Term Paper on "Strategic Marketing Analysis for Hutchison Whampoa"

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[EXCERPT] . . . .

Strategic Marketing Analysis for Hutchison Whampoa

The Importance of New Product Development in Mobile Phone Market.

Over a decade ago, Hutchinson Whampoa articulated a clear mission statement: To take the mobile phone into the world of Internet browsing, online shopping and banking, TV and video phones" (Mckechnie, 1998 p. 27). Today, this mission has been achieved in large part due to the company's early recognition of the marketability of its 3G products and services. The company's Web site proudly notes that, "While other operators were rolling their third-generation mobile services in late 2004, 3 had been successfully operating 3G networks and equipment in Australia, Austria, Denmark, Hong Kong, Ireland, Israel, Italy, Sweden and the United Kingdom since early 2003" (Overview, 2007 p. 3).

This early success attracted a great deal of attention from the popular press as well. For example, in his essay, "What Is 3G Good for?," Sheridan (2003) noted that, "When 3G services were launched in the UK back in March 2003, many believed that the company behind the lurid '3' adverts, Hutchison Whampoa, would be faced with the same public reaction that greeted the launch of WAP services three years earlier: apathy. However, after a reduction in prices and an expensive marketing campaign, Hutchison is beginning to increase its subscribers" (p. xxviii). As of the date of Sheridan's report, an estimated 150,000 customer in the UK had made the switch to Hutchinson Whampoa's 3G service, a paltry number compared to the company's subscribers today but a clear indication of where the market was headed. The addition of such a wide range of powerful features to the 3G model compared to the previous 2G model means that mobile phone customers are going be quickly become jaded to these state-of-the-art features, and innovations such as iPhone have raised the bar even higher for companies competing in the 3G industry today. In fact, this product is already being heavily promoted in the UK (see sample advertising at (http://blog.3g.co.uk/2007/11/uk-iPhone-ad-now-running.html).Although Sheridan predicted that it was hard to determine which direction the telecom industry would head in the future, it has become increasingly clear that 3G has assumed the leading role in this market today, but the competition is fierce and consumer loyalty unpredictable.

One of the current trends in the wireless communication arena that can help fuel the introduction of new product development in the mobile phone market is forging strategic alliances with similarly situated enterprises (Culpan, 2002). In fact, it was this approach that Hutchinson Whampoa used to jointly acquire its existing licenses to operate in the UK. According to Cuplan (2002), a three-way alliance was established between KPN (Dutch), NTT DoCoMo (Japan), and Hutchison Whampoa (Hong Kong) to jointly bid for new wireless licenses in Europe. KNP's KNP Mobile NV unit and DoCoMo will together acquire a 35% stake in Hutchison Whampoa's British wireless unit to provide mobile 3G services. This author adds that, "Under the terms of the deal, DoCoMo will acquire 20% of Hutchison's United Kingdom unit for $1.7 billion (1.2 pounds), while KNP Mobile will get 15% for $1.2 billion (900 million pounds). Hutchison and Canadian partner Telesystem International Wireless paid $6.3 billion (4.4 pounds) for a U.K. license" (Culpan, 2002 p. 196).

Based on the foregoing, it is clear that the telecommunications market is enormously competitive and highly dynamic, and the importance of new product development to provide new features at lower cost in this environment cannot be overemphasized. According to a recent report from the Birmingham Post ("Talk of Customer Savings as Ofcom Cuts Mobile Call Rates") (2007), for example, telecommunications regulator Ofcom reported reductions in the rates to mobile operators in the UK that can charge other phone companies to connect calls to their networks, and indicated that its new price structure would benefit customers by providing lower telephone bills. According to this report, "The regulator said it expected the move to reduce wholesale charges by pounds 400 million to pounds 500 million on average annually over four years. The cuts take effect in stages from April 1 and run until 2011. Mobile operator 3 UK, a 3G network operator owned by Hong Kong conglomerate Hutchison Whampoa, will be the hardest hit by the new termination rates, with prices it can charge set to fall by 45 per cent to 5.9 pence a minute" (Talk of Customer Savings, 2007 p. 24).

This cost-cutting initiative was the first of its kind by Ofcom, a company that has brought 3G networks under the auspices of its termination charge controls; in fact, the regulator had previously excluded 3G networks from such controls to provide time for the emerging technology to gain a significant segment of the market share in the UK (Talk of Customer Savings, 2007). Today, that market share has been gained, of course, but at the time the proposed changes by Ofcom were met with some negative responses from the European Union and fixed-line operators such as BT Group and Cable & Wireless in 2006 (Talk of Customer Savings, 2007). These organizations indicated that the UK regulator's new rates risked costing landline operators an excessive amount and could hamper the move to providing UK customers with less expensive mobile telephone service (Talk of Customer Savings, 2007). In response, Ofcom maintained that it had taken these issues into consideration in formulating the new charges, the thrust of which would reduce fixed-line bills by approximately 8 pounds on average per year (Talk of Customer Savings, 2007 p. 24).

Therefore, new product development in the mobile phone industry requires a combination of innovation and cost savings for customers. Moreover, mobile phone customers have come to expect "the next killer application" for their existing mobile phone without having to invest in yet another permutation of interim technology. For this purpose, many customers are looking to Hutchinson Whampoa to take the lead. As Wai-Chan, Chu, Gold and Leibowitz (2001) point out, "Hutchison Whampoa: Big brand, big expectations" (p. 43).

2. How the Maturity Stage for '3' Can be Extended through the Introduction of Timely New Innovations.

One of the more challenging aspects of competing in the telecom industry is the dearth of timely research concerning how past initiatives have played out in real world settings because things are just moving too fast for scholarly studies to maintain pace in the peer-reviewed literature. Indeed, existing maturity models for other industries are generally inappropriate or inapplicable to the telecom industry because Moore's law continues to hold true and it is reasonable to assume that Hutchinson Whampoa is already busy at work on its 4G platform. Nevertheless, based on the enormous resources already devoted to license acquisition and infrastructure development for the 3G model, it is vitally important for Hutchison Whampoa to extend the maturity stage for its UK-based "3" as long as possible.

Furthermore, the capacity for the introduction of new innovative features is already in place. According to Gillingham (2003), "Scale of operations is what really counted in both wireless and wireline networks. Huge overcapacities were created as a result. Europe's backbone upstarts collectively built 100 times more capacity than the market could absorb. Only 10% of the fiber-optic cable laid in Europe has ever been activated" (p. 459). According to Sheridan (2003), the introduction of 3G created a dual-edged sword for telecommunications companies such as Hutchinson Whampoa: "This poses something of a problem to operators: how do you get people to buy more phones? They are hoping that 3G might just be the answer to their prayers -- if every existing mobile user were to upgrade to 3G, the profits would be enormous. But what will it be about 3G that makes everyone want it over their existing device -- what will be the so-called killer application of the new technology?" (p. xxviii).

Today, the "killer application" in question, of course, is 3G and because the industry remains in such a state of evolution, it is simply a matter of time before the next generation of even more sophisticated mobile telephones reaches the marketplace. In this regard, Sheridan reports that, "The recent stream of updated models that are technically similar but aesthetically different is also part of a strategy to separate us from the mobiles that we might have owned for only six months. But the question remains: is 3G take-up likely to supersede the phones we already have. Will we really want this new technology? The short answer is probably" (p. xxviii). "Probably," of course, has become "most definitely" and but as this author emphasizes, "Not long from now, we are likely to see hybrid phones able to use all the different frequencies. And then there will be 4G, promising yet more bandwidth and a higher level of quality than 3G" (Sheridan, 2003 p. xxviii).

Unfortunately, when existing mobile phone customers learn that there will be a superior alternative to the existing 3G models, many may elect to adopt the same "wait-and-see" attitude, which may be beneficial for future sales but will adversely affect the existing market. Therefore, the… READ MORE

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