Strategic Review of Everything Everywhere Telecom - Case Study Example

Strategic Review of EE (Telecom) Executive Summary EE is the largest telecommunication company that offersintegrated data, voice and messaging services and devices across the UK. The demand for data will remain high due to high internet usage, high access to different telecommunication devices, high literacy levels and favourable attitudes towards technology. The industry has witnessed stiff competition due to the high fixed costs, the less differentiated products and high exit costs. The company has high cost structure and reported a decline in revenues in 2013.The Company has rolled out 4 G coverage that will offer high growth opportunities and the management aims at improving customer loyalty through sustaining cordial relationships and offering innovative and integrated telecommunication solutions. The research approach will involve reviewing secondary data on the trends of telecommunication industry in the UK and the environmental factors that are affecting the industry. EE is facing stiff competition and declining revenues and should pursue cost leadership and differentiation strategy in order to attain competitive advantages. The company should concentrate on new product development for the existing markets due to the changing consumer preferences and develop new markets for its differentiated products. The company should improve the quality of its network and reduce the faults in order to ensure higher customer satisfaction. Accordingly, the management must consider offering added services such as pay TV channels and differentiated pricing plans depending on the user requirements. The company should invest in research and development projects and form strategic partnerships with related companies such as mobile phone manufacturing companies and suppliers of fibre cables. Table of contents: page number 1.0 Introduction …………………………………………………………………..4 2.0 Strategic review………………………………………………………………5 2.1 SWOT- Internal Analysis…………………………………………….5 2.1.1 Capabilities and competences…………………………….6 2.1.2 Resources, skills and management…………………….....6 2.2 SWOT- External Analysis……………………………………………6 2.2.1 PEST analysis…………………………………………….7 2.2.2 Porters five forces analysis……………………………….7 2.2.3 Competitor analysis……………………………………....8 3.0 Porters Generic (business level) strategies…………………………………...9 3.1Company basis of competition……………………………………......9 4.0 Ansoff’s growth strategies…………………………………………………..10 4.1 Company growth strategies………………………………………....10 5.0 conclusions………………………………………………………………….11 5.1 strategic options……………………………………………………...11 6.0 References and bibliography………………………………………………..13 Introduction EE (formerly Everything Everywhere) is the UK’s largest telecommunication provider with a market share of 33 percent and a customer base of more than 27 million subscribers. The company came in to existence in 2010 when Orange and Deutsche Telekom merged their British operations to become the largest mobile operator in UK market. The company offers voice, messaging, and data services to both retail and corporate customers. The company brands include EE, Orange and T-Mobile. The company launched the widest 4G coverage in 2013 and secured the best spectrum portfolio for the date services that cover more than 160 towns across the UK and more than 95 percent of the total population (EE Limited 2014). During 2013, EE effectively monetised 4 G with innovative offerings such as the shared plans, prepaid plans and speed-tiered plans thus attaining cost savings and increasing the number of new subscribers. The company has secured the best spectrum portfolio for mobile data and is the leader in double speed 4 G network across the UK. However, the revenues for 2013 were 6.5 billion pounds which was a 2 percent decline and the bottom line was a loss of 195 million pounds (EE Limited 2014). EE must comply with the extensive regulations such as licensing and network operation guidelines such as ceilings on roaming costs that may significantly reduce the revenues from roaming charges (Picot 2006). The objectives of EE is to maximise both shareholder and customer value through driving business growth, ensuring customer loyalty and furthering operational excellence. The company aims to attain market leadership in customer loyalty through exceptional customer service in retail networks and online channels. The company hopes that the network infrastructure will enable it deliver superior coverage and differentiate its customer network experience thus driving customer satisfaction and loyalty. EE is also geared at investing in new capabilities that will meet the future customer needs and optimize growth opportunities (EE Limited 2014). 2.0 Strategic Review The telecommunication industry in UK is characterised by high competition in broadband, mobile and wireless sectors due to the innovative technologies that have eased distribution of digital content (Gentzoglanis and Henten 2010). The consumer prices have declined and broadband penetration is above the European average. The telecom operators will have to upgrade their infrastructure in order to cater for the growth in traffic and offer reliable services to their target customers since the customer expectations are changing as more people across the UK rely on their mobile phones to access the internet (Gentzoglanis and Henten 2010). The customers expect reliable, stable and continuous network connectivity and thus EE should improve the quality of its network infrastructure in order to attain higher customer satisfaction. The competitors have established brands and EE should continue with its marketing communication activities that aim at enhancing brand recognition and brand value in the market. However, the demand for data and voice will grow substantially in the next five years due to high usage of smart communication devices such as tablets and smartphones (EE Limited 2014). 2.1 SWOT- Internal Analysis. Some of the strengths of EE include the high market share in the mobile data segment and wide network coverage across all cities and towns in the UK. The company has a well established 3 G network that covers more than 95 percent of the population and has rolled out the 4 G network that has enhanced the customer experience. The company controls more than 50 percent of the 4G market and has responded to the increased demand for mobile data through offering flexible pricing plans that suit the unique customer needs (EE Limited 2014). Accordingly, EE has the largest customer base for mobile network services since it has more than 17 million subscribers (EE Limited 2014). However, EE is currently facing certain weaknesses that may hinder its long term growth and profitability such as the declining average revenues per user (ARPU) due to the high price competition among the various telecommunication companies in the market. Security and customer privacy remains a significant concern for EE and the company has not attained customer loyalty due to the lack of product differentiation (EE Limited 2014). 2.1.1 Capabilities and Competences The capabilities and competences refer to the activities and processes that are critical in attainment of competitive advantages in a way that is imperfectly imitable and unique. One of the capabilities is the ability to use sophisticated telecommunications infrastructure that is essential in enhancing customer value and delivering integrated communication solutions to the target customers (Saxena 2009). The company has a wide distribution network that comprises of more than 600 retail stores including franchise stores that are located in shopping malls and streets across the UK (EE Limited 2014). 2.1.2 Resources, Skills, and Management The company has adequate resources, skills and management capabilities that are critical in the attainment of strategic objectives. The company has invested heavily in 4 G network infrastructure that is critical in optimising future growth opportunities. The company has highly qualified marketing and customer service employees who will be critical in sustaining customer relationships. The management of EE is visionary and committed to the attainment of the company mission and goals (EE Limited 2014). 2.2 SWOT- External Analysis There are various opportunities that EE can exploit to attain market leadership, ensure growth in revenues and counter competition in the market. The increase in demand for mobile data due to high usage of smartphone will increase the revenues. Some opportunities include expansion of fibre connection in rural areas, focusing on corporate market segment, partnership with communication device manufacturers and offering pay TV channels (Dodd 2002). EE is facing various threats such as intense competition, increased government regulation and possible lawsuits (Hill and Jones 2007). 2.2.1 PEST Analysis The UK market is currently experiencing political stability, but there are fears of terror attacks. The industry is experiencing stronger consumer rights and regulatory environment that is geared at reducing roaming charges and ensuring more competition in telecommunication sector. Generally, the political environment is favorable for EE operations (Hill and Jones 2007). The economy is experiencing slow growth rate and stable interest rates. Accordingly, the consumer disposable incomes are low while the rate of unemployment has remained high in the past few years. The economic environment is fairly favorable for the business growth of EE. The social-cultural environment refers to the changes in consumer attitudes and tastes, the changes in population demographics, lifestyle changes, and educational levels in the country (Saxena 2009). The social-cultural environment in the UK is characterised by an ageing population, high education levels, and high usage of telecommunication devices. The technological environment is determined by the advancements in information technologies and telecommunication infrastructure that have affected the industry (Henry 2011). 2.2.2 Porter’s Five Forces Analysis The five forces are the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitutes, and the degree of rivalry in the industry. The threats of new entrants in the industry is low due to high capital outlay required to commence operations, the high economies of scale of the established firms, the stringent regulatory framework, and brand identity of the firms in the industry (Porter 2008). The bargaining power of suppliers is high since the since the suppliers of essential equipments such as fiber-optic cables, mobile handsets, broadband switching equipments and other network devices that are critical in transmission of data and voice have considerable power to determine the prices of such inputs. The switching cost to other suppliers is high and the threat of forward integration by the suppliers is also high in the telecommunication industry. The bargaining power of the buyers is high due to high consumer awareness and low switching costs especially by the residential consumers (Porter 2008). The telecommunication products are less differentiated and there are many available substitutes in the market. The threat of substitutes is high since satellite and Cable TV providers pose serious competition. The other companies have started offering broadband internet services and the internet has become a preferred mode of communication for many citizens in the UK due to its efficiency and accessibility (Lynch 2006). The degree of rivalry in the industry is high since the main players in the industry are of relative equal size and exit costs are high. Accordingly, the fixed costs are high while the products are less differentiated (Lynch 2006). 2.2.3 Competitor Analysis There are four main mobile network companies in the UK market. The main competitors are British telecommunications (BT), Virgin Media, Talktalk, Sky, Vodafone, Three, O2, Easynet, and Cable and Wireless. EE is currently the largest mobile operator with a market share of about 35 percent. O2 holds 30 percent of mobile market while Vodafone is third with 25.5 percent of the market share. BT is the market leader in broadband market with 26.5 percent of the market while Talk Talk controls 22 percent of the broadband market (EE Limited 2014). BT controls 37 percent of the fixed line market while Virgin Media commands 12 percent of the market. The competitors are currently engaged in aggressive differentiation strategy that aims at retaining and expanding the market share through offering valued-added and cheaper communication services to their target customers (Lynch 2006). The industry has witnessed various strategic partnerships, mergers and acquisitions that are aimed at sharing of network infrastructure and reducing the operational costs in order to attain process efficiency. 3.0 Porter’s Generic (Business Level) Strategies Porter suggested three generic (business level) strategies of pursuing competitive advantages in the industry. The three strategies are cost leadership, differentiation and focus strategy. Cost leadership strategy aims at acquiring cost advantages through improved process efficiency, access to raw materials at minimal costs, low cost distribution channels and outsourcing certain activities (Grant 2010). The differentiation strategy aims at attaining competitive edge through offering unique and value-added products that are different from those offered by competitors. The focus strategy is geared at offering specialised product or service for a niche market and the firm concentrates on serving the narrow market segment while attempting to attain differentiation or cost advantage in the market. 3.1 Company Basis of Competition: Cost leadership and differentiation EE should compete through differentiation and cost leadership strategies in order to attain competitive edge in the market. EE should aim at attaining cost leadership through reducing the operational costs in order to charge the lowest prices in the industry (Hill and Jones 2007). EE should invest in research and innovation activities in order to offer more innovative telecommunication solutions that will meet the changing customer needs. The firm should deliver high-speed solutions and ensure customer loyalty through providing excellent after sales services and customer care services (Hill and Jones 2007). 4.0 Ansoff’s (Corporate Level) Growth Strategies Ansoff’s (corporate level) offers four growth strategies that determine the product and market growth depending on whether the market is new or existing. The first is the market penetration strategy that seeks to attain growth through increasing market share with for the existing products in the current market segments (Hill and Jones 2007). The second is the product development strategy where the firm will offer new products in the current market. The third strategy is the market development strategy where a firm will offer the existing products and services in new market while the fourth business level strategy is diversification strategy where the firm will diversify in to new businesses through developing new products for new market segments (Hill and Jones 2007). 4.1 The Company’s Growth Strategy: Existing/new products v. existing/new markets EE should implement a market development strategy through creating additional market segments for the 4 G network, 3 G network and mobile TV. EE should pursue this strategy through developing new geographical markets, implementing new distribution channels, using differential pricing plans and offering stylish packaging (EE Limited 2014). The company should pursue a product development strategy through developing new products that are suitable for the existing customers such as partnering with smartphone, tablet and TV manufacturers such as Alcatel, Samsung and Apple in order to provide integrated voice and data services that meet the unique needs of the customers. The company should improve the strength of its network signals and increase the internet speeds in order to appeal to the existing competitive market (EE Limited 2014). 5.0 conclusions Competition remains fierce in the telecommunication industry in the UK and competitors are currently lowering the prices as they struggle to retain their market share. Competitors are directing their investments mobile networks, fibre-based networks and universal broadband networks. The demand for high-speed data will remain high in the next five years due to the high usage of the internet across UK. The company is faced with low customer loyalty and possibility of decline in market share due to stiff competition in the industry. The bargaining power of both buyers and suppliers is high while the threat of substitutes is high due to low switching costs and lack of product differentiation. The company should pursue cost leadership and differentiate the products in order to attain customer loyalty and ensure business growth. The company should create additional markets through becoming a preferred service provider for the corporate segment and develop new products for the existing markets such as offering pay TV channels through its network. 5.1 strategic options The first strategic option for EE is to differentiate the products and services through innovation. The company must monitor the changing consumer needs and differentiate its services through various pricing strategies depending on the user needs. The company should improve customer efficiency through ensuring simplicity, security and speed of the network since these factors are most important to customers. The company should invest in its network in order to reduce the faults and make it more resilient to bad weather. The company should ensure value addition through offering TV and entertainment content such as sports channels and films to their TV service. The second strategic option for EE is to implement cost transformation through fibre provision in rural areas, flexible employment terms, enhanced employee training, automating the engineering tasks and negotiating for lower raw materials with suppliers. The third strategic option is formation is strategic alliances in order to attain higher market share and strategic capabilities such as innovation capabilities. Pooling of resources through joint ventures, joint development and marketing agreements will mitigate the risks associated with new products development and increase the access to new markets. A fourth strategic option that is available for EE is focusing on serving the growing small and medium services market segment in the UK. The company can develop telecommunication solutions that will enable these enterprises attain growth and reduce costs such as cloud computing, unified communication solutions and security services. This is an ideal market segment since it will drive the growth of IP-based data and voice products and increase the fibre connections across all major towns and cities in UK. 6.0 References and Bibliography: Dodd, A. (2002). The essential guide to telecommunications. London: Prentice Hall. EE Limited. ‘Group and Company Financial Statements Year ended 31 December 2013’ Available from https://ee.co.uk/content/dam/everything- everywhere/Newsroom/Bonds%20and%20financials/EE_Accts_YE_2013_EY.pdf. Gentzoglanis, A & Henten, A. (2010). Regulation and the evolution of the global telecommunications Industry. London: Edward Elgar Publishing. Grant, R. (2010). Contemporary Strategy Analysis: Concepts, Techniques and Applications. 7th Ed. Massachusetts: Blackwell. Henry, A. (2011). Understanding strategic management. Oxford: Oxford University Press. Hill, C & Jones, G. (2007). Strategic management: An integrated approach. New York: Cengage Learning. Lynch, R. (2006). Corporate Strategy. 4th Ed. Harlow: Financial Times Prentice Hall. Picot, A. (2006). The future of telecommunications industries. London: Springer. Porter, M.E. (2008). Competitive advantage: creating and sustaining superior performance. London: Simon and Schuster. Rowley, T & Baum, J. (2008). Network strategy. London: Emerald publishing. Saxena, R. (2009). Marketing Management. 4th Ed. New Delhi: Tata McGraw-Hill. Read More