The UK Telecomm Industry - TalkTalk Business, British Telecomm - Case Study Example

Companies’ Comparisons Introduction The company under analysis are the British Telecomm (BT) group and the TalkTalk Business (hereinafter Talk Talk). Both companies operate in the same industry: the fixed line telecommunications industry and they two of the top four players in the telecoms industry in UK. Primarily both the companies provide internet, mobile and TV services in UK and Ireland (BT group). BT is said to be the largest player in the broadband and TV industry with 16% share controlled by TalkTalk (TTB annual report). The telecoms industry is regulated by Ofcom which provides the rates charges and the regulations of access to infrastructure. In the European region, the UK telecomm industry is considered to be the largest in the region. The report will therefore put the industry into perspective, its characteristics. Further, the report will also include a comparison of the two companies based on their strategic polices, their challenges and achievements in the last financial year and preceding periods. A recommendation for the challenges will be provided UK Telecomm Industry The UK telecoms industry has experienced a rapid growth in the previous decades. In the 1980s, only BT was the services provider but ever since the telecoms monopoly was privatized in 1984, service providers have come up. This affected a regulator the office telecommunications (OfTel), later changed to Office Communications (Ofcom). The industry growth is now with many players that have fostered the growth. Among the top four players in the industry, based on market share include BT, Virgin, Sky and TalkTalk. The UK communications industry in characterized by the serves: TV, radio, internet, fixed and mobile telephony and post (Ofcom communications market report 2016 pg. 7) The telecoms sector in currently being driven by the increase need for faster broadband and efficiency in the internet services. This is evident in the introduction and consequently the increase in the subscription of subscribers in the 4G network. Ofcom reports (2016) that in the last year, broadband connections increased by 28.7% with an average monthly use of 82GB. The telecoms services reported the highest revenue in the same year. Generally, the market is driven by faster broadband connectivity and efficient technology that is the smartphones. On average, the level of texting and calling has significantly reduced and more people are either communication using instant messaging or social networking site (Ofcom Communications Report 2016). The development in the sector since the invention of the first telephone is what accounts for the attractiveness of the market. The UK has increased its 4G subscription to nearly the same coverage as the 2G and 3G had. Moreover, the superfast broadband availability had 83% availability in 2015. The world business and the consumers are becoming connected, the uptake of smartphones and smart devices is also increasing, standing at 71% in 2016(Ofcom Communications Report 2016). To tap into this potential is the development of the 5G network , still in its infant stages, ( Smith 2016) that Ofcom concurs will be able to meet the high demand for high speed but may require higher frequencies band ( Ofcom media 2015). Competitive Advantage The competitive advantage of a company can generally be described to be those actions that a company undertakes in order to outperform other players in the same game. More often these actions are captured by the strategy management and the strategic policies that are undertaken by the company (Wang 2014). There are in existent theories that have been used to explain the phenomena of competitive advantage: market based theory and the resource based theory of management. The market based theory of strategy allows the company to formulate its str5ateguc policies according to the market trends. This is based on the argument that performance is determined by the market requirements (Wang 2014). The theory therefore implies that the competitive advantage of a company is obtained by that company that can provide what the market needs and how it needs it. The resource based theory of strategic management on the other hand focuses on the company’s own capabilities. According to this theory, a firm can gain competitive advantage over other firms of it develops its resources in order to compete in the market (Wang 2014). The high performance is based on the idea that a company would be able to gain more if it utilizes its resources efficiently than outsourcing new skills. However, the theory works best under the assumption that the resources can only found within the company that is they are heterogeneous, and that they cannot be transferred from one company to another. These resources can either be tangible resources or intangible resources. Both TTB and BT have a relatively large market presence with concert strategic policies that guide them in achieving their purposes. Notably, both companies utilize both theories to gain competitive advantage. However, it can be said that BT has gained a competitive advantage over all other industry players, TTB included, in the broadband market. This can be explained by its resource based strategy. BT was initially a monopoly in the telecoms industry until 1984 when it was privatized but it remained toe the lead company. Presently, BT owns the BT Openreach, which serves the UK broadband network (Sweney 2016). BT’s strategy is driven by the purpose to make the world a better place using the power of communications (BT strategic Report 2015). The BT strategic Report (2015) outlines the company’s strategy to achieve its purpose to include: superior customer service, invest in growth and transform costs. At the central of this strategy is the need to create dee customer relationships. This shows a tendency for the company to be more outward looking (market based strategy) on the surface. Principally, to achieve this BT will be relying upon its resources and acquisition of others in order. In order to achieve this BT has set out to measure the effectiveness of their processes. BT has also invested in reducing their costs, which forms a great part of the company’s profitability and success, using a team of internal experts. In the recent past, specifically 2015, BT has endeavored to invest in growth through the acquisition plans of EE, a mobile network in UK, in order to increase its presence on the 4G network. However, Ofcom has opposed that auction of spectrum by the two companies citing probability of monopolistic competition (Sweney M 2016). Similar to BT strategic policy is TTB’s need to focus on the customers and their needs. The TTB annual report (2016) outlines a business model that focuses on creating value for customers through their affordable, reliable and simple and telecoms services. Evidently the strategy adopted by TBB is that of market based. The competitive advantage of TBB is based on its ability to provide low costs services: free broadband, free fixed line calls between customers and low cost business broadband, free TV product. This is mainly because the company relies most on the Openreach services provided by BT. TBB will have an increased competitive advantage if the industry regulator success in having BT give Openreach independence. Ofcom is proposing that BT have an independent committee that will oversee its operating and have Openreach operated as a separate business from BT main business (Sweney 2016). Of the two companies, BT can be said to have been more successful, judging by its market shares in both the broadband, pay TV rights and the mobile network (through its subsidiary EE) (TTB annual report 2016). The success of BT can be attributed to its monopolistic tendencies driven by the fact that it was among the first companies to operate in the telecoms industry. Of major influence is its ownership of the Openreach system that serves the other competitors and the UK at large. However this situation is likely to change in the near future should Ofcom succeed in separating BT business and Openreach. TTB is confident that if there is regulation of this service then there are chance that they can develop and invest in the fiber to the premise (FTTP) technology (TTB Annual report 2016). Strategic Challenges The telecoms industry is one that is largely dependent on the innovative technology, one that can either drive the industry or bring it to its knees. The security of the technology and the systems and of most critical is the cyber-attacks that have faced both companies in the recent past. The security challenge becomes critical in the face of increasing technology advancements such as the 5G technology (Smith 2016) and the increased use of cloud computing. Earlier this year, Three has its customers data had been compromised which ultimately led to the loss of customer confidence with some receiving criticism on social media (Press Association 2016). In 2015, TTB faced a cyber-attack that led to the company being fines for the security failure (Hern 2016). The argument was that the technique applied by the hacker was well known and that TTB has the obligation to protect itself against it. This threat could compromises the customer strategy of both companies as it could lead to lower customer confidence. The other challenge is one that is especially experienced by TTB in regard to the regulatory framework of the industry. The industry regulator mandate is check on the company’s dominance. Currently, BT provides wholesale services through the BT Openreach. Over the previous years Sky and TT have been engaged in the debate that BT should be separated from Openreach on the grounds that the integration of the BNT and Openreach is giving BT undue market dominance. The regulator is yet to succeed in its endeavor. This poses a challenge to BT as well as it is the main provider for the Openreach infrastructure. Further, BT has cited that the infrastructure is linked to its pension scheme (Sweney 2016). In particular TTB cites that this is a strategy by BT to reduce its ability to provide broadband services on its own platform. TTB claims this is the main reason why most UK homes do not have access to broadband services. The Ofcom report (2016) show that at least 5%, of home in UK cannot access high speed broadband networks. This also give handicaps to TTB and other service providers in providing better speeds, better reliability and better service (Sky News 2016). Recommendations The competition regulation challenge faced by the telecoms industry cannot be solved by the regulator. Ofcom has proposed that BT put legal measures to separate Openreach from its main business. Ofcom, in its opinion, found it fit not to have BT completely separated from its main activities. In support of this move, Ofcom assure the competitors that it will scrutinize all decisions made by Openreach to establish whether the decisions are independent of BT’S MOTIVES (Sweney 2016). This would be achieved if there was set up an independent committee that would head the service provider. The most ideal way to solve the regulatory challenge would be to have BT lose all influence on the operations of Openreach. The legal incorporation of Openreach should completely have the corporation independent of BT. A legal incorporation could result in some influence based on legal loopholes that could always be created on basis that Openreach is still a subsidiary. The security challenge is critical to both companies in order to achieve their customer strategy and for its sustainable operations. The October 2015 cyber-attacks on TalkTalk customers was largely due the company not taking due diligence on its systems. In order to overcome this challenge, all service providers need to have due diligence taken ion their sites as well as have security measures put in place. In fact, it would be prudent to have security checks taken at intervals. References BT strategic Report 2015 BT annual report 2015 pp 19-92 b Hern A October 2016 TalkTalk hit with record 400k fine over cyber-attack [online] available from: https://www.theguardian.com/business/2016/oct/05/talktalk-hit-with-record-400k-fine-over-cyber-attack accessed 5/1/2017 Ofcom Reports 2016 the Market in Context [online] available from: https://www.ofcom.org.uk/research-and-data/cmr/cmr16/the-communications-market-report-uk accessed 5/1/2017 Ofcom Communications Market Report August 2016 Ofcom Media release 2015 [online] available from: https://www.ofcom.org.uk/about-ofcom/latest/media/media-release/2015/6ghz accessed 5/1/2017 Press Association November 2016 Data on over 130, 00 three mobile customers compromised in breach [online] available from: https://www.theguardian.com/business/2016/nov/18/three-mobile-customer-data-breach-phone-upgrade accessed 5/1/2017 Smith M December 2016 The arrival of 5G, cognitive radio and the future of connectivity [online] available from: https://www.theguardian.com/media-network/2016/dec/08/5g-cognitive-radio-future-connectivity-business accessed 5/1/2017 Sweney M November 2016 BT under increasing pressure from Ofcom to split from Openreach {online] available from: https://www.theguardian.com/business/2016/nov/29/bt-oenreach-competition-ofcom-european-commission accessed 5/1/2017 Sky News August 2016 [online] available from: news.sky.com/story/bts-rivals-unite-over-inexcusable-openreach-10518998 accessed 5/1/2017 TalkTalk Group Annual Report 2016 TalkTalk Telecomm Group Plc Wang H L 2014 Theories of Competitive advantage Research Online University of Wollongong Read More