Mobile Phone Retailing in the UK - Essay Example

? Retail Market Analysis - Mobile Phone Retailing in the UK for the last quarter of (October – December) Table of contents Introduction 3 2. Mobile phone sector in the UK - overview 3 3. Mobile phone sector in the UK for the last quarter of 2011 (October – December) – industry analysis 4 3.1 Competition 4 3.2 Market development 5 3.3 Profitability 7 3.4 Consumer spending and behaviour 9 4. Potential problems for Mobile Phone Retailing 10 5. Conclusions and Recommendations 10 References 1. Introduction The potentials of each firm to compete effectively its rivals can vary in markets worldwide. In extremely competitive markets, such as the UK market, the growth of each firm is depended on its ability to identify strategies that offer a competitive advantage. Current paper focuses on the mobile phone industry of UK; the country’s mobile retail market is analysed emphasizing on the last quarter of 2011. Reference is also made to the industry’s performance in the past, especially during 2011, since it is considered as a valid indicator of the industry’s performance not only in the last quarter of 2011 but also in the future. A problem has appeared when reviewing the performance of the sector’s major competitors for the last quarter of 2011: not all of these firms publish their financial accounts and it was not possible to retrieve these figures through the organizations’ websites. However, where such information was not available, other websites, providing information on this issue, have been used as alternatives for identifying the financial performance of mobile retailing firms in UK for the 4th Quarter of 2011. Also, where figures are not available for the particular period of time, such as for example in the case of Hutchison, reference is made to the performance of the firm for the entire 2011 so that the comparison of the performance of the firm with its rivals to be feasible. 2. Mobile phone sector in the UK - overview Mobile phone industry is quite valuable for the UK economy. Currently, the mobile connections in UK are estimated to 81 million (Mobile Operators Association 2012). In fact, the sector’s operators have managed to gain about a 71% of the telecommunications sector in UK (Mobile Operators Association 2012). Five are the sector’s competitors, as highlighted in Figure 1 below. Customers of these firms seem to be quite satisfied with the services provided to them; in a survey conducted in 2010 it was revealed that a percentage of 93% of the industry’s customers are quite satisfied with the quality of customer services within the particular industry (Mobile Operators Association 2012). The key point for the transformation of the UK mobile retailing industry has been the merger of Orange UK with T Mobile UK in July, the 1st of 2010 (Everything Everywhere 2010). Since then, the distribution of power among the industry’s competitors has been significantly changed, as analysed below. 3. Mobile phone sector in the UK for the last quarter of 2011 (October – December) – industry analysis 3.1 Competition As already noted above, five are the major competitors in the UK mobile phone industry (Figure 1); through the years, these firms have tried to keep their share intact, despite the high industry’s competition (Figure 2). The graph in Figure 1 reveals that new entrants or substitute products do not threaten the performance of the industry’s major competitors, as this issue is taken into consideration when evaluating a firm’s performance using the Porter’s five forces model on industry competition. In fact, the market share of these firms seems to be standardized, being kept at same levels from 2008 up to 2010 (Figure 1). A similar trend, in terms of performance, would be expected for 2011, as also verified by the graph in Figure 2. Figure 1 – Five major competitors in the UK mobile phone industry, performance for the period 4thQ of 2008 up to the 1stQ of 2010 (Source: Telecoms Market Research 2011) On the other hand, the graph in Figure 2 below reveals a continuous change in the performance of these firms in the UK mobile phone industry; in the specific graph the quarterly changes in the firms’ performance from 2007 up to the 2ndQ of 2011 are included. Among all firms, Hutchison 3 seems to have most prospects for growth in 2012 (Figure 2). The graph in Figure 2 is important in order to understand the potential performance of the industry’s major competitors at the end of 2011 and 2012 also, a period during which a similar rate of growth would be expected. In other words, for the 4thQ of 2011 also, as all quarters from 2007 up to 2011, a trend for periodical increase and decrease of the performance of all major competitors in the UK mobile phone industry would be expected to appear. The verification of the above assumption is achieved by referring to the financial data, where available, of these organizations for the last quarter of 2011; in certain cases, reference is made to the performance of these firms in 2011 in general, when no data specifically for the last quarter of 2011 are available. The analysis of the firms’ profits during the last quarter of 2011 or during 2011 in general is presented in section 3.3 below. Figure 2: Quarterly performance of 5 major competitors in UK mobile phone industry, from the second Q of 2007 to the 2nd Q of 2011 (Source: Telecoms Market Research 2011) According to the figures presented above, the competition in the UK mobile phone industry is strong. Two are the industry’s key rivals: Everything Everywhere and Vodafone (Figure 3). O2 also is close to the above firms with a market share of 27%. On the other hand, Hutchison has become a key competitor, even if its profits compared those to the other firms are law, having achieved the highest rate of growth among all other firms of the industry (Figure 2). The performance of these firms in the last quarter of 2011, as analysed below, seems to be at similar levels, with a trend for decline, a fact probably related to the reduction in consumer spending in UK, as explained in section 3.4 below. 3.2 Market development The development of the mobile retailing industry is quite rapid. This trend is reflected in a survey conducted in 2011 among the visitors of ’10 major e-retail websites in UK’ (Mobile Web Company 2011). It was revealed that the percentage of people using their mobile for accessing retail websites has been significantly increased (Mobile Web Company 2011). In practice, this means that the growth of the mobile sector in UK could significantly benefit the country’s retail sector in general, even in the long term. At the next level, the introduction of innovative products in the particular industry, such as the mobile wallet developed by O2 (Mobile Today 2012) can significantly increase the industry’s performance. On the other hand, the comparison of the number of subscribers of the industry’s 4 major competitors, leads to a different assumption: only Hutchison and O2 have managed to achieve a stable growth (Figure 3 & 4). Vodafone and Orange have failed in keeping their customer base (Figure 5 & 6). Figure 3 – Hutchison, subscribers, quarterly change 2007-2Q 2011 (Source: Telecoms Market Research 2011) Figure 4 – Telefonica, O2, subscribers, quarterly change 2007-2Q 2011 (Source: Telecoms Market Research 2011) Figure 5 – Vodafone, O2, subscribers, quarterly change 2007-2Q 2011 (Source: Telecoms Market Research 2011) Figure 6 – Orange, subscribers, quarterly change 2007-2Q 2011 (Source: Telecoms Market Research 2011) According to the data presented above, the growth of the UK mobile retail sector cannot be characterized as well supported. Rather, there are many chances for the industry’s performance to decline, especially under the influence of the downturn in the UK economy, as appeared for the first time during the last quarter of 2011 (Jones 2012). 3.3 Profitability In the last quarter of 2011, the performance of most of the industry’s competitors was disappointing. In 2011, Vodafone’s profits in the UK market were improved by just 0.6%, a quite low growth (HIS 2012); however, if compared to other European countries, such as Spain where the performance of the firm declined by –9.3%, the growth of the firm in UK can be characterized as quite satisfactory. As an exception, Hutchison managed to achieve a significant growth in 2011; the firm’s profits worldwide for 2011, reached the $7.2 billion, a profit, which was much higher than expected, according to forecasts made in 2010 (Reuters 2012). Reference should be also made to Everything Everywhere, a major competitor in the UK mobile retailing industry. According to the company’s website, in the 4th Q of 2011, the firm managed to increase its customer base by 72K (Everything Everywhere, company website, Financial Results). Moreover, due to the improvement of customer services, the firm managed to increase the number of its subscribers on contracts (Everything Everywhere, company website, Financial Results). In the last quarter of 2011, the 48% of the firm’s total subscribers were on contracts while for the same period of 2010, the above percentage was 44% (Everything Everywhere, company website, Financial Results). The non-voice revenue of the organization was also increased reaching the 43% for the 4th Q of 2011, compared to 37% in the same period of 2010 (Everything Everywhere, company website, Financial Results). At this point it is noted that Everything Everywhere is a company incorporated two major mobile brands, T-Mobile and Orange; the performance of each of these branches is not satisfactory for the last quarter of 2011, as indicated in the figures 2 and 6 above; however, when these two firms are considered as just one company, their performance reaches high levels, as proved through the figures and the statistics presented above. It should be noted that in 2012, Everything Everywhere has reviewed its pricing strategies in order to increase its competitiveness towards its rivals (Rushton 2012). As for Telefonica – O2, the firm didn’t managed to improve its profitability in 2011; the firm’s data revenue in the last quarter of 2011 was increased by 3.1%, as part of the firm’s total growth in 2011 which reached the 7.9%, compared to 2010 (Telefonica, Financial Results 2011, p.57). However, the performance of the firm’s mobile services was rather disappointing; for the last quarter of 2011 the revenues from firm’s mobile services reached a decline of 8.7% (Telefonica, Financial Results 2011, p.57). According to the firm’s financial results, for the 4th Quarter of 2011 the firm’s ‘mobile voice traffic decreased by 16%’ (Telefonica, Financial Results 2011, p.57), a fact proving that the failures in the firm’s performance had different aspects, indicating a need for full update of the firm’s strategic choices. Based on the current level of profits of firms operating in the UK mobile industry, a series of forecasts has been produced in regard to these firms’ profitability for the years up to 2015. These forecasts are presented in Figure 7, below. Figure 7 – Number of subscribers in the UK mobile phone industry, per firm (Source: Telecoms Market Research 2011). According to the above graph, Everything Everywhere is expected to continue its growth in the UK mobile phone industry. Telefonica, i.e. O2 is expected to rank second while Vodafone would follow. The graph indicates the standardization of the performance of firms operating in the mobile phone industry of UK; it is made clear that up to 2015, the performance of mobile retailers in UK is expected to be standardized, being improved from their performance in the last quarter of 2011, when most of these firms failed in achieving satisfactory profits. 3.4 Consumer spending and behaviour In January 2012 the level of UK GDP for 2011 was announced; a reduction of 0.2% has been identified (Jones 2012). The above figure is the result of the reduction in productivity in most sectors, including manufacturing and construction (Jones 2012). The above trend was also followed by the reduction in the amount spent on products and services which are not directly related to people daily needs; the UK’s mobile phone industry has been negatively affected by the economy’s downturn, which is expected to last for all this year (Jones 2012). 4. Potential problems for Mobile Phone Retailing The limitation of consumers’ spending in UK, as also worldwide can be an important threat for the industry’s future. According to Jones (2012) in the last quarter of 2011 ‘the GDP of UK has been reduced by 0.2%, a fact that leads to fears for a double dip recession’ (Jones 2012). Thorne (2012) also highlights the potential downturn in the performance of the UK economy for 2012. At the next level, the decrease of competition in the UK mobile phone industry would be considered as another problem of the particular industry that should be appropriately addressed. Indeed, as noted above, the UK mobile retailing sector is shared between 5 major competitors, 2 of which, T-mobile and Orange, have already merged. The entrance of new firms in the sector should be allowed by the relevant authorities, so that competition is increased, a fact that would be benefit mobile phone users across UK. Moreover, the firm’s existing firms have not managed to stabilize their performance, despite the introduction of innovative products/ services, as analysed above. It is clear that the strategic framework of the industry’s firms should be changed. The support provided by the state would be increased, especially during periods of financial crisis, like the current one. The establishment of Everything Everywhere, which has changed the structure of the industry, has increased the problems for the sector leading to the radical increase of competition, to which not all firms in the UK mobile retail industry are able to respond effectively, as proved through the figures presented above. 5. Conclusions and Recommendations The performance of the UK mobile phone industry in the last quarter of 2011, as reflected in the profits of the industry’s five major competitors during the above period, can be characterized as satisfactory, if taking into consideration the current status of the UK economy. More specifically, as already noted above, consumers in UK tend to spend less money on buying mobile phones and supportive accessories. In this context, certain measures should be taken for ensuring the increase of the industry’s growth in the years that follow. At a first level, the UK mobile phone industry should become more attractive to new entrants; the five major competitors of the industry have standardized their performance the last 4 years (Figure 2 above) not allowing the entrance of new firms. In this way, it has become more difficult for the industry to attract consumers’ interest. The above fact, if combined with the changes in the spending behaviour of consumers in UK, as explained above, it can lead to the assumption that the mobile phone industry in UK does not have many prospects for long term growth, unless emphasis is given on innovation and flexibility in licensing. If it is not combined with the openness of the market, innovation cannot support the growth of the UK mobile phone industry, a phenomenon that is also clear in the global market, which tends to favour firms that are already well positioned towards their rivals. Bibliography Everything Everywhere (2012) Company website. 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Available at http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/telecoms/9047868/Everything-Everywhere-to-spark-mobile-phone-call-price-war-with-T-Mobile-cuts.html [Accessed 19 April 2012] Telecoms Market Research, 2011. UK Mobile Network Operator Subscriber Data 2007-2011. Available at [Accessed 19 April 2012] Thorne, A., 2012. Week ahead: GDP figures set to indicate whether economy has fallen back into recession [online] Jan 23, 2012. Birmingham Post. Available at [Accessed 19 April 2012] Read More