscriber base is more than 3 million — almost all of them added in the three years since the company offered the service. AT&T U-verse TV ranks highest in Residential Television Service Satisfaction in the North Central, South and West Regions according to a study conducted by an independent research organization. The company has therefore established a strong foothold in the video content market and also the IPTV space. The presence will help AT&T capture the growth rates in the market. (AT&

Increase in Mobile Data Traffic: Mobile data traffic in the US is estimated to increase as the smartphone and connected devices’ penetration increases and as the 4G is rolled out. Mobile data in the US brought in $14 billion in service revenue in third quarter of 2010 alone and the data market grew 25% year over year. In addition to the smartphones, connected devices like tablets and wireless eReaders have also contributed to this upswing. In addition to the increased use of data, the onset of LTE and increased penetration of 4G will also fuel the growth in data traffic. Following the launch in 2011, LTE is estimated to reach 4% of the mobile handsets in 2011 and is likely to increase at a fast pace. Although, lack of LTE will hinder tapping into the market for AT&T, long term potential is large for the company as it rolls out LTE based 4G services. Mirroring the industry trends, the revenue from data services has increased in the wireless segment for the company. Data service revenues represented 34.0% of the company’s wireless segment service revenues in 2010, an increase from 29.1% in 2009. Data service revenues increased $4,052, or 28.7%, in 2010 and $3,539, or 33.4%, in 2009. Also, the data services ARPU increased 14.7% in 2010 and 22.0% in 2009, reflecting a strong usage pattern of data services, purchase of integrated devices and data-centric devices among the users. Further increase in the data services revenue will bolster the revenue for AT&T.
T-Mobile and AT&T Merger: The consolidation of the two companies will establish the company as the largest wireless provider available. The two will merge to target a consumer base of 130 million subscribers. The merger advertises that it better together and will promote as the nation’s LTE network. The companies plan to establish cheaper plans, better services and telemedicine reforms, more benefits for small businesses and product development. (AT&

Intense Competition: AT&T operates in a highly competitive telecommunications and information services industry. In the wireless segment, the company’s principal competitors include Verizon Wireless, Sprint Nextel and with larger number of regional providers of cellular, PCS and other wireless communications services. AT&T’s wireline subsidiaries faces competition from multiple providers, including wireless, cable and other VoIP providers, interexchange carriers and resellers. In most markets, the company competes with large cable companies, including Comcast, Cox Communications, and Time Warner Cable, for local, high-speed internet and video services customers and other smaller telecommunications companies for both long-distance and local services customers. “It also faces a number of international competitors, including France Telecom, BT Group and SingTel as well as competition from a number of large systems integrators, such as HP. In addition, the company’s advertising solutions subsidiaries face competition from approximately 100 publishers of printed directories in their operating areas.” Competition also exists from other advertising media, including newspapers, radio, television and direct-mail providers, as well as from directories offered over the internet. While the company strives to be the first company within the industry to employ eco-conscious techniques and a unique process innovation, the technological decisions and implementation of technology can quickly fall to copy-cat products. Competitors may establish a similar nature for delivering and producing their product lines. Lastly, in regard to the economical nature, and considering that AT&T is a late entrant to its 4G products, consumers may not adapt as quickly. The struggles of the economy hinder the incentive to purchase luxurious products as consumers are more attentive to their buying habits.

Carriage Contracts: “The company depends on carriage contracts with content providers for the provision of its U-verse TV services. The distribution agreement between AT&T and the content providers is for a specified period of time. After the expiry of the contract, there is no guarantee that content providers will renew the agreement with the company or they may demand for higher carriage fees to continue providing the services. In case, the company fails to renew the agreements with content providers, it may adversely affect its customer base.” (EBSCOhost)
Price Wars: AT&T and Verizon, the two biggest players in the segment have been competing on the price to attain customers for the iPhone in a difficult environment. The company made an early move to head off the competitive threat by cutting its price on the previous generation of the iPhone to $49 from $99. AT&T also cut prices on other devices to attract customers. Responding to this, Verizon has introduced a trade-in offer as per which the customers can trade old iPhones for a new one at the same price as they would lose for abandoning an AT&T phone. “This way Verizon ensured that the customers will opt for trading in their AT&T iPhones for Verizon’s. Price wars amid rising costs will be detrimental for profitability. The company’s cost of service and sales increased by 3.3% in 2010 while selling, general and administrative expenses increased by 5.2% in the same year. Rising costs and price wars will negatively impact AT&T’s profitability.

Sprint Nextel Corporation

Sprint Nextel Corporation (Sprint Nextel) is a communications company offering a range of wireless and wireline communications products and services for individuals, businesses and government customers. The company offers digital wireless service in all 50 states, as well as Puerto Rico and the Virgin Islands, under the Sprint brand name, utilizing wireless code division multiple access (CDMA), technology. (

Strengths * Strong Market Position * Strategic Alliances | Weaknesses * High dependence on Motorola * Declining Wireless Subscribers | Opportunities * Acquisition of Virgin * Emerging Solution Business Units * WiMax technology | Threats * Industry Consolidation * Saturation of the Wireless Market |

Internal Analysis
Strong Market Position: Sprint is the 3rd largest wireless network provider with 52 million subscribers. The company offers digital wireless service in all 50 states, as well as Puerto Rico and the Virgin Islands. Sprint Nextel, together with PCS Affiliates, provides wireless CDMA (no sim cards) based personal communication services under the Sprint brand name. The company provides Sprint-branded and wholesale wireless services over its CDMA network to consumers and business customers. The company also offers digital wireless services under the Nextel and Boost Mobile brands, using iDEN technology. Both these brands incorporate industry-leading walkie-talkie services which allow subscribers to communicate instantly. The company provides Nextel-branded post-paid and Boost Mobile-branded prepaid wireless services over its iDEN network. Its services and original walkie-talkies technology help established a strong market position in the wireless business enhancing the brand image of the company. In 2010-2011, the company achieved its best total wireless net subscriber additions in five years. Sprint offers 22 4G products, more than any other wireless carrier in the US, including three handsets. During the fourth quarter of 2010, Sprint officially launched the embedded 3G/4G notebook. The company also launched three Android devices featuring integrated Sprint ID, maintain competitive edge.
Strategic Alliance: You can conclude from the above analysis that Sprint has various ventures with other smaller wireless networks such as Boost and PCS affiliates. Apart from these popular brands, Sprint has established supplier alliances to help promote the brand performance in the market. Sprint is leveraging its industry-leading wireless and wireline networks, teaming up with its alliance partners to develop joint solutions focused on convergence and mobility solutions. “Sprint has ultimately formed alliances that provide complementary capabilities, a strong brand within the marketplace, and proven distribution channels to extend the joint solutions introduced by Sprint and its alliance partners”. Company alliances include leading companies like Alcatel Lucent, HP, IBM, Microsoft, and Northrop Grumman. “Sprint Nextel and Alcatel Lucent have partnered to develop mobile broadband solutions and the delivery of network-based VoIP solutions. The company has partnered with Cisco to offer differentiated IP/MPLS, managed IP telephony, managed network and security services, as well as 3G integrated wireless/wireline routers and wireless integration to enable the convergence of voice, video and data. Through joint technology developments, Sprint and HP have introduced mobility solutions, including embedded technology that extends the workplace. The alliance with IBM integrates the company's network capabilities with IBM's software assets and business process knowledge to introduce custom solutions such as the Sprint Business Mobility Framework, to enable real-time applications.” The resource infrastructure of these companies has allowed all businesses involved to utilize each other strengths to provide optimal services and new products to the market. Furthermore, Sprint alliances with other companies helped established foundation for appropriate data plans. “Sprint Nextel and Microsoft provide business and consumer applications delivered via Sprint Nextel's wireless services as well as solutions that provide network security and reliability. The company and Nortel combined the network and managed services expertise of Sprint with the voice and data equipment expertise of Nortel Networks to deliver next-generation telephony services. The company and Northrop Grumman have teamed up to deliver public/private secure networks and other joint solutions serving the needs of the federal, state and local government. Through the development of strategic alliances, Sprint Nextel has been able to bring the skills and expertise to develop differentiated solutions that provide a competitive advantage.”

High Dependence on Motorola: Sprint’s dependence on Motorola had reduced the bargaining power of the company. Sprint pays Motorola a fee to utilize the IDEN structure for the functionality of its handsets, which has been very costly. On the consumer end, most of the Motorola’s products have been slow to adapt comparative user-friendly and interactive handsets. In Motorola company there is low employee training and low education about its business. Since Sprint adapts IDEN technology which does not have dominance in the market, and therefore they are hesitant to switch suppliers Faced declining market share as other companies were quicker to reach and deliver to market.
Declining Wireless Subscribers: The company has continued to lose wireless subscribers over recent years. Sprint loss consumers to other networks who were much quicker to adapt better phones utilizing a better network comparably to the iDEN technology.

External Analysis
Acquisition of Virgin: In order to improve the network brand image apart from the iDen networks, Sprint can utilize its 2009 Virgin acquisition strengthen Sprint Nextel's position in the growing prepaid segment. The acquisition brings together the Virgin Mobile brand with the company's Boost Mobile business. These complementary prepaid brands, each with a distinctive offer to different customer demographics, will continue to serve existing and prospective customers. “Virgin Mobile's handsets are available at approximately 40,000 top retailers nationwide and online, with top-up cards available at almost 150,000 locations. This will enhance the company's presence in the growing prepaid market, thereby increasing subscriber base.”

Emerging Solution Business Units: Sprint developed a solution business unit in 2009 with the focus on accelerating the delivery of machine to machine (M2M) and mobile computing solutions to businesses and consumers. The unit will assess revenue opportunities, develop go-to-market plans and execute quickly, working closely with Sprint's customer-facing channels and partners. This move builds on more utilizes 10 year expertise staff who worked with vendors to provide for devices that do not bask under the sprint brand. Expertise on operation of multiple platforms and assets will allow the unit to anticipate and deliver to the demanding market. “Sprint focuses on innovative applications in key areas: mobile computing devices, together with traditional consumer electronics and devices with broadband access, which offer increased durability, hardware/software integration, easy of usability and installation (simple setup and lower support costs for customers and partners), and of course, M2M devices, which deliver capabilities to multiple industries and include such applications as remote monitoring, asset tracking, fleet management, telematics, automation and control, automated meter reading, Smart Grid initiatives, point-of-sale/ ATM and wireless routing.” Emerging Solutions will be a differentiator for Sprint and is a critical aspect of its future
WiMax Broadband technology: Sprint aims to improve its image by focusing on value, simplicity and productivity, emphasizing its Boost mobile services as well as expanding its WiMAX network nationwide with ambitious plans for subscriber growth. The focus for wireless services is to encourage the use of value-added services providing handsets for 'customers who want to do more than talk'. WiMax technology (4G wireless broadband (WiMAX) service) opened doors to 55 metropolitan regions across the country, print boasts the largest 4G portfolio of any US wireless carrier. WiMax supplier Clearwire Corp will help Sprint earn revenues. Sprint Nextel's strong spectrum holdings and a nationwide network presence would also provide the company with a competitive advantage. “Expanding Sprint's XOHM WiMax network and growing Clearwire Corp's wireless subscriber base would be an added advantage. The establishment of a nationwide broadband network would enable the company to offer 4G services, providing a further competitive advantage.”

Competition and Industry Consolidation: The market in which the company operates is highly competitive. The wireless segment of the company competes with a number of other carriers, including three other national wireless companies: AT&T, Verizon Wireless and T-Mobile. Its primary competitors offer voice, high-speed data, and entertainment and location based services designed to compete with other products and services. AT&T and Verizon also offer competitive wireless services packaged with local and long distance voice, high-speed internet services and video. The company's Boost Mobile-branded prepaid services compete with a number of regional carriers, including Metro PCS Communications, and Leap Wireless International, which offer competitively, priced calling plans which include unlimited local calling. Industry consolidation created rivals who strongly may hinder sprint efforts in achieving its goals. The impending takeover of T-Mobile by AT&T will dwarf Sprint's market position. Sprint is putting huge efforts into blocking the merger, which may detract away from other operations.


Verizon Communications (Verizon) is one of the leading providers of wireline and wireless communications in the US. Verizon Business owns and operates one of the most expansive IP backbone networks in the world giving it a considerable competitive advantage.

Strengths * Robust Network * Established Fiber Optics Plant * Widespread Market Position * Human Capital | Weaknesses * Weak Performance in Wireline division * Weak Corporate Structure * Lost Post-Purchase services * Slow Profitability Growth since 2000 | Opportunities * Growing demand for Broadband * iPhone * Brand Loyal customers | Threats * Data leaks * Saturation of the Market * Prolonged Recovery in America * Intense Competition * Google Buyout of Motorola |

Internal Analysis
Robust Network: Diversification of technology integrating wireless and broadband services. Verizon communications is known as one of the largest providers to both wireless and broadband communications. Verizon is a communication network company involving domestic telecom, domestic wireless, information services and international communication. Verizon has robust wireless and wireline network in the US. The company has invested more than $59 billion since it was formed, including $5.7 billion on average every year to increase the coverage and capacity of its premier nationwide network and to add new services. Verizon Wireless currently serves 92.8 million customers. Verizon had the ’Highest Ranked Wireless Customer Service Performance’ in a 2010 study by J.D. Power and Associates. Verizon is in the process of building the fourth generation (4G) of wireless technology.4G will integrate wireless broadband extensively into the lives of consumers and provide enhanced connectivity between a wide variety of traditional and non-traditional wireless devices.
Established DSL Fiber Optics Plant: Verizon has spent several years redefining its consumer telecom business around broadband and video by deploying an all-fiber network called FiOS that takes high-capacity fiber to customers’ homes. The FiOS delivers ultra-fast internet speeds and more high-definition video channels than any cable provider in the market. The company currently provides 15.4 million homes with this intelligent, ultra broadband network, including major markets such as New York, Washington, Philadelphia and Pittsburgh. The company is also introducing a steady stream of new features such as photo-sharing, Facebook, Twitter and Caller ID on the FiOS TV screen and is working with developers to encourage innovation for the home environment. Strong growth in Verizon's FiOS television and high-speed internet subscribers will offset some of its continued wireline losses and improve its financial performance. Its Established Fiber optics DSL plant has enable the company to provide bundling package service combining calling, television, and internet at a flat rate achieving its vision of integrated communication solutions to customers delivering fast and uninterrupted services.
Market Position Human Capital: To reiterate previous points, Verizon has an immense market reach. In America it is available in twenty eight states and has a customer base of 49.3 million consumers. Its internal structure consists of valuable human capital; staff that are experienced and has expertise and qualification in each functional departments. Employees are given incentives for their services and bonuses are added as per performance. The base of 215,000-employee pool, rich in diversity, provides company with valuable insights building corporate synergy.
Weak Performance in the Wireline Division: The performance of the wireline segment, which consists of the operations of Verizon Telecom and Verizon Business, has declined in the recent years. The decline in revenue is due to lower demand and usage of the company's basic local exchange and accompanying services. Verizon Telecom's mass markets revenues primarily due to continued decline of local exchange revenues principally as a result of switched access line losses partially offset by a continued growth in FiOS services. Global enterprise revenues primarily due to lower long distance and traditional circuit-based data revenues, and lower customer premise equipment combined with the negative effects of movements in foreign exchange rates versus the US dollar. The company's global wholesale revenues declined due to decreased minutes of use in traditional voice products and continued rate compression due to competition in the marketplace. Weak performance of the wireline division will affect the financial performance of the company.
Weak Corporate Structure: Verizon Communications was formed due to merger of GTE and Bell Atlantic companies. The two companies had different cultures and therefore the corporate culture of the company is quite weak. The conflicting beliefs, norms and philosophies within the company are the root cause of many conflicts in the company.
Post-Purchase Service Centers and Low Profitability Growth: As compared to its competitors Verizon holds a smaller amount of customer care post purchase centers. Consumers are provided with incentive to switch over to other providers who can offer better post-purchase services. Revenue is not incredibly increased and the company has been in debt for long term. Company’s profitability has not been more than 4% since 2000.
External Analysis
For many years, Verizon Communications has been serving as a local exchange carrier in many areas. For many years the company did not have any competition and has developed a loyal customer base. Also this has given the company a strong position that the other local exchange carriers have to compete with. Over the years the Verizon Communication as developed brand recognition and good will. This will facilitate the company to launch new services and products in the future. Its infrastructure and technological advances can reach out to international markets tapping unmet needs.
Growing Demand for Broadband: The demand for fixed and mobile broadband and associated services are expected to grow in coming years. Further, the broadband associated services such as IPTV subscriptions are forecast to reach 846 million by the end of 2014. During the same period, DSL based broadband service revenues are expected to reach just over $103 billion in 2014, increasing at a compounded annual growth rate (CAGR) of 0.6% from 2009 to 2014. Also, the fiber broadband service revenues are forecast to register a CAGR of 23.3% during the period 2009–14. JD Power and Associates has rated Verizon as the ’Highest in Customer Satisfaction’ among Residential Television and High-Speed Internet Service Providers in the East. Verizon is well-positioned to capture the growing broadband market in the coming years. Increasing broadband penetration in the US is likely to contribute to the company's revenues in the coming years. iPhone Contract: Verizon can cater to new consumer demands with Apple’s contract for the iPhone market. The new venture will help boost Verizon’s rating and profits on consumer end markets. Threats
Intense Competition: Verizon faces intense competition in the wireline and wireless industry through companies and providers such as telephone companies, cable companies, wireless service providers, satellite providers, and providers of VoIP services. Its main competitors are AT&T, Sprint Nextel and T-Mobile. In addition, in many markets the company also competes with regional wireless service providers, such as US Cellular, Metro PCS and Leap Wireless. The wireless industry also faces competition from other communications and technology companies seeking to capture customer revenue and brand dominance with respect to the provision of wireless products and services. For example, Apple is packaging software applications and content with its handsets, and Google has developed and deployed an operating system and related applications for mobile devices. Intense competition will have negative effect on the market share of the company.
Prolonged Recovery in the Americas: The economic recovery in Americas is forecasted to be prolonged compared to recent downturns. The global economic crisis, which started in 2007, caused disruptions and volatility in various markets, primarily the financial markets, causing companies to restructure operations and reduce costs. Moreover, the economic recovery in most of the countries is forecast to be for a longer period due to persistent unemployment problems. For instance, unemployment rate in the US, the UK and Euro area, which was estimated at 9.3%, 7.5% and 9.4%, respectively, in 2009, is forecast to increase to 9.4%, 8.3 and 10.5%, respectively, in 2010. Prolonged period of significant job losses is expected to affect the consumer spending and GDP growth of these economies, which will in turn affect businesses. Verizon derives all of its revenues from the US and prolonged recovery in the company’s major markets may affect its operating performance in near term.

Financial Analysis

Profitability Ratios

Gross Profit Margin= (Sales-COGS)/(Sales)

| 2008 | 2009 | 2010 | AT&T | 59.77% | 58.72% | 57.95% |

| 2008 | 2009 | 2010 | Sprint | 53.01% | 49.05% | 46.28% |

| 2008 | 2009 | 2010 | Verizon | 59.93% | 58.65% | 58.57% |

Profitability ratios measure a company’s overall efficiency and performance. These metrics provide important information to external stakeholders such as potential investors or creditors, on the firm’s ability to generate earnings compared to expenses.
Gross profit margin comprises of the first two lines of the income statement of a firm: Sales and Cost of Goods Sold (alternatively known as the cost of revenue). After COGS is subtracted from Sales, a firm is left with the funds that will serve to pay the remainder of the operating expenses and the funds that will add to savings. If a firm cannot effectively manage its COGS, then it is effectively at a disadvantage even before accounting for operating expenses, other non-operating expenses, and taxes.

As presently constituted, each respective firm looks rather profitable after accounting for their gross profit margins. The value of the gross profit margin varies in each industry, and must be analyzed independently from other industries. In the wireless telecommunications industry, we see that the gross profit margin from about 50%-60%. Essentially, for every dollar generated in revenue or sales, AT&T has about $0.60 left, and Sprint and Verizon have $0.46 and $0.59, respectively.

Net Profit Margin= (Net Income/Sales)

| 2008 | 2009 | 2010 | AT&T | 10.37% | 9.91% | 15.98% |

| 2008 | 2009 | 2010 | Sprint | -7.85% | -7.55% | -10.64% |

| 2008 | 2009 | 2010 | Verizon | 6.60% | 4.54% | 2.39% |

Next, as we continue with profitability ratios, we come to one of the most key ratios investors must scrutinize. Net profit margin is a key metric in measuring the profitability of a firm. This margin tells a much different story than the gross profit margin. Here, we see the profitability and efficiency of a firm after it has essentially accounted for all expenses, taxes, and depreciation. Very simply, we see that AT&T has been steadily increasing its net profit margin from 2008-2010, while Sprint has been incurring losses. AT&T generated $0.16 in net profit for every dollar generated in revenue in 2010, while Verizon only retained $0.02. Sprint, on the other hand, lost almost $0.11 for every dollar generated in revenue.

Return on Assets= (Net Income/Total Assets)

| 2008 | 2009 | 2010 | AT&T | 4.85% | 4.52% | 7.40% |

| 2008 | 2009 | 2010 | Sprint | -4.80% | -4.40% | -6.71% |

| 2008 | 2009 | 2010 | Verizon | 3.18% | 2.16% | 1.16% |

Return on Assets (ROA) (also known as return on investment) measures how profitable a company is in relative to its assets. Essentially, it is a measure of how effectively and efficiently uses its assets. ROA shows potential investors how a company can make money from every dollar of asset they have in their control. The higher this ratio is, the better, because it means that the managers of the firm are being efficient, and don’t require a significant investment to facilitate significant returns. Like other ratios, this ratio should be used to differentiate competing firms in the same industry. In this industry, we once again see that AT&T is outperforming Verizon and Sprint. AT&T has generated about 7.40% in net income from its total assets, while Sprint has incurred of losses almost 7.0%.
Return on Equity= (Net Income/Stockholders’ Equity)

| 2008 | 2009 | 2010 | AT&T | 13.35% | 11.95% | 17.79% |

| 2008 | 2009 | 2010 | Sprint | -14.26% | -13.46% | -23.82% |

| 2008 | 2009 | 2010 | Verizon | 15.41% | 5.82% | 2.93% |

Return on Equity is a measure of how a company uses its equity, the money it has raised from its various shareholders. This is the most important ratio to potential investors, because it gives them an indicator of how much a firm generates in net income for every $1 shareholders have invested. Investors typically look for a return of about 15%-20% to justify their investment. AT&T outperforms its main competitors, having a ROE of almost 18% in 2010. Sprint lost almost $0.24 for every $1 invested, while Verizon hovered gained about $0.03. Return on equity is a much better metric for investors than EPS (earnings per share) because it gauges how effectively capital is being reinvested. If a firm has a ROE that is higher than the S&P 500 index average, then that is a great indicator that the firm is effectively using shareholder’s investments and is a better investment than other companies on the index.

Leverage Ratios

Debt-Equity= (Total Liabilities/Stockholder’s Equity)

| 2008 | 2009 | 2010 | AT&T | 1.75 | 1.64 | 1.40 |

| 2008 | 2009 | 2010 | Sprint | 1.97 | 2.06 | 2.55 |

| 2008 | 2009 | 2010 | Verizon | 3.85 | 2.20 | 2.09 |

The debt to equity ratio gives the proportion of the company’s assets that are financed by debt versus equity. A high debt to equity ratio usually means that a company has been aggressive in financing its growth with debt. Firms with high leverage ratios are vulnerable to business downturns and recessions. Firms with a ratio of greater than 1 indicate that assets are being financed mainly with debt. The lower the ratio, the lower the risk is for the lender. The higher the debt ratio, the more a firm is paying interest, and leveraging its future. In this industry, we see that all three firms have financed their assets mainly with debt. This is due to the constant swings in technology, and the fact that each firm has had to make a significant in its infrastructure to keep up with the massive demand for more bandwidth, more speed, and expanded coverage. To do so, each firm has take on debt.

Total debt-total assets= (Total Liabilities/Total Assets)

| 2008 | 2009 | 2010 | AT&T | 0.64 | 0.62 | 0.58 |

| 2008 | 2009 | 2010 | Sprint | 0.66 | 0.67 | 0.72 |

| 2008 | 2009 | 2010 | Verizon | 0.79 | 0.82 | 0.82 |

The total debt-total assets ratio shows the proportion of a company's assets are financed through debt. If the ratio is less than 1, most of the company's assets are financed through equity, which ensures lenders of a lower risk. If the ratio is greater than one, most of the company's assets are financed through debt. Companies with high total debt-total asset ratios are said to be leveraged highly and could be in danger when it times to pay off creditors. Again, we must analyze this ratio respectively to competitors within an industry. In the wireless telecommunications industry, we see that each firm has a total debt-total assets ratio of less than 1, which is a positive sign for potential creditors/lenders.

Liquidity Ratios

Current Ratio= (Current Assets/Current Liabilities)

| 2008 | 2009 | 2010 | AT&T | 0.53 | 0.68 | 0.59 |

| 2008 | 2009 | 2010 | Sprint | 1.24 | 1.17 | 1.17 |

| 2008 | 2009 | 2010 | Verizon | 0.93 | 0.70 | 0.69 |

The current ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities with its short-term assets, such as cash, inventory, and receivables. The higher the current ratio, the more able a firm is in paying off its debt obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations in the short-term. This ratio can be a bit misleading; because it does not necessarily constitute that a firm will go bankrupt. It is an indicator of liquidity, and the going concern principle is not applicable. Since operations differ in each unique industry, it is always more useful to compare companies that are competing within the same industry. Previously, we saw that AT&T was outperforming its competitors in terms of profitability. When analyzing liquidity, we see that Sprint, the firm that has been incurring consistent losses, is the most able to pay of its short-term debt obligations.

Quick Ratio= (Current Assets-Inventory)/(Current Liabilities)

| 2008 | 2009 | 2010 | AT&T | 0.53 | 0.68 | 0.59 |

| 2008 | 2009 | 2010 | Sprint | 1.33 | 1.27 | 1.25 |

| 2008 | 2009 | 2010 | Verizon | 1.01 | 0.75 | 0.73 |

Similar to the current ratio, the quick ratio (also knows as acid-test ratio) also measures the ability to repay current debt, and the short-term solvency of a firm. On most firm’s balance sheets, there is a large amount of inventory (that may or not be accurately valued) that is included in the current ratio calculation. Inventory by nature is not a liquid asset. The quick ratio is a more accurate indicator of a firm’s liquidity, as it comprises of a firms most liquid assets (cash, receivables, marketable securities, etc.) Quick ratios tend to vary by industry, but most investors typically look for a ratio of 1. In the analysis of this industry, we see that AT&T doesn’t carry any inventory so its ratio remains unchanged, whereas Sprint and Verizon’s quick ratio increase as compared to the current ratio, as a result of subtracting inventory from the equation.

Activity Ratio

Asset Turnover= (Sales/Total Assets)

| 2008 | 2009 | 2010 | AT&T | 0.47 | 0.46 | 0.46 |

| 2008 | 2009 | 2010 | Sprint | 0.61 | 0.58 | 0.63 |

| 2008 | 2009 | 2010 | Verizon | 0.48 | 0.48 | 0.48 |

Asset turnover measures a firm's efficiency in using its assets to generate sales. It also indicates a firms pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. This is such because if a firm is pricing its products too low, it will have a much higher asset turnover, and vice versa. The efficiency with which a firm will utilize its assets will vary by industry. In our analysis of the wireless telecommunications industry, we see that it is difficult to differentiate which firm is more efficient in utilizing their assets, since the ratios range from 0.50-0.60 across the industry.

Financial Analysis Summary Throughout our analysis, we consistently saw that AT&T outperformed its competitors in terms of profitability. But, as an investor, that is not the end of it. Typically, investors will want to see how much the firms pay out in terms of dividends. Both AT&T and Verizon pay out about 6% annually, which makes it a prudent stock to buy. These stocks are relatively cheap; both offer the investor some security, as they are both defensive stocks. Both AT&T and Verizon stocks are more immune to sudden swings in the stock market, making them attractive to investors seeking security. Currently, AT&T is poised to take over the top spot in terms of subscribers after its acquisition of T-Mobile passes review, resulting in a two-firm dominant environment.

Industry Outlook
Due to the increasing mobilization of society, the desktop will become increasingly obsolete. With the focus on mobile technology, there will be greater emphasis on having the same amenities provided both at home and on the go. There are a number of factors that will drive this trend. First, we will see that faster mobile broadband network speeds will facilitate the ability of the user to use his/her mobile device as a primary computing device. Next, the exponential growth of social networking sites will propagate the need for more mobility and easier access to these services. Also, with Apple’s FaceTime service, among other video chat services, we will see an increase in online video usage. Finally, there will be the increasing popularity of VoIP technology, which will eventually make land telephone lines obsolete.

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"AT&T | Innovation." AT&T | Cell Phones, U-verse, Digital TV, DSL Internet, and Phone Service. N.p., n.d. Web. 10 Aug. 2011. <>.

"Cell Phones, Mobile Phones & Wireless Calling Plans from Sprint." Cell Phones, Mobile Phones & Wireless Calling Plans from Sprint. N.p., n.d. Web. 10 Aug. 2011. <

Enterprise, Black. "AT&T Company Information | AT&T About Us." AT&T | Cell Phones, U-verse, Digital TV, DSL Internet, and Phone Service. N.p., n.d. Web. 10 Aug. 2011. <>

"AT&T Inc Company Profile ." Datamonitor . ESBCOhost , 31 Mar. 2011. Web. 10 Aug. 2011. <

"Verizon Wireless LLC Company Profile ." Datamonitor . ESBCOhost , . Web. 10 Aug. 2011. <

Sprint Nextel Corp Company Profile ." Datamonitor . ESBCOhost , . Web. 10 Aug. 2011. <

Web.<>. Verizon | Landing. Web. 17 Aug. 2011.>.


"S: Summary for Sprint Nextel Corporation Comm- Yahoo! Finance." Yahoo! Finance - Business Finance, Stock Market, Quotes, News. N.p., n.d. Web. 10 Aug. 2011. <>.

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