Verizon edge : summarized

Verizon Wireless' Wizard
JUNE 21, 2005
CEO Dennis Strigl has some of the most satisfied customers in the mobile industry. Here's how he intends to keep them and attract more


For years, Dennis Strigl, the chief executive and president of Verizon Wireless, enjoyed the enviable position of running the largest player in the wireless industry. But last October, Cingular Wireless took over the top spot when it closed its $41 billion acquisition of AT&T Wireless Services. Cingular has used its newfound prominence to get exclusive access to hot new phones, including Motorola's (MOT ) Razr.
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Now, Strigl is playing an aggressive game of catch-up. Verizon is a close No. 2 and is gaining ground on Cingular by more quickly adding new subscribers. Last year, Verizon Wireless increased its sales an astounding 23%, to $27.6 billion, with net income surging 52%, to $1.6 billion. That's higher growth than Cisco (CSCO ), Microsoft (MSFT ), Intel (INTC ), or Dell (DELL ).

Under Strigl, the company has gained a reputation for operational excellence, too. Its churn rate, a closely watched metric measuring the average monthly percentage of customers who leave in a given quarter, ended 2004 with an industry best rate of 1.5%, down from 1.8% in 2003.

This year, operations continue to plug ahead at an impressive clip. In the first quarter of 2005, Verizon Wireless posted 20.4% sales growth, adding 1.64 million new customers, while its churn rate dipped to 1.33% -- a new low. By contrast, Cingular increased its sales 5.3%, adding 1.4 million new subscribers, while its churn rate fell to 2.2% from 2.4%.

BusinessWeek Computers Editor Spencer E. Ante recently sat down with Strigl to talk about Verizon Wireless' strategy, competition, and promising new ventures, such as a forthcoming music service for cell phones. Here are the edited excerpts from their conversation:

Q: There's plenty of consolidation in the wireless industry. Cingular buying AT&T Wireless. Nextel and Sprint merging. Will Verizon Wireless continue to go it alone?
A: While others are merging, our goal is to take market share. We were successful last year and in the first quarter of 2005. We were first to market with our data strategy with our V CAST [TV on mobile-phone service]. We intend to take advantage of it. We figure we've still got a good one-year lead on this market.

Q: Is Sprint's competing TV service, MobiTV, a threat?
A: It's just a slower product. We've still got a technical advantage. Our service transmits data at 400 to 700 kilobits per second. Sprint's rate is 60 to 80 kilobits per second.

Q: What are your plans for capital spending?
A: You have to continue to invest in the network. We will spend $5.5 billion on capital expenditures in 2005. We will spend $500 million on our EVDO network [Evolution Data Optimized, Verizon's high-speed wireless network for video and other data services]. The rest will go toward filling out our [coverage] footprint and upgrading capacity.

Q: What new services are you working on?
A: We want to get into music. I think we'll be a very viable competitor to iPod and other players. This will be the next major focus of the [wireless] carriers.

We also want to penetrate the business marketplace with wireless broadband. We've got more to do there. About 6.3% of our sales come from data revenue, while Sprint gets 9% of its sales from data. Data can become 25% of our revenues in the next six to seven years.

Q: When will you launch a music service?
A: We will do our best to introduce a product by the holiday season.

Q: What's the most challenging aspect to the music venture?
A: The hardest part is working with the manufacturers. Cost and pricing issues are difficult. We haven't announced an agreement with a manufacturer yet.

Q: Cingular, with its acquisition of AT&T, is the biggest wireless company. What's your advantage over Cingular?
A: Network reliability. It's not something Cingular can replicate overnight. We probably have a three-year lead on network [reliability]. As long as we continue to invest, you can't catch up. Our second advantage is distribution. We're putting stores in the right locations -- 65% of our new customers come from Verizon stores.

Q: Will you surpass Cingular in total subscribers?
A: The difference now is about 4.5 million subscribers. It's 45.5 million to Cingular's 50 million. I would like to wake up one morning and see we've surpassed them. But our goal is to be the best network operator. Biggest comes second. We're a much lower-cost operator.

Q: What types of acquisitions are you considering?
A: We did $5 billion in deals last year. [Verizon Wireless made many acquisitions to obtain wireless spectrum rights, including a $930 million purchase from NextWave Telecom for licenses in the New York area.] But we have no burning need to make another acquisition. We have spectrum that will serve us well for years to come.