Supply And Demand Changes Of Verizon

Supply and Demand Changes Of Verizon

Verizon has gone through many changes in the last few years. The communication industry is extremely competitive and this company would not have had a chance of forming at all, except for the government ordered breakup of AT&T in 1984. Their targeted areas of communication are cellular, paging and PCS services for corporate and individual customers. They have been trying to expand their business for corporate local goods and services.

The article I chose to report on is from an article published in 2003 by the New York Times. In this article they are forced to report a forecast for a lower profit due to a smaller demand from business customers and an increase in costs because of a new labor agreement. Demand is the amount of service the consumer is willing or able to buy at a given price. This short fall in business customers can be shown graphically as:

Biz/Ed Website

A change in price never shifts the demand curve. In this figure an increase in price results in a movement "up" the demand curve. The fall in the quantity demanded from Q1 to Q2 is sometimes called a contraction in demand.

The amount of demand depends on:

the price of the good;

the income of consumers;

the demand for alternative goods that could be used (substitutes);

the demand for goods used at the same time (complements);

whether people like the good (consumer taste).

The Federal Communications Commission ruled to cut network access prices by putting a price ceiling on how much can be charged and made it easier for competitors to lease certain parts of their network at discounts. Also, there were some unpredicted expenses from higher repair cost because of bad weather and some changes in accounting for retiree health care benefits that should affect their market share price. Obviously neither of these problems can be resolved by increasing the price; therefore they anticipate a smaller profit than predicted. It is impossible to shift the price up due to government decisions; therefore a reduced profit is the result. Arnold King wrote, "The FCC oversees industries in which competition is messy. Broadcasting and telecommunications do not resemble the economist's model of "perfect competition," in which there are no economies of scale or network effects or information asymmetries or dominant firms." (EconoLog, The Library of Economics and Liberty)

Prior to these issues they had predicted a per share profit of $2.80 but now they will have the same annual revenue as the year prior while bearing the burden of a new aggressive labor contract. The effect of these two situations should bring the profit share price down to between $2.56 and $2.60 per share. It seems the whole telecommunication industry is in a slump because of their need to upgrade the equipment to better sell their products to commercial customers, which is partly why the FCC has stepped in to control the balance of business for the telecommunication industry.

Their strategy to improve this situation is to increase revenue through product add-ons. These add-ons are targeted to the needs of individual subscribers and Verizon is now predicting this tactic should increase that market share by 4.5 million subscribers which is higher than they had projected by .5 million. However, this market expansion will cause an increase in expenses. A change has been made in their company policy, which will now require the approval of shareholders for any severance payment more than 2.99 times the recipient's