SBU of Tescos Telecoms - Research Paper Example

Tesco Telecom Table of Contents Tesco Telecom 2 Market Players: Its Competitors 2 Tesco Telecom: The Strategy & Implementation 5 PESTLE analysis of the UK telecommunication market 5 Porter’s Five Force Analysis 9 Internal Analysis: SWOT Analysis 11 Recommendations 13 Conclusion 14 Reference 14 Bibliography 15 Introduction In this ever changing business environment, competition is getting more and more intensified day by day. To survive this competition, organisations need to be well versed about the surrounding factors which are supposed to shape up their strategies. Tesco has divided itself in several strategic business units. It offers telecom service under its Tesco Telecom business. This report aims to offer a full macro and micro environmental attributes of Tesco telecom business unit. The competitor analysis of this business unit includes assessment of both the external and internal environmental influential factors. Apart from that the report also considers the strengths, weaknesses, threats and opportunities of the business unit over their competitors. This is very much crucial for an organisational unit to strengthen the strengths, remove the weaknesses, be aware of the threats and explore the opportunities. Adding to it, the organisation is required to be knowledgeable of their competitors around, so that they can make their strategic decisions in alignment with the competitive environment. Tesco Telecom Tesco carries its mobile and telecommunication service under the Tesco Telecom business. It offers mobile virtual network in the United Kingdom, Ireland and Slovakia. Tesco operates the same in alliance with O2 network. The business unit offers simplicity and choice with added customer values in supermarket styles. In the year 2007, following the success in UK, O2 Ireland and Tesco Ireland commenced the first MVNO (mobile virtual network operator) in the Irish market (Telefonica Europe, 2009). Market Players: Its Competitors Vodafone Plc Vodafone is one of the leading wireless phone service providers with a large customer base of 300 million in more than 30 countries. The company has it business mainly in UK and Germany where they are the leading company in the respective segment. In German they also operate as data providers with an offering of broadband internet and fixed line phone services. In US, the group has 45 % stake holding in the top wireless provider, Verizon Wireless. Apart these regions, Vodafone also services customers in Asia, Africa, the Pacific region and the Middle East through several subsidiaries and few joint ventures (Hoovers, 2010). Orange Orange, a subsidiary of France telecom, is the third leading mobile provider in Europe with a subscriber base of 130 million subscribers. Apart from that, this organisation offers a wide range of services including digital television and computer telephony services. In UK, this carrier is in joint venture with Deutsche Telecom. Apart from Europe, the telecommunication carrier is active in Africa, the Caribbean and the Middle East (Hoovers, 2010). Three This organisation, a Hong Kong based company, is leading 3G network provide in UK and other parts of Europe. This organisation offers 90 % coverage across a number of people for non voice services. Orange and T-Mobile is respectively the third and fourth largest mobile operator in the UK telecommunication market. The division of market share is shown in the below graph. As per the figures, the largest market share belongs to O2. Orange and T-Mobile, together, has the 28 % of market share in this telecommunication market. The picture below reveals the number of subscribers for each player in UK market. O2 has the largest number of subscriber base in this market. Vodafone has the second highest number of subscribers in UK. The above numbers have been taken from a website (Guardian, 2009). Tesco Telecom: The Strategy & Implementation There are two things, very much crucial, for the telecom business; one is the amount of capital and another being the access to the license agreements. Tesco, being the leading retailer in UK, has the required financial strength and enough capital to meet the telecom business unit. Tesco started is telecom business using the O2 network. Tesco telecom is offering its service in supermarket styles. Tesco telecom has focused on the ‘family’ customers, which were yet to be served by O2 network. Apart from this, the organisation also has introduced some attractive value tariffs allowing the customers call for at minimal rates (Telefonica Europe, 2009). PESTLE analysis of the UK telecommunication market Political Environment Government is responsible to publish the airwave frequency licenses and also control the number of operators in the pertaining commercial telecommunication sector. Back in the yea 1984, the telecom industry was privatised by the UK government and OFCOM was institutionalised as UK telecommunication adjuster. Ofcom is responsible to hold control over the companies on their call pricing as per the regulations. The institution ensures the competitiveness in the market with significant number of organisation operating in the market. Economic Environment In 2003, mobile telecom industry constitutes 2.2 % of total GDP in UK. In numbers, the contribution was of worth £22.0 billion (O2, n.d.). The recent downturn has bee quire devastating for UK market. UK telecom industry has seen a downturn of 2 % in the year, 2009 (Market and Business Development, 2009). This revealed the economic conditions in which the discretionary telecommunication spending has been reduced with the increasingly growing competitive market and certain regulations. This had been in the wake of reduced buying power if the consumers in the trembled financial situation. All these have led the companies to have lower margins with high level of saturation in the market. Gradually the market has gone towards a level of maturity in some of the operating areas. The developments in the mobile handsets have seen a slower growth, while some areas like data packages has seen growth in revenue terms. It has been expected that in 2010 – 2014, the market would return to the modest growth pace with a growth figure of between 3 % and 4 % (Market and Business Development, 2009). Apart from this, mobile telephony and broadband service, along with the technological advancements are very much expected to promote enhanced growth during this period. Social Environment The number of subscribers in the telecommunication industry is on rising spree. The mobile telephony industry has seen a growth in the subscriber base with the changing lifestyles in the societies. People, mainly the youngsters are changing their mobiles with the changes in fashion trends. These all have positively affected the telecommunication industry. With the changes in lifestyle, the type of communication is also changing with its pace. SMS, MMS and voice call have gained more popularity among the young generation. Further on, with the positive changes in technology, internet services are gaining more and more importance, offering an extra edge to the broadband service providers. However due to the recent recession, the telecommunication industry has seen a downturn of 7 % and 2 %, respectively in the year 2008 and 2009 (Market and Business Development, 2009). This happened due to the declining buying power of the consumers around the globe, but as said earlier, the market is expected to gain its pace in the coming years. Technological Environment In this sector, the most significant development has been the introduction of mobile or wireless telecommunications. In the last few years, the telecommunication industry has seen a rapid growth and that too on a global scale (IEGMP, n.d.). This has been the direct consequence of the technical advancements, taking place in the telecommunication industry. This, in turn, has facilitated the application of the new technologies. With the ever increasing demand in the telecom market, there has been a continual increase in the economic activities, which in turn demand an enhanced technology into the industry. 3G has been the recent advancement in the telecommunication sector. One significant disadvantage for the mobile telephony providers is that as the new advancements are coming in, the product life cycle is getting much shorter and obsolete in a short period. Now- a-days the organisations are trying to match up mobile attributes to those of the computers. Even in the future more and more enhanced and advanced technologies are expected to emerge in the industry. Legal Environment In UK, OFCOM is the concerned authority to shape up all the rules and regulations in this industry. It is also responsible to see into the safety features of the mobile and other telecommunication means. There have been increasing health issues regarding the usage of mobile. A new rule against using mobile phone while driving has in turn increased the sales of hands free kits. Apart from this the institution is in position to control the competition in this industry by erasing the possibility of autonomy of the companies. At the same time they also control the number of service providers in this industry and the tariff they would impose on the customers of mobile telephony. Environmental Factor In the wake of environmental awareness, there are certain rules which would affect the telecommunication industry. One such significant rule is that the positioning of the infrastructure, including the base stations and transmitters of the telecommunication companies must be away from the people and crowded areas. The telecom organisations have shown much awareness to the environmental facts and have placed recycling bins in their retain outlets for the disposal of abandoned mobile devices. They have introduced an environmental friendly operation with encouraging the customers to use those bind for their mobile disposals, rather than throwing them away in the environment. There have been many factors in the external environment, which are the influential ones to shape up the strategy of a telecommunication company. Operating in the UK market, Tesco telecommunication unit needs to be more aware of these factors. They must align their strategies taking the advantage of the social, economic and technological environments, in compliance with the political, legal and environmental factors. Porter’s Five Force Analysis Threat of New Entrants To enter into this industry would require a sufficient amount of capital to be invested in it. The telecommunication industry is a capital intensive industry and would require enough investment to build up its infrastructure including transmitter and base stations. Adding to it, the organisations would require having the licence to enter in this industry. Apart from these the existing companies have got their foothold and have an existing customer base. As they serve a large customer base, they can cover up their cost, including licence and set up costs, by taking the advantage of economies of scale. As a consequence they would be more able to offer a competitive tariff to the consumers, than the new entrants. From all these, it seems that the entry barrier is quite high, making the threat of new entrants quite low. Bargaining Power of Suppliers As a significant number of telecom companies are operating in this industry, the suppliers’ power is quite low. The battle to attain higher market share is so intensified in this industry that in many cases according to some selective contract they offer free mobile devices to the consumes, forcing the manufacturer to deviate the suppliers from the pricing strategies. As the technologies are on its fast pace of changing, the product, i.e. the mobile device has a very short life cycle and hence become abandoned in a short span of time. This forces the manufacturers or suppliers to offer enhanced technologies on regular basis. In many cases the mobile manufacturers are more interested to retain their customers. Most of the mobile providers join in alliance with specific network service providers to enhance their customer base and retain their customers. In such a situation, the suppliers have little choice to show their powers. Bargaining Power of the Buyers A number of network providers are there in this industry. The bargaining power of the buyers is quite high in this industry as the switching cost to shift from one service provider to another one is very low. The service providers try every possible option to lure the customers. The customers have a number of service options to choose from. Adding to the new upgraded services, the service providers even offer free mobiles to their customers to attract new customers as well as retain the customers. As most of the service providers offer almost the same service with almost same tariff rates, the customers does not bother to shift from one service provider to another one. So the service providers offer more to their customers to lure the customers. Competition between different service providers has given the consumers more buyer power, allowing the buyers to choose from a wide range of best deals and to negotiate the best service conditions. Threat of Substitutes There is no perfect substitute in this industry. While as the tariffs for the fixed rate lines are on its declining spree, the fixed line telephones can be substitute for the mobile telephony. However, there can be substitutes to the attributes of the mobiles like camera, video players etc. Stand alone products like digital camera, video players can be substitutes for the mobiles with these attributes integrated within it. Rivalry among the competitors The competition is quite intensified in the mobile telecommunication industry. The number of the network providers has been kept to limited number due to the airwave frequency licence offered by the government. As mentioned earlier, customer would incur very low cost from shifting from one service provider to another one. This is the reason that customer attraction and retention is more of significance in this industry. Companies offer a number of deals and packages to offer the customers with a number of choices. The organisations compete between themselves regarding the value added services offered to the customers. Adding to it there is fierce competition between the telecom companies in cutting down the calling rates. So, it seems competitive rivalry is quite high in this industry. Porter’s five forces has been a crucial tool to assess the competitive environment of any company. The above section deals with the external environment analysis of the company with an emphasis on the industry. Internal Analysis: SWOT Analysis SWOT analysis is a tactical tool to identify and evaluate all the strengths, weaknesses, opportunities and threats of this business unit. An effort has been put forward to carry on the SWOT analysis for the organisation. Strengths Tesco telecom is a business unit of Tesco Plc, which is the leading retailer in United Kingdom. Tesco Plc has strong financials which can easily be used to build up the infrastructure for the telecom business unit. Being part of such a huge retailing company, its telecom unit can also fetch the advantage of its well developed distribution channel without incurring much cost for the same. The organisation offers this advantage to its customer by adding value to them with simplicity and choice in supermarket style. Tesco addresses the family market through their several ‘Metro’ shops and network of supermarkets across the nation. In the month of July, 2005, the company has introduced new pricing strategies and offered ‘value tariffs’ to its customers with reduced international calling rates. This value addition with its retail presence has helped the company to attract more customers in some few years. These have been their strengths and it can be proved from certain evidences. In December, 2005, after just 6 months of launch the company had a pre-pay subscriber base of 1 million. After some 3 years, in the year 2008, the subscriber base had crossed the number of 1.7 million (Telefonica Europe, 2009). Their strengths lie in their offering of simple but value adding tariff rates. The organisation has also introduced value tariffs for their customers on ‘Pay as you go’ and ‘Pay monthly tariffs’. These tariff packages are simply priced tariff rates allowing the users call for some 10p a minute and send text for some 5p (Telefonica Europe, 2009). The unit offers this in their retail stores. So no doubt, as the service can reach the customers with so ease in a super market, people will surely get lured to it. This has surely been the competence of Tesco telecom unit, which no other service provider would be able to do. Weakness Tesco telecom is a new entrant in the telecommunication industry. Being a business unit of Tesco it is not so huge as Vodafone or any other company. The customer base is quite low as of now compared to the other providers. Threats Tesco is a leading retailer in food and non food items. The main business of the organisation is retailing and telecom can be looked at the supporting business to it. That could be a reason that enough managerial attention is not provided to this business unit. This perception can even be transferred to the customers and they may think Tesco telecom inferior to the full time service providers like Vodafone, Orange etc. Opportunities As Tesco markets and offers their services in the supermarkets and ‘metro’ shops, they can reap the advantage of the supermarket styles. Their target market is ‘family’. People, today, would want to get everything under one roof and Tesco has fulfilled this dream with launching mobile network services under one covering. So Tesco has huge opportunity to take the advantage of supermarket styles. If they launch more value added service and provide quality services to their customers, no doubt, in future this has immense opportunity to become one of the leading telecom service providers in Europe. Recommendations Tesco telecom unit needs to strengthen its strengths, remove its weaknesses and threats and explore the opportunities to make its mark more prominent in the telecom industry. Some significant influential factors to define their strategies are choice of products, attaining competitive advantage over their competitors, meeting the requirements of the customers and creating new opportunities for the business unit. Tesco’s telecom unit must identify the requirements of the customers, specifically those which are yet to be satisfied by the other telecom service providers and then introduce some value added plans to cater those requirements. Introducing its quality services in the supermarkets and the ‘metro’ stores can fetch business for this telecom unit. To get more access to the customers, Tesco telecom must take the advantage of well established distribution of Tesco retails. Strategic practice of the supermarket style, well developed distribution channels and value added services meeting the requirements of the customers will enable the company to extend its customer base with enhanced business. Conclusion Being a part of a huge business, Tesco has many advantages which can be use in its operational activities. They have already differentiated from the other service providers by offering their service in supermarket styles. This is one of the core advantages of this telecom unit. Integration of value added quality services with the supermarket style can lead Tesco telecom to one of the leading positions in the nation wide telecom market. Reference Guardian. September 8, 2009. UK mobile phone market rankings. [Online]. Available at:http://www.guardian.co.uk/business/2009/sep/08/uk-mobile-market-share [Accessed on May 7, 2010]. 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(2000), Telecommunications Regulations – Culture, Chaos and Interdependence inside the regulatory process, Routledge. Porter, Michael E. (1985), Competitive Advantage – Creating and Sustaining Superior Performance. Resource Alliance. No Date. Porter’s Five Forces Model. Available at:http://www.resource-alliance.org/documents/masterclass_bernard_ross__fiona_duncan_porter.pdf [Accessed on May 7, 2010]. Read More