Telefonica:
This is another leading company in the provision of telecommunication services in the UK market. The company part of telefonica group Europe which runs its operations in Germany, Ireland, Czech Republic and Slovakia among other countries. The company currently uses O2 as the business brand. The company main advantage lies in its ability market differentiation strategy and as such the company has become a specialist in non voice services within the UK market. Some of the products include media messaging, text, music, video and internet connections through GPRS, HSDPA, WLAN and 3G platforms. The company has also diversified its operations through strategic partnerships which help in reducing its costs of operations. The current partnerships include Tesco mobile in UK and Tchibo Mobifluke in Germany. The company also boosts of a superior human resource policy which has made it ranked 6th best company to work for in 2008 survey done for best companies to work for. It has also been awarded a three star award as and extraordinary company (O2.co.uk).In 2007 the company had 40 million fixed and mobile customers with 29,000 employees.
BT group plc:
BT group is another global company in the telecommunication industry. The company operates under the following segments: BT global services, BT retail, BT retail and Open reach among others. The company has an advantage in its segmentation strategy with each segment handling a distinct line of business and this reduces its exposure to one area of business. The company has also differentiated its customers with focus on corporate and public sector organizations where it offers managed network IT services.BT retail provides voice and broadband services specifically to retail consumers. Other services offered by the company include CCTV, fire alarm signaling and surveillance network and control room services.BT group is the largest telecommunication company in UK with a market share of 34% in consumer and business broadband connections and this has made the brand easily recognizable and hence the company has been able to enter more than 170 countries. The company has particularly developed a niche in large corporate and public organizations and is able to receive large contracts. The company therefore boosts of a strong market positioning and large capitalization hence it’s able to advance its growth and development strategies.
Prior research (PESTEL Analysis):
This analysis is done to analyze the suitability of Macroeconomic factors for Telecom Industry. The main objective is to analyze the suitability of New Investments in this sector:-
Political factors entail the impact of government interventions on the industry and this could be in terms of the policies set in place to influence the operations of the companies. One of the key interventions may include tariffs relating to importation of raw materials for production and corporate taxes on the services and products offered by the companies. Other factors include regulations relating to safety of the products as well as restrictions on the type and standard of services that companies can offer (Justin, 2010 p.65).
The UK telecommunication industry has remained largely unregulated since the government decision to privatize BT in 1984.The need for regulation of the telecommunication industry has been necessitated by the rapid changes in technology and complex markets. The main developments in the telecommunication industry have included the increased use of mobile phones, broadband and internet. Some of the main government interventions in the telecommunication industry are contained in the telecommunication act 2003 which set a framework on how the players in the telecommunication industry should conduct their business. The act also sought to harmonize the telecommunication regulations in the Euro zone. To further help in the implementation of the act the government also set up the office of communication. Among other regulatory issues was the abolishment of need for a license and introduction of a self certification scheme. These factors have really encourages many operators in the industry as entry has been made easy. Other regulations relates to number portability, interconnection standards, deployment of telephone numbers, access to emergency services and marketing and sales standards for all companies. The government reviews the regulations and this could enhance the businesses or disadvantage them in one way or another. Companies therefore monitor closely the government policies as they directly affect their operations (bcs.org).
Economic factors include inflation, interest rates and general economic growth within the country. Inflation affects the purchasing power of households and hence the higher the rate of inflation the lower the consumption of the services offered by the companies in the telecommunication industry. Interest rates affect the company’s ability to raise more funds for its operations and other expansion programs. Higher interest rates discourage borrowing by both consumers and the companies and this reduces their scope of consumption and production and provision of services to the customers respectively (Myers,2005 p.56).. The general economic conditions in the country affect the households and the companies operations. A growing economy will encourage companies to expand their operations and scope of their services but a shrinking economy discourages consumption by households and limits the chances of growth of companies. One of the key economic factors facing the UK market is the effects of the Euro zone crisis which has affected many countries in Europe and being that most of the country economies are intenerated, they all suffer from the problems of one economy. Most of the telecommunication companies in UK have operations in other parts of Europe which compounds the effects of the Euro zone (Myers, 2005 p.56).
Telecommunication companies mainly derive their revenues from customers who utilize their services and products and the world has seen a lot of transformation socially that has affected their consumption patterns. It’s therefore important that telecommunication companies consider the impact of social changes in their businesses.Techonological advancements have led to a lot of innovations in communications and hence the companies have to keep the pace with the changing consumer trends in the market. For instance the mobile phones have come with enhanced features that make communication and interaction between people easier. The bottom line to companies in the industry is to keep pace with developments in communication technology. Other areas that businesses need to look at are the safety of the current mobile phone gargets and their life span (Wit & Meyer,2010 p.843).
As mentioned in the last paragraph technology has driven the telecommunication industry over the last two decades and companies in the industry have to keep monitoring the technological changes and come up with innovative products and services that reflect the current technological trends (nap.edu). The emergence of new phone devices and other communication devices has led to the growth of the industry and hence companies have been using the new technological advancements to create a competitive advantage in their products and services. Some of the key factors that affect telecommunication companies are advancement in broadband communications (Agbinya, 2008 p.154).
- Beneficial environment in the developing countries.
- Flooded market in the developed countries.
- positive merger and acquisition (M&A) Policy
- constructive Taxation policy
This legislation is necessary for smooth, efficient effective operation of Telecom business. (Tax Report-PWC, 2012)
The analysis clearly shows that the Telecom sector market is saturated in UK whereas there are enough opportunities to expand in developing countries by using technology and more innovative products. Therefore, we saw lot of inorganic expansion of major UK players in the developing nation especially India, china etc. (Berkowitz et al., 2000)
BT Group plc. SWOT analysis
Strength
The company’s wide products and services range mitigates the risk associated with depending on select products/services for a major share of the revenue. BT Group plc provides products and services-ranging from traditional communications services to broadband and Internet products and services. Apart from its traditional services, the company has a portfolio of services. BT also offers entertainment services, besides; the company offers security services, IT support and digital storage facilities. The company offers BT Global Inbound Services (GIS), a managed voice solution designed to help businesses and contact centers to improve efficiency as well as customer service. It’s Managed Virtual Firewall Service (MVFS), a convenient and cost effective cloud-based security solution, which allows companies to fully protect their internet access without having to invest in their own hardware or software. It also offers pre-paid and rechargeable BT Dream Casa phone card in Italian market, to call at low cost all the Italian fixed lines and mobiles and over 220 countries, from any fixed line or mobile phone, keeping telephone expenses under control.
BT Group plc has a diverse customer base, which ensures strong top line performance. The company’s customer groups are classified under four major segments, namely, corporate (global corporations, multi-site organizations in the UK and overseas), business (small and medium enterprises), consumer customers in the UK, and wholesale. The group serves more than 15 million customers, in over 170 countries, ranging from individual consumers, including single line users, to government departments and the world’s biggest multinational companies.
BT has robust research and development (R&D) capabilities. The R&D activities of the company are focused on improving the performance of products and developing new technologies. Its R&D capabilities enable the company to overcome technical barriers encountered in the commercialization of sophisticated communications solutions and services. The R&D team of the company has undertaken several projects to enhance and develop various products and technologies. The company’s employees hold engineering degrees, and its engineers actively participate in professional and industry technical conferences and working groups. As of March 31, 2013, the company has exclusive licenses to more than 4,400 patents and applications. In September 2012, the company in relationship with the School of Economics and Management at Tsinghua University (Tsinghua SEM) established a new research lab to be co-located at Tsinghua SEM in Beijing. The strong R&D capabilities of the company enable it to implement innovative technology and deliver advance products, and services that meet its customers' critical needs. Enable it to implement innovative technology and deliver advance products, and services that meet its customers' critical needs.
Weaknesses
Substantial debt burden could have a major impact on the operational performance of the company, as a major portion of the company's earnings would be diverted to servicing its debt obligations. This could be of concern to the investors and make it difficult for the company to raise funds on favorable terms from the market. Additionally, BT reported negative working capital in 2013. The company recorded a working capital deficit. The company incurred this debt to meet its working capital and capital expenditure needs. If it fails to comply with any of the debt service requirements, the debt could become due and payable prior to its scheduled maturity. The company needs to dedicate a significant portion of its cash flow from operations to service interest and principal payments. Any reduction in revenues and operating cash flows could hinder the company’s ability to repay interest and principal, resulting in default. Furthermore, it also limits company’s ability to raise additional funds to fund future working capital, capital expenditures, and other operational needs. Hence, such huge debt increases the financial burden on the company, limiting the availability of cash for its growth.
Opportunities
The company implemented certain strategic initiatives that are aimed at enhancing its business operations and existing product line. This could help the company maintain its competitive position in the industry. In July 2013, the company decided to split its BT Retail into two separate businesses: BT Consumer and BT Business. BT Enterprises and BT Ireland will merge with BT Business to form the new BT Business division and BT Wi-fi and the consumer part of BT Ireland will transfer to BT Consumer. This initiative would help the company to better serve its customers and focus more on delivering its strategic priorities such as driving broadband-based consumer services and being the brand for business for UK SME’s. It also decided to establish a new business specially licensed to sell products and services under the BT brand to help more than 15,000 small and medium firms in Warrington and Cheshire. In April 2013, the company opened of a new Global Development Centre (GDC) in Bangalore, India. The centre is designed to further enhance the company’s ability to design and deliver world class service to its customers and support its expansion in high growth regions. In February 2013, BT decided to acquire ESPN’s UK and Ireland TV channels business. This deal will enable BT Sport to provide live coverage of the FA Cup for the 2013/14 season, the Clydesdale Bank Scottish Premier League until the end of the 2016/17 season and the UEFA Europa League and German Bundesliga through to the end of the 2014/15 season. In January 2013, BT acquired Tikit Group plc, one of the largest independent suppliers of technology solutions and services to legal and accounting firms, as part of its strategy to expand its specialist IT services capabilities.
Telefonica UK Ltd. SWOT analysis
Strengths
Leading position in the market enables Telefonica O2 UK to serve a large number of diverse customers. It is one of the leading communications services providers in the UK.. The company provides comprehensive communication services to more than 23 million customers and operates more than 450 retail stores in the UK. In addition, the company is recognized as the UK's best mobile network by the readers of both What Mobile and Mobile Choice magazines in 2010. It was ranked first in customer satisfaction for both UK mobile and fixed broadband customers by J.D. Power and Associates UK Mobile and Fixed Broadband Studies 2010. Thus, increasing market share over its prime competitors such as Hutchison, Vodafone and T-Mobile strengthens the company’s market position.
The company’s focus on introducing innovative and technologically advanced products helps it to cater wide base of customers. In February 2013, the company launched O2 Tracks for bringing the Official UK Top 40 Singles Chart direct to the phone. In August 2012, the company launched value Pay & Go Pocket Hotspot to create 'Wifi in your pocket'.It launched a new International Calling Card with competitive rates from just 1p per minute, combined with a high quality call experience and no hidden charges such as connection charges, disconnection charges, maintenance fees or premium rate access numbers.Similarly, for the first time in UK, Telefonica O2 UK launched an opt-in service, which matched customer preferences with information that it had on them, including their phone usage and location, facilitating the delivery of highly personalised campaigns for advertisers.
Weaknesses
Involvement in legal proceedings could impact the company's ability to introduce new products and sustain revenue generation. The company’s financial position could be affected if any unfavorable outcome to any pending or future litigation comes up.The company's involvement in various litigations not only affects its reputation, but also results in payouts, if found guilty. Claims pending against the company divert its funds in defending them and the management’s attention from core business issues. Failure of the company to defend itself from the claims could lead to the imposition of substantial penalties.
Opportunities
The company, being a provider of communications solutions and services, could augment its operational revenue with rapid growth in the global telecommunications services market. According to Telecommunications Industry Association (TIA), steady growth is projected in the US and global telecommunications market in the future. The growth could generate an estimated $4.9 trillion in revenue by the end of 2013.
The company could benefit from the rising demand for mobile broadband services. The market for broadband reported a shift in subscriber preference from dial-up connections to broadband, which helped the broadband market to report strong growth in subscribers in the past four years of operations. In addition, the company designed special broadband services for 4.9 million small- and medium-sized businesses in the UK and launched them in May 2011. Its broadband services help businesses improve and transform into a mature market. It launched new advanced broadband services, which is easy to switch thanks to a simple set up, backed by technical support. Its new broadband product caters to home workers, professionals, sole traders, small offices and branches with more reliable and cost competitive broadband. The rapidly growing subscriber base led to growth in revenue for the mobile industry.
The company has been taking diverse strategic initiatives, which can create significant growth opportunities for the company and could enhance its offerings to penetrate the market further. In February 2013, the company launched its new initiative Wayra UnLtd which is a government backed social enterprise incubator, to bring together Wayra UK and social enterprise network UnLtd. This initiative plans to support both social enterprise businesses and start-ups with a commercial business model. The company also signed a multi-million pound contract with G4S Utility Services (G4S), the world's leading international security solutions group and one of the UK’s major smart meter operations service providers, to simplify the remote management and monitoring of the company’s national smart meter network. The company signed an executive mobile network partnership agreement with Samsung. Telefonica O2 UK and eBay signed First Global App deal where eBay works with Telefonica O2 UK to make its mobile shopping experience available on most smart phones and feature phones sold by the company via its O2 brand in the UK.
Threats
The regulatory framework within the company’s operating areas may limit its flexibility to respond to market conditions. The company’s telecommunication services business operations are subjected to extensive regulation from the telecommunication industry. Telefonica O2 UK carries its operations under the supervision of the UK Office of Communications (Ofcom) and the UK Office of Fair Trading has jurisdiction with respect to competition matters related with electronic communications. The company carries out its businesses with approvals and licenses granted by the government. If these approvals or licenses are revoked or suspended or are not renewed, or if the company is unable to obtain any additional licenses, then its expansion plans may be hindered.
Vodafone Group plc SWOT analysis
Strengths
The company’s strong operational network could help it cater to its broad customer base present across the world. The company is one among the largest mobile operators. It is also one among the largest retailers in the world with over 14,000 retail stores. As of January 2013, the company had over 243,000 base stations. Moreover, the company operates 19 subsidiaries in Albania, Czech Republic, Germany, Greece, Hungary, Ireland, Malta, Netherlands, Portugal, Romania, Spain, Turkey, UK, Egypt, Ghana, India, New Zealand, Qatar, and Vodacom Group. It has three joint ventures in Australia, Italy and Fiji, as well as two associates namely, Verizon Wireless and Safaricom. Moreover, it has partnerships with local mobile operators in more than 40 countries beyond its equity investments, which enable Vodafone to market its products and services in its partners’ territories.
Weaknesses
The company witnessed substantial challenges in revenue growth due to tough macroeconomic and regulatory environment in much of Europe. Total revenue from Northern and Central Europe segment declined marginally by 0.2% in fiscal year 2013 over to that in 2012. The group recorded 11.6% of declined organic service revenue from Southern Europe segment, mainly due to macroeconomic factors, pricing pressures due to intensified competition and steep cuts to MTRs in Italy and Greece. The group’s growth in the Northern and Central Europe market was offset by weak performance in most other markets. The group’s service revenue in Germany decreased by 4.4% due to increased competition and macroeconomic pressure in other markets. In UK, the service revenue declined by 4% due to MTR cuts, pricing pressures due to intense competition and macroeconomic factors, which led to lowered out-of-bundle usage. In Italy service revenue declined by 12.8% due to weak economic conditions, intense competition and the impact of an MTR cut. In Spain, service revenue declined by 11.5%, mainly due to competition, economic weakness and high unemployment in the country. In Other Southern Europe services revenue declined by 8.2%, mainly due to lowered performance in Greece and Portugal. The company anticipates the environment in Europe to remain challenging in the near future due to weak consumer demand, stringent regulatory environment, and competitive pressures in the market. With this challenging scenario the group could face difficulties in generating revenues from the European business in near future.
Opportunities
The company as a major telecommunication services provider could capitalize on the emerging opportunities due to rise in the smart phone penetration. The rise in the number of smart phone in the market offers opportunities for the company to enhance its data services revenues. According to industry analysts, the global market for smartphones is predicted to reach more than 900 million units (recording approximately 35% growth) in 2013, and surpass 1 billion by 2014. The global smartphone market is dominated by Android, with 61% market share and iOS with 20.5% of the global smartphone market in 2012. Such growth would be determined by factors including lower product cost, improved handset design and functionalities, the expansion of global mobile email and browsing services, emergence of 3G and 4G network technologies, and standardization and upgrade of operating systems. Consumer awareness about the advantages offered by these devices, especially email and e-transactions, among others, would lead to growth in smartphone business even during tough economic times. Smartphones could generate considerable demand from developing countries, especially Asia-Pacific, besides North America. Emerging countries including China, India and Brazil are expected to register substantial increase in smartphone usage besides the US and the UK.
Threats
The global economic downturn and the uneven recovery are likely to pose challenges to the group in the next few years. The global recovery is facing challenges related to tough economic environment in the Euro area and weak business environment elsewhere. According to World Economic Outlook (WEO) April 2012 report by IMF, the world output is expected to decline from 3.9% in 2011, to 3.5% in 2012. The output of advanced economies is projected to decline from 1.6% in 2011 to 1.4% in 2012, and the output of emerging and developing economies is expected to decline from 6.2% in 2011 to 5.7% in 2012. Growth in advanced economies is expected to be lower, mainly due to adverse spillovers from the Euro region. The principal reason for the declining trend is the weak economic situations in the Euro region, which is expected to record a mild recession in 2012, due to the increment in sovereign yields, fiscal consolidation, and the effects of deleveraging by banks. The growth in emerging economies is also expected to slow down, due to the declining external environment and weak internal demand. The World Bank also lowered its world economic growth to 2.5% in 2012 and 3.1% in 2013, well below the 3.6 % growth for each year projected in June 2011. According to the World Bank estimates, high income economies across the world are expected to expand nearly 1.4% in 2012 as the euro area shrinks 0.3%, as it recorded sharp downward revisions from growth forecasts last June of 2.7% and 1.8%, respectively. It also lowered the growth forecast for developing economies to 5.4% for 2012 from its previous forecast of 6.2%, as the expansion in Brazil and India, Russia, South Africa and Turkey became slow. According to experts, the global economy is expected to record sluggish growth in 2013, with output growth dragged down by a weak performance anticipated in the Euro zone. Such sluggish growth could result in the inability of some of the comp
Ratios:
Competitive Analysis Template
On the basis of above competitive framework British telecom is the best company amongst three which is having the resources to take use of opportunities and can nullify threat also.
References:
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