Case Study on "on Australian Telecommunications"

Case Study 10 pages (3029 words) Sources: 10 Style: Harvard

[EXCERPT] . . . .

Australian Telecommunications

The merger of Vodafone and Hutchison Whampoa's Australian operations has created VHA, a firm with 27% share in the Australian mobile market, good for #3 out of 3 players. The company needs to determine how to best leverage its competencies in order to take advantage of opportunities in the market place.

Consumers tend to be price sensitive, although there is a segment of the market that values high-end technological capability. Most firms in the industry try to serve both markets simultaneously in order to build out market share. The market is saturated, so competition among the three firms is intense. The market is also heavily regulated, so important issues such as pricing and bandwidth access are either determined or heavily influenced by regulators.

VHA has several strengths that it can leverage. It has two strong brands, both of which come with a wealth of international mobile experience. The company also has the most bandwidth of any telco, which means that its competitors are more constrained with respect to their growth. Major threats include regulatory and technological changes as well as the intense competition. Opportunities include improved market segmentation and the buildout of 3G.

VHA has no clear strategy, as it attempts to be all things to all people. However, with two brands it has the ability to specialize. One brand can be high end, offering premium service at premium prices while the other can focus on a cost leadership strategy. If these firms succeed at achieving their missions, they will build competitive advantage over both Telstra and Optus.

Introduction

The Australian telecommunications industry was deregulated in 1997 to allow for private competition. The underlying objective on the part of the Australian government was to allow for the development of unique telecommunications markets and to have telecommunications services offered to Australians at a low, market-based prices (Morgan, 2007). Among these competitors is UK-based Vodafone, which operates in nearly three dozen countries worldwide. In 2009, Vodafone merged its Australian operations on a 50-50 basis with those of Hong Kong-based conglomerate Hutchison Whampoa.

This report will examine the state of the Australian telecommunications industry, with a particular emphasis on wireless, where Vodafone operates. The objectives of this report are to determine the drivers of the Australian wireless industry. These drivers and other external influencers will be described so that the reader can understand the basic industry operating environment. The report will then outline the situation as specific to Vodafone Australia. The firm is one of the largest players in the market with a 27% market share (Bingemann, 2009 a), and has two of the country's major brands, Vodafone and 3.

The report will first provide an overall environmental analysis of the industry. This will include both a general analysis and a task analysis. Following this, Vodafone Hutchison Australia (VHA) will be examined. The company's background will be given overview and then an analysis of the organization's strengths, weaknesses, opportunities and threats will be presented. Lastly, VHA's strategy will be analyzed and recommendations will be made with regard to VHA's future strategic direction.

Environmental Analysis

The environmental analysis sheds light on the particular characteristics of the industry environment. Any industry is subject to a variety of external influencers, including government, the economy, shifts in technology and other key variables. What the environmental analysis is provide an overview of each of these key external variables. The question that ultimately must be answered in the course of an environmental analysis is whether or not the industry is a favorable one in which to operate. During the environmental analysis, the specific firm being analyzed is only given minimal consideration, to the extent that its characteristics diverge from those of the broader industry. There are two components to the external analysis -- the general analysis and the task analysis. The former refers to general characteristics and broad-based analysis. The task analysis is focused more acutely on the external factors that impact the specific tasks of the industry, such as procurement and sales.

There are several elements in the general environment that have a significant impact on the Australian wireless industry. These include competition, the role of government, consumer behavior and the pace of technological change. While there are other external influencers, these are the three general influencers that play the most significant role.

The Australian cellular market reached 100% saturation in 2008, joining several European markets in maturity. There were 21.26 million subscribers that year (Associated Press, 2008). At the time, growth was predicted to come mainly from an increase in 3G subscribers, which was expected to increase from 5% to 33% by 2009. 2G was expected to remain strong because the prices were capped. Another significant trend in the industry was that non-voice revenues were expected to increase as a percentage of total revenues from 18% to 29% (Beer, 2005).

The combined Vodafone/3 company has 6 million customers and revenues of A$ billion. The firm operates two brands, Vodafone and 3, and has to this point maintained both brands as distinct entities (Press release, Vodafone Australia, 2009). The company is now the third largest telco in Australia. The market leader remains Telstra (40% share), with Optus being the second-largest firm (33%). After the deal, there are now only three companies remaining in the mobile market (Oakes, 2009). An industry with just three firms can sometimes take on oligopolistic tendencies, but it may also result in highly intense competition as well. Firms are forced to compete based on both price and service differentiation.

The telecommunications in industry in Australia, including the mobile market, is heavily regulated. The ACCC is responsible for regulating the industry. The most important elements of this regulation include managing competition, setting prices and auctioning bandwidth. Since 1999, the ACCC has actively set policies to encourage competition. This has occurred, according to some industry observers, to the detriment of the industry and all other possible options (Morgan, 2007). Battles have included broadband access and the development of new networks for the country (Sutton, 2007). While there are some minor benefits with regards to service diversification, for the most part there have been few tangible benefits. Prices are capped by the ACCC, which dictates the prices for Telstra, and the other telcos simply use these prices as the baseline, an oligopolistic practice (Morgan, 2007).

Another issue is the management of bandwidth. Bandwidth is a fixed resource and firms in the industry depend upon it increasingly as more users send images and video via broadband, dramatically increasing traffic loads. At present, VHA has a wealthy of bandwidth, a sizeable portion of which it is not currently using. While the ACCC is not presently concerned about this situation, it may become so in the future. For now, however, that bandwidth represents a source of competitive advantage for VHA (Oakes, 2009).

Consumer behavior is also a key driver in the industry. Consumers of mobile tend to prefer price over speed, since they are happy with speed levels. They are increasing the amount of text and non-verbal messages send through their devices. They are in particular driving strong increased demand for bandwidth through the sending of images and videos. Consumers are apt to switch plans and providers, to the extent that doing so will not cost excessive amounts of money.

The last driver in the industry is technological change. The pace of change is rapid in the industry. From a hardware, back-end perspective, the major technological trend is the move towards 3G networks. 3G represents a technological upgrade from previous technologies, and can match the increased functionality demanded by users. At the front end, there is a trend towards ever more sophisticated devices and increasing use of mobile. Devices have more features and functions than ever before. Mobile access providers must not only deliver the bandwidth needed for these functions, but because they partner with device makers must also ensure that their device stable delivers the functionality consumers demand.

The task environment is focused on the specific tasks that companies in the industry must focus on. These include marketing, customer service and maintenance. Marketing decisions reflect price, product, placement and promotion. Pricing in the industry is done on the basis of service plans. Consumers are offered a choice of service levels matched to a range of prices. Plans are typically sold at own-branded vendors. These vendors sell a range of devices and offer the plans to go along with them. While devices are marketed from a number of different companies, the stores typically sell only the service of one. In the wake of the merger, VHA spend $80 million buying back licensees so that it could own all of its stores (Bingemann, 2009 a). Promotion is done through conventional means, through a variety of media. Both advertising and promotion are used. Intensity of competition is high, so promotion is critical to winning market share and promotion expenses in the industry are high.

Customer service is an important component of the service offering. The service function is handled either… READ MORE

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