Analysis of Mobile Telecommunications Industry

Contents

Market Analysis and Research Plan (Word Count: 912)

Marketing Research Plan

Competitors

Market trends

STEP Analysis

Strategic Analysis and Recommendations (Word Count: 1117)

2.1 SWOT

2.2 Portfolio analysis

2.3 Growth Strategy & Recommendations

Market Segmentation, Targeting and Positioning

Bibliography

Appendices

Marketing Analysis and Research Plan

Marketing research plan

The brief is to conduct an analytical survey into the Mobile telecommunications industry as a service/network provider in order to judge feasibility. After recent developments of Tescos entering the Mobile phone industry as a service/network provider, Asda are also keen to explore and keep up with Tescos in this respect also.

Using secondary research we will first look into the Mobile telecommunications industry. This information will then be analysed from a company perspective, followed by recommendations.

1.2 Competitors

Information cited in this section has been adapted from MarketLine (2005). In appendix 1 (section 6), I have elaborated on the information given in this section.

O2

O2 is a mobile communications service provider operating in the UK, Ireland and Europe. O2 have 19 million customers within some of the biggest consumer markets for mobile services.

SWOT analysis

Strengths

Strong presence in the UK market.

Weaknesses

Small scale European operations – competitors are better placed.

Over reliance on UK market.

Opportunities

Well placed for 3G expansion.

Threats

Declining penetration and saturation of voice services.

Overexposure to UK market – adverse effect of unforeseen market challenges.

Impact of regulation. O2 operates in highly regulated markets.

Hutchinson (3G) UK

3G is a mobile multimedia company focused mainly on the providing 3G (third-generation) mobile communication services in the UK.

Strengths

First mover advantage.

Alliance with key brands.

Parent company support.

Weaknesses

Low presence in the wireless market.

Low average revenues per user.

Opportunities

Focus on ‘content’.

Booming mobile gaming market.

Improving 3G market.

Threats

Rapid technological change.

Increasing competition.

Threat from other technological products.

Orange

Orange is a mobile telecoms service provider with over 44 million customers in 22 countries worldwide. Orange is one of the worlds, and is UK’s, largest mobile communications companies.

Strengths

Global brand strength.

Launch of OrangeWorld/Signature phones.

Large subscriber base and strong subscription growth.

Weaknesses

Reliant on data for growth.

France Telecom buyout.

Cost cutting could damage reputation.

Opportunities

WAP capability

Investment in new technology.

3G and ‘Push to talk’.

Increase average annual revenue per user.

Threats

Strong competition.

Health risks and government legislation.

Market saturation in Europe.

T-Mobile

T-Mobile is a market leader in mobile communication technology operating largely in Europe and US. The company is now realizing large profits, and at the end of year end of 2004 achieved record revenue of E25 billion.

Strengths

Strong backing of parent company.

Strong alliances.

Strong financial growth.

Weaknesses

Decreasing average revenue per user.

Lack of presence in high growth markets.

Opportunities

Most of T-Mobiles opportunities lye global markets, such as the growth in worldwide mobile subscriptions and the freemove alliance.

Rise in demand for 3G/UMTS technology.

Threats

Slowdown in the UK economy

Growing consolidation and competition.

Vodafone

Vodafone is a communications company with business interests in 42 countries worldwide. The company made a net loss of £7,540 million during fiscal year 2005, compared to £9,015 million net loss in 2004.

Strengths

Leadership position.

Global brand strength.

Growth of Vodafone Live!

Weaknesses

High debt.

Opportunities

Growth through 3G.

Increase ARPU.

Threats

Increased competition.

Market saturation in Europe.

Health risks and government legislation.

1.3 Market Trends

All the information cited below, unless mentioned otherwise, has been taken from Datamonitor, Wireless Telecommunications Services in the United Kingdom, July 2005.

Market Value

UK’s wireless communications market reached a value of £9.8 billion in 2004. Although the value of the market has increased, the growth of the market hasn’t been so capitalizing on the previous years. I think this is due to the highly competitive nature of the market, and saturation. Also, this high market value is on the back of some very strong economic performance by the UK.

Market Volume

The market exudes high market penetration. Linking this to the Market Value, it can be seen that Market Value fell in 2003 and 2004 due to fewer subscribers. One striking thing about this statistic is that the UK’s population is 59.2 million (Mintel; Telecommunications Retailing – UK – May 2004). This indicates that most of the UK population already subscribe to mobile services. Hence a near fully saturated market.

Market Segmentation

Market Share by Network

 

In order to view the above table more clearly, I have extrapolated the information into a pie chart below:

The industry is extremely competitive. The market share (by volume) is very equal. It seems that the market is at an equilibrium.

Market share by Value

Call revenues (consumer expenditure on calls etc) by mobile network, 2003

Source: Mintel; Telecommunications Retailing – UK – May 2004

Again, the whole industry is at more or less at an equilibrium albeit very competitive.

1.4 STEP analysis of Mobile telecommunications industry

Social

According to Mintel, Telecommunications Retailing – UK – May 2004 research, overall population of 15-24 year olds is set to reduce. This means that the scope of potential new customers is extremely low. Focus will have to be mainly on customer retention, and ‘prizing’ customers away from competitors. However the younger consumer does now see a mobile phone as essential in every day life.

Technological

3G technology is the main source of change in this market. The younger market does however seem to embrace new technologies. It is now hoped that new technologies will further stimulate demand.

Economic

Due to the recent boom economy, Mintel reports that the population as a whole is becoming more affluent and more affluent phone users spend more on mobile phone services. The below table illustrates this:

UK socio-economic groupings of adults, 1998, 2003 and 2007 (proj)

1998

2003

2007 (proj)

% change

000

%

000

%

000

%

1998-2007

AB

9,773

20.8

11,883

24.6

13,370

27.1

+36.8

C1

12,990

27.6

13,371

27.7

14,062

28.5

+8.2

C2

10,305

21.9

9,849

20.4

9,241

18.7

-10.3

D

8,437

17.9

8,365

17.3

8,280

16.8

-1.9

E

5,504

11.7

4,791

9.9

4,344

8.8

-21.1

Total

47,010

100.0

48,260

100.0

49,297

100.0

+4.9

SOURCE: National Statistics/Mintel

UK has been on in an economic boom period since 1998 with low inflation and interest rates. This has meant that mortgage and loan costs will be cheap, hence consumers have higher disposable income. The economy now however seems to be slowing down, this means that new services and technologies being offered to consumers will be less accepted.

Political/legal

Mobile handsets give off radiation and various electronic/micro waves. The health implications of this is not quite clear. The mobile phone and service providers have strict international guidelines to adhere to because of this. There are also concerns in regards to mobile phone masts being erected close to residential areas, as the effects of these to locals and the environment is also not clear. These issues and the market being very competitive, saturated and an oligopoly, may lead to further regulation and government involvement in the future.

Strategic Analysis and recommendations

SWOT Analysis

Strengths

Despite picking up sales in the past 4 years, Asda have faced slower sales in 2005. Nevertheless, Asda enjoys a firm customer base that has seen Asda overtake Sainsbury’s in the ranking of leading supermarkets in the U.K.

Asda in essence is a multinational company through Wal-mart’s ventures in Mexico, Puerto Rico and Canada. As one of the first businesses to recognise the importance of cutting edge systems and economies of scale, which have allowed them to keep prices low, from which consumers have gained greatly. However, Asda has managed to keep its distinct identity separate from its parent company.

Asda have been gradually expanding their stores demonstrating their plans to provide consumers with the biggest choice of goods ranging from everyday groceries, to non-food products such as clothing, and small electricals. Unlike many other supermarket brands, Asda have focused their efforts in stand-alone non-food formats.

At group level, Wal-Mart’s performance over the past five years has been consistently outstanding. With sales growing by 46.8% over the period. , The growth comes on the back of 19.9% increase in store numbers, suggesting healthy underlying performance. The company’s price-competitiveness has undoubtedly been driving sales. Another important factor, highlighted by Asda in 2004 is the expansion to non-foods, including the well-received clothing label George.

Weaknesses

Asda has seen an unusually high number of changes at the top management level. This has caused uncertainty over how the company is run which in turn has had an effect on its sales. However, it should be noted that in the case of Asda, most of the top men had been with the company for a number of years before taking the lead, which should have helped the transition.

The company’s much publicised price promise has not helped the company’s revenues. Increased competition has created downward pressure on the supermarket industry. The price war between Tesco and Asda has impacted heavily on both companies, however, it would appear Asda have felt the effects of this much more than Tesco.

In more recent times, and perhaps more seriously, the company have failed to meet sales expectation in the three-month period ending in October, when its market share had also failed to improve.

Opportunities

The company has faced criticism for its “destructive” seafood policies of all the UK supermarkets. Report published by Greenpeace states that’s Asda sells 13 species of threatened fish. This does not help the company’s image in today’s environment, where consumers are more environmentally conscious and healthy lifestyle society.

In terms of the mobile industry and the possibility of entering the mobile telecommunications market, the spare capacity that has resulted from huge infrastructure investment has created opportunities for companies wishing to set up as virtual network operators (MVNOs).

The market leading operators can sell their spare capacity to MVNOs, whom maybe in a better position to win over certain customer sectors. It is better for an operator to lose customers to MVNO that is using its network than to a market-leading rival.

The wide range of content and service made possible by 3G technology and converging technologies has created excellent opportunities for operators to put together compelling propositions tailored for different customer sectors, rather than relying on one-size-fits-all approach.

Threats

Rise in demand for organically grown produce has resulted in loss of revenues for all of the supermarkets, losing their custom to smaller independent grocers and farm shops.

Wireless fidelity (WiFi) and its successor WiMax pose dangers for 3G operators as they are able to capture a significant part of the wireless broadband market by enabling users to download data at faster speeds and provide a much cheaper service than existing products. Going into an industry, which has yet to settle, would be a risk that has to be taken under consideration.

As the market has become more saturated it has become more difficult for the main operators to achieve revenue growth from voice calls. Increased competition and the additional capacity created by the 3G networks have raised the prospect of a damaging price war on voice minutes. Operators must attract new customers to 3G however, this will lead to alienating users of 2G mobile phones, and cutting revenue obtained from this.

The MVNOs that are differentiating themselves on price and offering a no-frills service are vulnerable when the major operators cut the cost of voice calls in order to gain market share in the 3G environment.

Portfolio Analysis

Much of Asda’s estate development is concentrated towards expanding in the non-foods offer. The company introduced optician centres, pharmacies photo centres and jewellery departments in its stores as recorded in march 2005.

Asda clothing range George currently has 6 stand-alone stores, which have been introduced since 2003.

A full-service Asda Superstore typically carries some 30,000 products. Of these some 60% are food items. In addition to the usual branded goods, Asda stocks a strong own-brand offer. However, sales of organic food are booming and shoppers are increasingly spurning supermarkets to buy produce directly from growers and independent retailers.

The company has also introduced a finance service in order diversify into other industries. The services include home, motor and pet insurance, along with trust funds and credit card facility also available.

BCG matrix for the food industry

10

* Non-foods

* Organic foods

Market growth

* Asda living

* Store Clothing range

Financial Services

*

0

2.0 0

Relative market share

Growth Strategy and Recommendations

Ansoff’s Matrix

Product

Present New

Present

Organic foods

Market

New Non-foods Mobile communications

operator

From the BCG matrix, we can see that there are 2 groups of products, which have room to be developed in order to generate more revenues. With the increase in demand for organic foods, Asda is in a position to be able to introduce a larger selection of organic foods. Much greater promotion of organic needs to take place if the company is to bring back lost consumers from local and independent food producers.

Asda can also promote its non-foods range to a greater extent, however, it maybe possible for the company to promote its non-food products to a different market, perhaps to rival Ikea in the home products market.

In light of Tesco’s entry in to the mobile communications market, diversifying to a different market may also help improve Asda revenue. With Asda’s main focus on its non-foods range, moving into the mobile communications market maybe more suited to Asda policy of expanding its non-food section. Asda already has experience in moving in to industry to which is not initially been related, as we have seen Asda clothing range George, has enjoyed relative success despite strong competition from more established high street retailers.

The mobile communications market will however pose very different problem, as this is a fast moving industry, with technological innovations leading the way. In a saturated industry, it will be difficult for Asda to be competitive against the more established network operators, but network space available through virtual networks, now is likely to be the best time to enter the mobile communications industry. In addition, it maybe more viable for Asda, if more resources are concentrated on attracting consumers to a 3G service which will provide a more level playing field as the 3G services are still relatively new to the market.

Market Segmentation, Targeting and Positioning

Market segmentation, targeting and positioning

Vodafone

The Vodafone group has the largest share of the corporate mobile communications market with around 15 million customers. The company offers a wide range of voice and data communications. The Vodafone 2G/2.5G covers 99% of the population. Vodafone was the first mobile operator to introduce international roaming service.

Key segments

The mobile communications industry has two main types of customers. These are consumers and business users.

The majority of the mobile phones costs are met by users themselves, mainly using the mobile phone service for personal calls. With the existence of a number of leading companies with in the market, the market place has become saturated. The trend now is to concentrate their efforts on retaining their most valued customers. Vodafone along with other leading operators, require consumers to spend more money on non-voice services and have become increasingly engrossed with levels of average revenue per user.

There are several areas within the consumer group, which accounts for a large share of the revenue generated by Vodafone. Mintel have reported that the group of 15-24 year old mobile phone users are set to rise.

Mobile phones are particularly popular among 15-24-year-olds, and Mintel’s consumer research section demonstrates that consumers in this age band are motivated by style. These younger consumers are familiar with mobile phone technology and are willing to adapt to new skills and habits as the new technology appears. Their social lives tend to be very active, making the mobile phone a necessity for them and they are also viewed as a necessary fashion accessory.

The ownership of mobile phones demonstrates the areas in which Vodafone should be looking to concentrate their efforts in order to generate revenues from voice and data transmissions.

Ownership of mobile phones, by gender and age, 7-19s, 2003 [1] 

Base: youths aged 7-19

All

Males

Females

7 to 10

11 to 14

15 to 19

%

%

%

%

%

%

Own mobile

66

63

69

25

77

91

Shared mobile

4

4

4

7

4

1

None

30

34

27

68

20

8

Text messaging

66

63

70

26

77

91

Games

57

53

61

22

64

79

Taken from the TGI Youth survey of 5859 youths aged 7-19

Income generated from voice and data transmission services delivered to companies and other organisations is an increasingly vital revenue stream for Vodafone and most mobile operators in general. Vodafone has recognised that in present day climate of highly competitive business environment, efficient communication is a key factor, which must be developed in order for a mobile operator to gain a competitive edge over its rivals.

The importance of business customers can be demonstrated by looking at the levels of expenditure on business advertising. In the year ending September 2004, around £14.4m was spent [2] . Even though this is nothing when compared to the amount spent on consumer advertising, the big players such as Vodafone and O2 have gradually increased their spending to attract business customers while Orange and T-Mobile are slowly following suit.

Targeting strategies

Currently, the market leaders in the mobile communications are all competing for the same customers, employing similar tariffs and services so as not to fall behind its rivals.

With the introduction of the 3G networks, many of the mobile operators have also introduced 3G tariffs on to their respective networks. Even though new technology is continuously being developed, the targets for each of the mobile operators remain as it is. In general, there are no specialist tariffs which concentrate on a particular area of the market with the exception of the business tariffs which are designed to provide efficient and reliable communication service to businesses.

Some mobile operators provide tariffs, which can be considered, for a particular group, however, this is not an area, which can be considered as a specialist group. T-mobile for example have recently introduced the “Best of Both Worlds” tariff, and even though this may seem ideal for younger users of mobile phones, the tariff is appealing to many who desire more complete control over the cost of the service they use.

Positioning

With the majority of mobile phone operators providing a similar service with similar tariffs, it is reasonably difficult to evaluate the positioning of the respective brands in the market. Regardless of this, there are factors, which influence consumers when deciding which network to choose. A list of the factors influencing the choice of networks is shown below:

Most important factors when choosing a mobile phone network (% of adults), 2004 [3] 

Tariffs 31.9

Network Coverage 21.1

Reception 17.2

Personal experience 9.8

Special offers 8.3

Company reputation 7.5

Recommendation 6.6

Additional services offered 4.4

Advertising 0.8

Using the lowest price plan and the service available on that plan offered by each of the leading mobile operator companies, we are able to look at the brand positioning of the Vodafone in comparison to its major rivals.

Perceptual map for mobile operator market

High price

* Orange

* O2

High service Low service

* T-mobile * Vodafone

Low price

Although the position of Vodafone at a glance does not appear to be desirable, Vodafone boasts an extremely high level of network coverage, reception, and a level of customer service, which is rivalled only by Orange. Vodafone has a reputation as a global company, and is the worlds largest telecommunications company, which provide a whole range of services. Vodafone was the first of the four largest networks to launch its 3G consumer services in November 2004 and continues to be one of the leading innovators in terms of providing the latest products, which are accessible to a large sector of the market.

The Vodafone brand is recognised through out the developed world and has since enjoyed a reputation for representing quality of product and service. The Vodafone shops all trade under the same corporate brand and logo. Its chain of some 350 stores has remained roughly the same size for the last two years, although many of the smaller shop units have been abandoned in favour of larger premises. The stores have a strong corporate identity, featuring the red and white livery of the brand.

Vodafone has strong and consistent retail branding and in Mintel’s research Vodafone was mentioned by 8% of consumers as a source of their last mobile phone, placing them just behind Orange. Vodafone is the only retailer to achieve significantly higher penetration among 15-19s than for other age bands, probably connected to its high profile role in sports sponsorship. The company’s long-standing in the market means that it is well used by a wide range of consumers from a broad spread of age and social groups.

The Vodafone shops sell handsets that can only operate on Vodafone tariffs. Vodafone are in general up to date with the latest technology and handsets accompanied by a large range of accessories.

Market Segments

According to a market report on Mobile Phones by Key Notes in 2005, the Mobile telecommunications industry can be separated into two main sectors, which can be then further segmented; Type of revenue, and Type of customer.

Type of Revenue

This relates to how a customer uses a mobile phone. This can be calls and fixed charges, text and picture messaging, or interconnection fees (for when a call is made from one service provider to another). The below table illustrates the revenue of each segment. Mobile operators are now expanding and looking to earn more from the text and picture messaging sector in particular, with the advent of 3G.

The UK Cellular Telecommunications Market by Revenue Source by value (£m)

 

1999/2000

2000/2001

2001/2002

2002/2003

2003/2004

Value (£m)

 

 

 

 

 

Retail Revenues

 

 

 

 

 

 

 

 

 

 

 

Calls and fixed Charges

5,049

6,253

7,041

7,991

9,185

Text and picture messaging

126

553

1,073

1,529

1,854

Connection fees

76

56

64

24

5

 

 

 

 

 

 

Total retail revenues

5,251

6,862

8,178

9,544

11,044

Source: The UK Telecommunications industry Market Information, Office of Telecommunications (oftel)/ Key Note Mraket Report 2005, Mobile Phones

Type of customer

Customer type can be of 2 kinds; Business user or Consumer. Business users primarily use voice calls, and have to pay fixed charges. Consumers on the other hand are a lot more varied, they contribute to all 3 of the segments mentioned above.

Buyer Behavior

Survey by BMRB Internationals Target Group Index (TGI) 2004, suggests that Mobile phones are primarily owned by younger consumers, with more than 80% of under 55 year olds owning mobile phones. It is also reported that Pay-as-you-go (PAYG) is the more popular than pay-monthly or contract services, especially among the lower income earners (those below social grade C2). Males are more likely to have fixed monthly contract phones, and the reverse in true for PAYG.

The below table indicates that the type, value or content of the tariff mainly affects consumers choice of network, followed by network coverage and signal/reception.

1st & 2nd most important factors when chosing a Mobile Phone Network (% of adults), 2004

 

Most important

2nd Most important

Addittional service offered

4.4

5.4

Advertising

0.8

5.3

Company reputation

7.5

6.7

Network coverage

21.1

10.8

Personal experience

9.8

6.8

Reception

17.2

13.5

Recommendation

6.6

8

Special offers

8.3

9

Tariffs

31.9

14.2

Source: Target Group Index (TGI), BMRB International Ltd, 2004

Again, BMRB Internationals Target Group Index (TGI) 2004, suggests that phones are mainly used for text messaging, and games.

Competitor Strategy and Positioning of 02 (mm02 PLC)

O2

O2 is a mobile communications service provider operating in the UK, Ireland and Europe, who generated £4.8 billion of revenue in 2003.

Business Description: O2 have 19 million customers within some of the biggest consumer markets for mobile services. 02 is now a well-established and profitable business. They are now looking to expand their product portfolio horizontally, exploiting existing distribution channels and new product opportunities. This could well prove to take investment and focus off/away from its main business which is the mobile services provider.

Revenue analysis: O2’s turnover increased by 22% from 2003 to 2004. The main reason for the increase was the overall rise in subscriber numbers and the increased usage of the Group’s services by subscribers.

Competitor Strategy

O2 have reduced there employee base by 3000 to 12000 employees through restructuring. And achieved an increase of one million customers in the 2003/04 financial year. In 2004/05 O2 have developed and moved into 3G network services, which enables them to offer high-speed streaming of videos and other multi media.

O2’s strategy has focused on three key areas – improved operating performance; managing businesses cohesively and leading in mobile data services.

Within the market, 02 are expected to continue to look to acquire and retain high value customers.

Companies are forever trying to increase the ARPU (average revenue per user). This has led to heavier targeting and strategies, creating more services and getting consumers to use them, i.e. OrangeWorld and VodafoneLive!

Positioning

All the mobile phone networks look to offer a wide range of services, and position themselves in the market to cater for all. Companies need to maximize their revenue potential in a highly competitive and ever saturating market. The below tables will help me position the mobile phone companies in a perceptual map.

1st & 2nd most important factors when chosing a Mobile Phone Network (% of adults), 2004

 

Most important

2nd Most important

Addittional service offered

4.4

5.4

Advertising

0.8

5.3

Company reputation

7.5

6.7

Network coverage

21.1

10.8

Personal experience

9.8

6.8

Reception

17.2

13.5

Recommendation

6.6

8

Special offers

8.3

9

Tariffs

31.9

14.2

Source: Target Group Index (TGI), BMRB International Ltd, 2004

The above table shows what consumers look for in a network.

Mobile phone users, year to April 1999-2003 and Q1 2004

Year to April

1999

2001

2003

Q1 2003/04

% change

m

%

m

%

M

%

m

%

1999-2004

Vodafone

7.9

32.9

13.2

28.0

12.1

2