The telecommunications industry is over 100 years old, but it is undergoing a radical transformation. Newly developing technology has replaced over 40% of long-distance telephone use and over 33% of local telephone use. More than 180 million Americans have wireless phones and roughly 20% of those use their mobile phones as their main communications device. Voice telephone communication was once the primary service of the industry, but in recent years, it has shifted from analog to digital technology. When possible, communications have been moved to wireless platforms. Also, broadband services are changing the way people communicate, accelerating the rate that information can be transferred. These changes in technology continue to shape the telecommunications industry of the future.
Citizens Communications Company (referred to as Citizens) provides communication services to both rural areas and small to medium-sized cities as an incumbent local exchange carrier (ILEC). As of Dec 31 2004, Citizens operated ILECs in 23 states.
Citizens also offers competitive local exchange carrier (CLEC) services to business customers and other communications carriers in the western United States.
Industry ComparisonProfitabilityCitizens' net profit margin, increased from 2002 to 2004, but it is still well below the 2004 industry average of .105 (Exhibit A-1 and Exhibit D-2). Citizens' net profit margin is much lower than the industry's, suggesting that Citizens is earning less profits on every dollar of sales than other companies in the industry. This indicates that Citizens is not effective in converting revenue into actual profit.
The average return on assets in the telecommunications industry is 5.9% (Exhibit D-2). This figure is significantly higher than Citizens' 2004 return on assets. Citizens' management must find a way to use the company's assets more efficiently in order to compete in their industry.
There are two stock market ratios that are useful to look at. The...