The Merger of NTL and Telewest: Problems Related to Growth - Essay Example

The Merger of ntl and Telewest: Problems Related to Growth Total Number of Words 203 Table of Contents I. Introduction ……………………………………………………………….. 3 II. Industry Analysis ………………………………………………………….. 3 a. SWOT Analysis …………………………………………………… 3 b. PEST Analysis ……………………………………………………. 4 c. Porter’s Five Forces Model …………………………………….. 6 IV. Discussion …………………………………………………………………. 6 V. Conclusion ………………………………………………………………… 7 Appendix I – Ansoff Matrix – ntl:Telewest Business …………………………. 8 Appendix II – SWOT Analysis: ntl:Telewest Business ……………………….. 9 Appendix III – PEST Analysis: ntl:Telewest Business ………………………. 10 Appendix IV – Porter’s Competitive Forces Model: ntl:Telewest Business . 11 References ……………………………………………………………………… 12 - 14 Introduction The merger between ntl Incorporated and Telewest Global was successfully completed in March 2006. (Goldstein, 2006; Walko, 2005) This major event made ntl:Telewest the largest provider of residential broadband, the second largest fixed-line telephony company, and the UK’s second largest pay TV provider. (ntl:Telewest Business, 2007c; Business Wire, 2005; Goldstein, 2005) In line with the merger, the company is capable to offer quadruple play of TV, Internet, fixed and mobile telephony services under one company because of its decision to acquire Virgin Mobile. (ntl:Telewest Business, 2007a) Today, the company delivers a complete portfolio of data, voice, and Internet solutions nationwide. (ntl:Telewest Business, 2007d) For this study, the researcher will conduct an industry analysis using SWOT Analysis (NetMBA, 2007), PEST Analysis, and Porter’s Five Forces Model. Prior to conclusion, the researcher will discuss the goals of ntl:Telewest; the benefits of merger; and the problems that may arise due to excessive growth. Industry Analysis SWOT Analysis The strength of ntl:Telewest includes having infrastructure like high-speed fibre optic and cable network that will improve the quality and efficiency of its communication services. The merger also increases the number of products and services offered to its customers. Since both companies are into the same industry, employees share their expertise. Weaknesses include the limited current budget to immediately expand the market segment, R&D funding, and geographical limitations for broadband. Since both companies have different cultural background, beliefs and practices; internal conflicts may arise as a result of poor coordination and cooperation among the employees. To create a new business opportunity, top management should develop new market segments by expanding its current services to untapped domestic and international market. Investing on R&D may increase the company’s market strength by innovating new technology, products and services. The company will be threatened in case its existing competitors decide to collaborate or enter into merger and/or acquisition of a similar company to enhance the marketability of its competitors. In case target regions fail to respond positively with technological changes could result to profitability problems. A sudden increase in communications taxes will also affect the competitive price of the company. (See Appendix II – SWOT Analysis: ntl:Telewest Business on page 9) PEST Analysis The implementation of 1984 Telecommunications Act deregulates the telecommunications industry in UK. (Thatcher, 1999: 148 - 149) To encourage free competition in UK’s telecommunications industry, the government introduced OFTEL as the telecommunications’ regulatory board. (Thatcher, 1999: 174) An incentive-based pricing scheme – also known as the ‘price-cap’ regulation on local and international calls was also implemented. (Vogelsang & Mitchell, 1997) The unemployment rate in UK increased from 4.6% in 2005 to 9.5% in 2006. (Papacostas & Pricopie, 2007; Eurostat, 2005) Although UK maintained a low inflation rate at 4% in 2006 (Papacostas & Pricopie, 2007), the growth rate in UK economy has significantly increased from 1.75% in 2005 to 5.4% in 2006. (Papacostas & Pricopie, 2007; BBC News, 2005) Since the third quarter of 2005 through the first quarter of 2007, the real GDP slows down from 3.3% annual rate to 2.5% suggesting that economic growth will be at a slower pace. (Reuters, 2008) UK’s Population increased from 22.3 million in 1851 to 60.2 million in 2005. (Thomson & Barker, 2006) The total population growth by immigrants between the age brackets of 25 to 44 also significantly increased since 1997. (Dobbs et al., 2006) The forecasted population of UK is expected to increase up to 67.0 million by 2031. (Thomson & Barker, 2006) As of 2004 – 05, the growth of income among the richest individuals increased by 1.5%; among the average earners increased by 1.0%; among the poorest fifth decreased by 0.4%. (Brewer et al., 2007) Eventhough the gap between the rich and the poor increases, the fact that the income of the upper fifth and the average earners increases show a slight improvement in the socio-economic life of the people. UK ranks the first among the top 10 countries in Western Europe using advanced-digital-content consumption via broadband, digital TV and mobile data. (Informa Telecoms & Media, 2006) Based on the survey of EMARKETER (2007), UK ranks the fifth-largest broadband users worldwide with 47.1% or 12 million broadband households as of 2006. Internet users in UK significantly shifted from using dial-up to broadband. (BBC News, 2007) Telephone and mobile companies (BBC News, 2007) and television service providers are also relying on the use of broadband networks. Mst broadband users are relying on the use of BT broadband or DSL technology instead of cable broadband technology. (UK Broadband ISP Reviews, 2007) (See Appendix III – PEST Analysis: ntl:Telewest Business on page 10) Porter’s Five Forces Model There is a low threat of new entrants because of the high cost of investment in the communication infrastructure. The high cost of investment makes the barriers to exit from the communications industry high. There is a medium-high threat of substitutes since there are companies offering the same type of communications services. This makes the bargaining power of buyers high considering that ntl:Telewest’s consumers could easily shift from one service provider to another without much added cost. The bargaining power of suppliers is low due to the increase in number of possible suppliers caused by globalization. ntl:Telewest could easily search for international suppliers that could offer the same quality products and services at a much lower price. (See Appendix IV – Porter’s Competitive Forces Model on page 11) Discussion The short term effect of the merger includes expecting bad debts to reduce at least 0.5% - 1.0% of the expected annual revenues. (Smith, 2005) The long-term effects could benefit its loyal customers. Through proper management, the company could deliver more efficient services. Economies of scale increase the company’s competitive advantages by reducing the installation cost. The integration of existing communication technology; market share and customer-base; expertise in selling; customer service, and technical support also strengthens the company’s competitiveness in the market. Team work is essential towards the success of ntl:Telewest. Good leadership skill among the managers is necessary when integrating the corporate goals and values. The most common cause of failures in merger is the managers’ inability in handling resistance to change. (Burke, 2002) Employees’ fear of losing control over the sudden changes and the possibility that employees see change as a threat to their current positions of authority could result to resistance to change. (Uris, 1964) In line with the problem related to excessive growth, managers from ntl and Telewest should have the perseverance on implementing major changes within the working environment. Conclusion Merger of both companies could result to economies of scale and increase its competency in UK’s communications industry. Combining the assets of ntl:Telewest increases the opportunity to borrow large sum of money from the banks. Deregulation law on communications industry resulted to a tight. In line with the rapidly changing technology, merger and acquisition is considered the easiest way to expand the company’s network and infrastructure. One of the major problems that could arise from mergers is the misalignment of organizational culture, values and goals. Failure to acknowledge these three important issues could cause the failure of newly merged companies. To enable merged companies to succeed, its top executives should develop good leadership skills; promote open communication among the employees as well as teamwork. *** End *** Appendix I – Ansoff Matrix – ntl:Telewest Business Existing Products New Products Existing Markets Promote ntl:Telewest existing product lines (Broadband & Internet Services; Converged Solutions; LAN Solutions; Site to Site Connectivity; Service Provider Solutions; Telephony Solutions; and Professional Services.) (ntl:Telewest Business, 2007b) Continue investing on research and development (R&D) for new communication technology related to television broadcasting services, Internet, fixed and mobile telephony services to be market with the current customers / markets. New Markets Expand the current market to sell the company’s existing product lines by targeting the ‘unserved’ geographical locations. Offer new products and services in a new market segment. Appendix II – SWOT Analysis: ntl:Telewest Business Strengths Weaknesses Opportunities Threats Stronger and Wider infrastructure (high-speed fibre optic, cable, etc.) Limited budget in expanding the market segment, research and development of new technology, and improvement of geographical limitations for broadband Developing new market segment by expanding ntl:Telewest services to areas that has remained unserved Existing competitors collaborating or entering into a merger to compete with ntl:Telewest services More than 10 years of experience and expertise in Sales and Marketing of Communication products and services. Internal conflicts arising due to different culture, practices, and beliefs Investment on research and development (R&D) for new technology and product innovation Government increasing taxes on its communication services A wider range of existing products and services offered to the public (Broadband & Internet Services; Converged Solutions; LAN Solutions; Site to Site Connectivity; Service Provider Solutions; Telephony Solutions; and Professional Services.) (ntl:Telewest Business, 2007b) Poor coordination and cooperation among the stakeholders Tapping the business overseas Some target regions may not positively respond to the rapid change of technology Appendix III – PEST Analysis: ntl:Telewest Business Political / Legal Economic Socio-Cultural Technological Based on 1984 Telecommunications Act, the British Telecoms monopoly was broken by deregulation in 1994. (Thatcher, 1999: 148 - 149) As of 2006, unemployment rate in UK is at 9.5%; inflation rate at 4.0%; and growth rate at 5.4%. (Papacostas & Pricopie, 2007: 20, 22, 23) Population in UK increased from 22.3 million in 1851 to 60.2 million in 2005. (Thomson & Barker, 2006) The forecasted population of UK by 2031 is 67.0 million. Internet users in UK significantly shifted from using dial-up to broadband. (BBC News, 2007) UK government follows an incentive-based pricing scheme or ‘the price-cap’ regulation (PCR) in regulating the local and international calls in order to promote efficiency in service. (Vogelsang & Mitchell, 1997) Since the third qtr of 2005 through the first qtr of 2007, real Gross Domestic Product slows down from 3.3% annual rate to 2.5% suggesting that economic growth will be at a slower pace. (Reuters, 2008) As of 2004 – 05, growth of income among the richest individuals increased by 1.5%; among the average earners increased by 1.0%; among the poorest fifth decreased by 0.4%. (Brewer et al., 2007) Telephone and mobile companies (BBC News, 2007) and television services in UK are also relying on the use of broadband networks. Implementation of OFTEL regulates telecommunications in UK to promote free competition and develop an intensive-based regulation. (Thatcher, 1999: 174) UK ranks the first among the top 10 countries in Western Europe using advanced-digital-content consumption via broadband, digital TV and mobile data. (Informa Telecoms & Media, 2006) Most broadband users in UK are relying on the use of BT broadband or DSL technology. (UK Broadband ISP Reviews, 2007) UK government strongly supports the local broadband suppliers by reducing 70% of the shared loop prices. (OFCOM, 2008) UK ranks the fifth-largest broadband users worldwide with 47.1% or 12 million broadband households as of 2006. (EMARKETER, 2007) There is a limited cable broadband in UK. (UK Broadband ISP Reviews, 2007) Appendix IV - Porter’s Competitive Forces Model: ntl:Telewest Business References: BBC News. (2005, December 5). [Online] Retrieved February 17, 2008, from Brown Halves UK Growth Forecast: http://news.bbc.co.uk/2/hi/uk_news/politics/4500054.stm BBC News. (2007, January 3). [Online] Retrieved February 18, 2008, from UK Broadband Number Keep Rising: This Week BT Looks Set to Connect the 10 Milionth Customers to its Broadband Network in the UK: http://news.bbc.co.uk/2/hi/technology/6228367.stm Brewer, M., Goodman, A., Muriel, A., & Sibieta, L. (2007). Poverty and Inequality in the UK: 2007. IFS Briefing Note No. 73: The Institute of Fiscal Studies. Burke, W. (2002). Organizational Change: Theory and Practice. Sage Publication. pp. 1 - 326. Business Wire. (2005). [Online] Retrieved February 17, 2008, from ntl and Telewest Combine to Create a Triple Play Leader: http://www.thedigitalswitchover.co.uk/NTl_takeover_Telewest.php Dobbs, J., Goldblatt, P., et al. (2006). Population Trends. National Statistics , Autumn. No. 125. EMARKETER. (2007, March 27). [Online] Retrieved February 17, 2008, from UK Stodgy? Not Online: By Many Measures, Britain has become Europes Leading Internet Economy: http://globaltechforum.eiu.com/index.asp?layout=rich_story&doc_id=10385&title=UK+stodgy?+Not+online+&categoryid=29&channelid=4 Eurostat. (2005, October). [Online] Retrieved February 17, 2008, from Euro-indicators News Release: Euro-zone Unemployment Stable at 8.3% (EU25 Stable at 8.5%): http://epp.eurostat.cec.eu.int/pls/portal/docs/PAGE/PGP_PRD_CAT_PREREL/PGE_CAT_PREREL_YEAR_2005/PGE_CAT_PREREL_YEAR_2005_MONTH_12/3-01122005-EN-AP.PDF Goldstein, S. (2005, October 3). Market Watch. [Online] Retrieved February 17, 2008, from NTL Agrees to Buy Telewest for $6B: http://www.marketwatch.com/News/Story/Story.aspx?guid=%7b63E4E328-3F76-453F-AED3-5AF0BF98EE93%7d Informa Telecoms & Media. (2006, May). [Online] Retrieved February 17, 2008, from Top 10 Countries in Western Europe Ranked by Digital Content Consumption, Q4 2005 (Based on Index): http://globaltechforum.eiu.com/index.asp?layout=rich_story&doc_id=10385&title=UK+stodgy?+Not+online+&categoryid=29&channelid=4 NetMBA. (2007). [Online] Retrieved February 17, 2008, from SWOT Analysis: http://www.netmba.com/strategy/swot/ ntl:Telewest Business. (2007a). [Online] Retrieved February 17, 2008, from Company History - ntl:Telewest Business Timeline: http://www.ntltelewestbusiness.co.uk/about_us/corporate_info/company_history.aspx ntl:Telewest Business. (2007b). [Online] Retrieved February 17, 2008, from Products & Solutions: The Right Solutions for Your Business Needs: http://www.ntltelewestbusiness.co.uk/products__solutions.aspx ntl:Telewest Business. (2007c). [Online] Retrieved February 17, 2008, from Why ntl:Telewest Business: http://www.ntltelewestbusiness.co.uk/default.aspx ntl:Telewest Business. (2007d). [Online] Retrieved February 17, 2008, from UK Office Workers Lack Digital Etiquette - Study Reveals: http://www.ntltelewestbusiness.co.uk/news__events/news/2006/uk_office_workers_lack_digital.aspx OFCOM. (2008). [Online] Retrieved February 17, 2008, from Broadband Regulation: http://www.ofcom.org.uk/consult/condocs/rwlam/bbr/ Papacostas, A., & Pricopie, V. (2007). Special Eurobarometer - Europeans Knowledge on Economical Indicators. European Commission. Reuters. (2008, January 9). [Online] Retrieved February 17, 2008, from The Conference Board(R) The U.K. Business Cycle Indicators(SM): http://www.reuters.com/article/pressRelease/idUS164916+09-Jan-2008+PRN20080109 Smith, N. (2005, December 7). ntl and Telewest Global USB Media Conference. [Online] Retrieved February 17, 2008, from http://media.corporate-ir.net/media_files/irol/13/135485/presentations/conf/UBS_Media_Conference.pdf Thatcher, M. (1999). The Politics of Telecommunications 148. Oxford University Press. Thomson, C., & Barker, J. (2006). Gaia Watch. [Online] Retrieved February 18, 2008, from Population Trends. Trends in Growth, Composition, and Migration: http://www.population-growth-migration.info/index.php?page=population.html#UK UK Broadband ISP Reviews. (2007, August 28). [Online] Retrieved February 17, 2008, from Cable Networks Need New Technologies: http://www.broadbandsuppliers.co.uk/uk-isp/cable-networks-need-new-technologies/ Uris, A. (1964). Techniques of Leadership. In Statpac An Overview of Organizational Leadership and Management. [Online] Retrieved February 18, 2008, from http://www.survey-software-solutions.com/walonick/leadership.htm Vogelsang, I., & Mitchell, B. M. (1997). Telecommunications Competition: The Last Ten Miles. The MIT Press and The AEI Press. Walko, J. (2005, October 7). EE Times. [Online] Retrieved February 17, 2008, from Investor Group Could Scupper NTL-Telewest Merger: http://www.eetimes.com/news/latest/showArticle.jhtml?articleID=171203947 Read More