Telecom Industry of the UK - Report Example

A Study of the UK Telecom Sector - Vodafone of XXXX XXXX Submitted By: XXXX Number: XXXX Number of words: 3786 (excluding Bibliography) Table of Contents Abstract………………………………………………………………………… 3 Market Analysis……………………………………………………………………….. 4 PESTLE Analysis………………………………………………………………………. 11 Vodafone’s Current Service Marketing Strategy………………………………… 15 1 Conclusion…………………………………………………………………………….. 19 Bibliography............................................................................................................. 20 Abstract The telecom industry of UK is very vast and has a lot of competition. This report aims at understanding various competitors of the market and analyzing the size and competitive structure of different mobile service providers like O2, Orange, T Mobile, Three Mobile, and Vodafone. The main aim of this report is to analyze Vodafone and to discuss the service marketing issues of the company for the next five years. The report firstly analyses the various companies mentioned above, and discusses in brief part of the competitive market that utilizes services from each of these service providers. Also a brief about the company’s extensive market is discussed. The main aim of the report is to conduct a SWOT and PESTLE of the various companies and understand how Vodafone stands out among the companies. Also a detailed explanation of the various innovative ideas that have been created to provide the customers with better service thus increasing customer satisfaction and loyalty are discussed. Market Analysis The telecom industry is a very fast and growing. There are a number of mobile service providers in the industry. This section aims at understanding a little about the various companies and their market presence. Also a brief about the company’s current position is included to help understand the type of completion faced by Vodafone within this market. This section will also cover the SWOT analysis in brief for every company, following which there will be a PESTLE analysis also provided. The first company that will be discussed is the leading service provider in UK – O2. O2 is one of the biggest and most famous service providers in the UK. The registered office is located in Berkshire UK. The service providers were formally called mmO2, and provide mobile services in Europe – UK, Germany, Ireland and Isle of Man. This is one of the widest spread businesses in the mobile industry and has the leading mobile Internet portal for business as well. The company has recorded whooping revenue of almost £6683 million for the year ended March 2005. The company has shown a big increase of almost 17.4% over 2004. The company has also recorded a huge net profit of almost £301million in 2005 which amounts to almost 81.3% increase over 2004 (Datamonitor – O2, 2007). O2 is the leading provider of mobile services along with broadband services in the UK. It has a vast market of almost 40 million fixed and mobile customers across Europe, and a large number of employees, almost 29,000 across the group. The group has over 18.4 million customers within UK alone. Following is a brief outline of the strengths, weaknesses, opportunities and threats of O2 which helps us understand the company a little better (O2, 2008). Strengths Strong Customer Base Innovative Products and Services Strong Brand Image Weaknesses Ireland has weak performance High Churn Rate Opportunities Improvements in the 3G technology Internet market in European homes Contract with the office of the Deputy Prime Minister Threats Consolidated Telecom European mobile markets faces saturation International roaming faces EU regulation Table 1: SWOT analysis for O2 (Source: Datamonitor – O2, 2008) The head quarters of T – Mobile is in Bonn, Germany. T- Mobile is a subsidiary of Deutsche Telecom. T-Mobile has made its mark within the telecom industry and is one of the leading mobile telecommunication providers. The company has recorded revenues of a high E32,040 million for the year ended December 2006, which is an increase of almost 8.8% of 2005. There has been immense growth in the customer database and this has mainly been in T – Mobile USA and the ‘tele.ring’ Austria and Polska Telefonia Cyfrowa (PTC), Poland. The company has had immense profits and the year 2006 has brought the company E3,845 million in operating profits, which is 9.2% higher than 2005 (Datamonitor – T- Mobile, 2008). The company employees as much as 60,429 employees and is one of the biggest in its operations. The company has over 275 stores across UK. The Company’s strengths weaknesses opportunities and threats are discussed below. Strengths Rise in Margins and Profitability Increased Assets efficiency 3G in Europe Increased Customer base Strong alliances Weaknesses Limited Flexibiltiy Decreased ARPU Presence lacking in emerging markets Opportunities Additional License in US Mobile Internet Free Move Alliance Threats Intensifying completion and consolidation Litigation and regulations Slowdown of US and Europe Economy Table 2: SWOT analysis for T Mobile (Source: Datamonitor – T - Mobile, 2008) Orange is relatively a much smaller company in the UK. Orange is a subsidiary of France Telecom and is spread across the 23 countries and almost 13 countries with Europe. The headquarters of the company is based in London UK. The company has recorded profits of almost 17,941 Euro million and employees a total of 12,734 employees. The company’s mobile revenues have increased up 5.9% y – o – y (Year - on – Year). And it has exceeded the 6 million mark for the first time. Orange has also seen almost 160,000 new customers added to the data base which is almost 11% y – o – y. Also the company has seen a total of one million customers been added to the database over the last 18 months (Orange, 2008). The company’s SWOT analysis is almost the same as that of O2, the SWOT is listed below. Strengths Strong Customer Base Strong Presence in the European Markets Strong Brand Image Weaknesses Weakening mobile business in UK and France Weak Presence in Asian Markets Opportunities Improvements in the 3G technology Internet market in European homes Free Move Alliance Threats European mobile markets faces saturation International roaming faces EU regulation Table 3: SWOT analysis for Orange (Source: Datamonitor – Orange, 2008) Vodafone was started in 1985, when the first mobile call was made. Since then the company has grown a lot and is spread across almost 27 countries across 5 continents and have a customer database of almost 186.8 million with 33 partner networks as of June 2006. The company is very vast and employees almost 66,343 people around the world (Vodafone, 2008). The headquarters are located in Berkshire, UK. The company has recorded revenues of almost £31,104 million for the year ended March 2007, which was an increase of 6% from 2006. Also the company has recorded operating profits of £7,308 million during 2007, which is an increase of almost 4.4% when compared to 2006 which stood at £7,003 million. However the company has been in losses for the past few years, which is now reducing. The loss of 2006 was a total of £21,916 million which was then reduced to almost £ 5,426 million by the end of the fiscal year 2007 (Datamonitor – Vodafone, 2008). Below are the strengths, weaknesses, opportunities and threats of the company. Strengths Leading market position Extensive global reach and diversified revenue base Strong network infrastructure Weaknesses Poor returns Opportunities Cost reduction initiatives Acquisition of Hutchison Essar Technology developments Threats Intense competition International roaming faces EU regulation Mature markets Table 4: SWOT analysis for Vodafone (Source: Datamonitor – Vodafone, 2008) The below table shows the market share of the mobile phone network providers in the UK, this helps provide a clearer picture of the various network provider and the market share between 2002 – 2006. Mobile Phones and Network Providers - UK - October 2007 - Market Share Total network subscribers, by network operators, 2002-06   2002   2004   2006   % change   000 subscribers % 000 subscribers % 000 subscribers % 2002-06 O2 11,928 24 14,216 24 17,633 25 47.8 Orange 13,419 27 14.221 24 15,342 22 14.3 Vodafone 12,922 26 13,671 23 14,684 21 13.6 T-Mobile 9,047 18 9,576 16 11,152 16 23.3 Virgin Mobile 2,284 5 5,003 8 5,645 8 147.2 3 - - 2,500 4 3,500 5 - Tesco - - 513 1 1,200 2 - Other - - - - 0,544 1 - Total 49,600 100 59,700 100 69,700 100 40.5 Table 5: Mobile Phones and Network Providers - UK - October 2007 - Market Share Source: Mintel, 2007 The last three i.e. Virgin Mobile, 3 and Tesco has not been discussed in detail as hey form a very small share of the market and are not very popular in the UK and these networks are used as emergency numbers only. Please see Table 2 for classification of type of subscribers. This helps understand better the kind of users of mobile phones. As mentioned earlier the mobile networks like 3, Tesco, Virgin etc., are generally used by the emergency category of people who utilize mobiles only in times of emergency and this is not the normal mode of communication. Mobile Phones and Network Providers - UK - October 2007 - Market Value Forecasts Number of subscribers within consumer groups, average monthly expenditure, 2007 Groups Contract: Subscribers, m Estimated annual spent, £ Monthly average, £ Gadgetiers £50 or more 1.8 661 55 Semi geeks £30-£49 4.7 436 36 Just-Users £10-£29 6.5 162 14 Emergency Under £10 0.7 111 9.2 PAYG n/a 27.7 366 31 Total   41.4 14.5   Table 6: Type of subscribers for the mobile phones and network providers Source: Mintel, 2007 The next section focuses on the PESTLE analysis of the industry. This section helps understand the various factors that affect the business. PESTLE refers to the political, economic, social and cultural factors, technological, legal and environmental. This tool is being used to analyze the external environment and help companies make strategic decisions to be able to operate well within these environments. This analysis does not concern with the internal environment of the organization. PESTLE Analysis: Below is a diagram to understand the different factors that will be discussed in detail about the various external factors that affect an organization’s plans. Figure 1: Macro- environmental influences – PESTLE Only the PEST factors will be discussed in this report. Firstly the Political factors that affect an organisation will be discussed here. One of the biggest factors that influence a company within the telecom industry is the new ruling by the EU in regards to the international roaming facility. The EU telecoms commissioner Viviane Reding had passed a rule in February 2006 to reduce the cost of mobile charges abroad. This has caused a serious problem for all the mobile phone network providers as it does cost them a huge reduction in the revenues (Gow and Wray, 2006). The next sets of factors are the Economic factors, this plays a very important role in the telecom industry and the companies would be able to feel any minute changes in the economic factors. Factors like the increase in target segment are also a very important role in the industry plans and the service marketing strategies. There has been increased revenue from the market and the total phone revenue has increased from £100 bn. in 2002 to £167bn in 2007. This affects the company’s plans regarding the marketing and strategic planning. The tables below show some of the economic factors that affect the industry on the whole these are external factors and cannot be controlled from within the organisation. Mobile Phones and Network Providers - UK - October 2007 - Market Size Total mobile phone revenues, 2002-07   £bn Index       2002 8.7 100 2003 10.5 121 2004 12 138 2005 13.1 151 2006 13.9 160 2007 (est) 14.5 167 Table 7: Market Size (Source: Mintel, 2007) Mobile Phones and Network Providers - UK - October 2007 - Internal Market Environment Mobile phone ownership, 2003-07 2003 2005 2007 % % % Have: Yes 74.5 83.4 87.7 Table 8: Increase in Mobile ownership (Source: Mintel, 2007) Sociocultural factors, these factors generally include factors like changes in lifestyle of the customers, population demographics etc. Changes in lifestyle of the customers can be a major factor that would influence the businesses. Changes in lifestyle like moving on from student life to professional life, or from professional to retirement would directly affect the usage of the phone and the requirements are different at every stage of the individual’s life. Thus factor like requirement of phone i.e. Pay as you go or contract, plays an important role and is not controllable by the companies. Other factors like who pays the bills also could affect the phone usage and the requirements of the individuals could change over time. In a survey conducted by Mintel these factors have been covered. The tables below clearly explain how the changes in lifestyles affect the requirements of the mobile phone usages. Table 9 points out the difference in the usage based on who pays the bill. Mobile Phones and Network Providers - UK - October 2007 - Internal Market Environment Who pays mobile phone bill, 2005 and 2007   2005 2007   % % Who pays bill:     You 80.6 83.1 Someone else in your household 6 5.6 You and someone else in your household 3.4 3.2 Your employer 3.5 3.6 You and your employer 1.2 1 Table 9: Payment of Bills influence (Source: Mintel, 2007) Mobile Phones and Network Providers - UK - October 2007 - Market Segmentation Total network subscribers, by type of agreement, 2004-06   2004   2005   2006   % change   m % m % m % 2004-06                 Prepay phones 39.7 66.5 42.1 64.3 44.9 64.4 13.1 Contract 20 33.5 23.4 35.7 24.8 35.6 24 Total 59.7 100 65.5 100 69.7 100 16.8 Table 10: Type of connection/ agreement (Source: Mintel, 2007) The next important factor is the technological factors these factors generally include things like government spending on researches, the government and the industry working together towards new technological researches, speed of technological developments rates of obsolescence etc. In the telecommunication industry different technological developments like the introduction of customer relationship marketing, 3G, maturing markets where the technological developments increase on a regular basis, etc., play a very important role and impact the organisations both in the present as well as in the future. Also the introduction of online shopping has been a very valuable influence on the companies. Mobile Phones and Network Providers - UK - October 2007 - Consumer – Purchasing How last mobile phone was purchased/upgraded, 2007     2007     % Purchase mobile phone:     In a shop   55.3 Over the telephone   12.3 On the Internet   7.4 Other   20.8 Table 11: % of users - Internet (Source: Mintel, 2007) The other factors that influence the companies are the environmental factors and the legal factors. These however do not play a very important role within the telecom sector hence have been excluded from the report. The following section will deal with the current marketing strategy Vodafone is utilising and the threats, and opportunities of Vodafone. Firstly we deal with the strategies used by Vodafone. Vodafone’s Current Service Marketing Strategies: Vodafone - Threats: As briefly mentioned earlier, the main weaknesses of Vodafone are: a) Intense Competition: It is a clear fact that Vodafone has intense competition and the technological developments of the market are very intense. The company is faced by competition both nationally as well as internationally. A few of its competitors are as mentioned above, O2, T Mobile, Orange, France Telecom, Airtel, etc. The intensive competition increases the churn rate and affects the company’s pricing policy. Also the company has faced a lot of loss in the revenues due to the high competition and the competitive pricings. The competition to some extent has also entered into the company’s market and the penetration of other companies within the market has affected the company’s revenues. The penetration of different companies into the market is seen by the slow and sluggish growth of the company. b) EU regulation on international roaming: As already stated before the international roaming regulation requires the companies to opt for cheaper rates for customers on international roaming. The companies are required to provide customers with a Euro –Tariff which limits the cost per call and helps customers pay less for the international roaming. This affects the company’s revenues directly and has an adverse affect on the company’s earnings. c) Matured Markets: Vodafone operates in a market which is mature, hence the penetration of the company into other competitors markets is very difficult and hence curbs the company’s growth and extent. This affects the company’s revenue and thereby reduces the growth. Vodafone - Opportunities: The company has a number of opportunities available for it to explore. These opportunities will help the company improve its current position and meets its vision. a) Cost Reduction Initiatives: The company has already implemented a number of cost reductions schemes and initiatives. Better initiatives of introduction of cost reduction will help the company improve and provide better customer service. Also initiatives of introducing the CRM systems (Customer Relationship Management), will help the company improve the customer satisfaction by understanding the customer needs better and get first hand information of the customer’s requirements. This would help Vodafone create a niche market for itself and will increase the customer database for the company. b) Hutchison Essar – Acquisition: Vodafone has taken over one of the biggest telecom providers in India. It owns about 52% of the stocks within the company. If Vodafone takes over the entire company it could be a big leap for Vodafone. This would not only help increase the revenues but would help the company enter into the emerging Indian market and become leaders in the Indian market. c) Technological Developments: Vodafone has a strong a technology and development team. With the excellent team that the company has spread across the various locations it is possible to make the company improve all the technology of all the services and products and thereby provide better customer satisfaction. Also the high technology that the company has access to can help the company work on a next generation level. Vodafone’s Vision: To become a global mobile leader in terms of profit, customers and value, making mobile networks the “nervous system” of the networked economy spanning three major developed markets (Europe, US and Japan) (Vodafone: Future Vision, 2008). Vodafone’s current service marketing strategy aims at retaining the market leadership. Vodafone has concentrated the marketing strategy based on its product. Constant efforts are made on the side of Vodafone to ensure the customers receive the best products and services and that the latest technologies are used to create their products and services. Looking at the vision statement of the company it is very clear that the company’s main aim is to ensure that the mobile network becomes the nervous system of the markets (Times 100, 2001). It is to be noted that the mobile network market has reached the stage of maturity hence the markets find it difficult to meet up with the customer needs, as the customers have become very sophisticated users of technology and thus the demand for product improvement is very vast. Since the markets are mature, Vodafone has continuously worked towards ensuring the customers receive a little extra from the network. This is done by providing the customers with newer and different offers when compared to the other companies within the industry. Vodafone ‘adds value’ to its products and services to ensure complete customer satisfaction. The statistics earlier has already displayed the increase in the number of customers, soon the customers will be a part of the market and newer customers will be much lesser (Times 100, 2001). At this point in time the company requires ensuring apart from the value added services the company also concentrates on the competitive pricing. The company would also require ensuring the marketing strategies cater to the needs of all the groups of the society. For instance a business person would require a phone which is good looking with a good contract i.e. the number of minutes for usage, with the additional features like ability to check emails over the phone itself and other more high developed technology, however a younger person would look for a phone with good looks, great features, and wide range of services. Thus the younger group of people prefer to check a number of catalogues and browse the internet before making a decision. Thus the company should focus on all the types of customers and bring out newer offers which focus on the target markets. It is a known fact that this is a very difficult task and trying to sell to all groups of the society is not an easy task. Hence Vodafone should concentrate on a few aspects to ensure it holds its current market position and sees a development and improves from the current standing. A few of the points that could be considered are: a) Customer Churn b) Ensure complete retention of current customers c) Introduction of new services and technologies d) Continuous development of Vodafone Brand e) Increased Customer loyalty f) Ensure there is complete customer churn in the market It is a known fact that it is extremely difficult and costly to acquire a new customer. Vodafone thus has to be abreast of all technological advancements happening in the market and make way for their own selves. It is noted that better service delivery plus competitive pricing and features with a sharply focused marketing strategy can help the customer acquisition process the best. Hence, Vodafone has to be constantly aware of the expectations of the customers and not leave any customer segment untapped (Gronroos, 1994). The best acquisition strategy is to know the weakest points of the competitors so as to effectively grab a major chunk of the market (Evans, et al, 2004). Currently Vodafone has been able to achieve its objectives by keeping up with the recent trends in the market and the constant and good communication with the customer which keeps the customer informed about all the benefits of the products and helps the company understand the needs of the customer better. Looking at the above discussion it is clear that the company has taken into consideration all the 7 P’s of marketing and the services marketing strategy does complete justice to the concepts. Also with the collaboration of Vodafone and Manchester United, the company has ensured good marketing of the products and services. The sponsorship program has helped the company increase brand awareness, extend the range of products and services, adding value to the services provided and last but not the least global branding (Times 100, 2001). Conclusion: From the above discussion it is clear that Vodafone is very close to being the Market leaders and with a little concentration on the above mentioned points the company could achieve it vision very easily. 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