- The Ferrari F1 Team sponsored by Vodafone.
Another response to market conditions of intense competition could be of a passive approach where there is an attempt to
“ ... maximise the achievement of objective(s) within given constraints”.
For Vodafone passive behaviour could include the acquisition of Airtouch and the merger with Mannesmann thus a significant increases in beta.
“This results in a beta for the Vodafone Group rising from 1.43 to 1.49 ... Cooper then estimates the Vodafone Group beta as rising to 2.32 (April 2001)”
The active strategy involves,
“ ... the attempt over time to modify and/or remove the constraints thus permitting a better achievement of the firms objectives.”
An example of this could be the launch of Vodafone Live services from Vodafone in Great Britain. This new service comprises of the promotion of picture messaging services, the provision of mobile internet games and location-based services. Thus the customer base is expanded to the young (games) and the role of technology in offering better services (picture messaging services) etc. Yet this is not the only example, Vodafone have also many other services and products including contract mobile telephone services, Pay as you Talk mobile telephone services, pagers, packet radio, GSM NTU Data, calling line identity, travel fax, email alerts, international roaming, multi media portal, business price plans, WAP etc. These services and products underline Vodafones’ aim of product differentiation within the market that has innovative technology and services breaking into the mainstream as soon as they are invented. An example of this could include the relatively new consumer affiliation with camera mobile phones. Vodafone was in fact one of the first of the main four mobile phone operators to introduce them into the market.
Vodafone Live! Vodafone internet games. Vodafone camera phones + picture messaging.
Formal regulation of the mobile sector also inhibits the ability of mobile phone operators such as Vodafone to offer competitive wholesale services and products of which they are obligated. Is formal regulation a counter measure from the government by placing a barrier against incumbent firms’ ability to place barriers of entry into the market? The response is a continuing occurrence of SIM locking by Vodafone (and the three other operators), the operators lock pre-paid handsets to the SIM which is sold with the handset. This in turn may act as a barrier to consumer switching and, in the future, could hinder consumers from using different operators for different services.
“Oftel believes that a number of co- regulatory initiatives should be pursued to help reinforce these trends.”
- (Oftel) 2001
The above is a response to the issue of SIM locking in a report by Oftel. This report on the mobile phone industry recognises the market conditions that have arisen, are due to regulations, which need to be addressed since the overall effect is a barrier created against the consumer as well as the operator.
In response to these conditions the four main mobile operators including, Vodafone, try to counter the conditions by also lowering prices to reverse the effect of low revenue, as is stated in the following: -
- Vodafone's prices declined but remain above average;
- BT Cellnet's prices moved towards the average but remain above the average;
- Orange's prices were at the average;
- One 2 One's prices moved towards the average but remain below average.
Are the above averages an example of the results of productive efficiency, where, all four firms are producing the maximum output for a given amount of input?
Due to the oligopolistic structure of the mobile sector the response to market conditions can include collusion, as the above findings by Oftel seem to show, is it no surprise that the four main operator’s prices are of a very similar nature? Is this a case of joint collusion to repel the effects of conditions set by regulations - not an incumbent of the oligopoly? A price war within an environment of given constraints will only cause problems and possibly ignorance of possible market entrants such as the emergence of Hutchinson 3G. A further example of collusion or a strategic alliance in 1999? : -
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Orange: three months without any incoming or outgoing calls;
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Vodafone: six months without any incoming or outgoing calls;
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O2: six months without any incoming or outgoing calls; and -
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T-Mobile: 12 months without any incoming or outgoing calls.
- (Business Source Elite) 2003.
Are the figures on the previous page another form of productive efficiency where incumbent firms of the oligopoly produce a given output at least cost?
The development of new services in the run up to 3G services and the launch of 3G accompanied by the entry of Hutchison 3G can greatly upset any equilibrium that has been established by the incumbents of the oligopoly. Therefore some network operators, like Vodafone, may recognise the role that service providers can play in the delivery of competitive services. I quote:
“Oftel suggested that the entry of Hutchison 3G could be expected to increase competitive pressure in the mobile sector but that it is not apparent that the prospect of Hutchison 3G’s entry is already acting on a constraint on the existing mobile operators.”
- (Oftel) 2001
Yet does this mean that the current operators cannot adopt a strategy early to cover any future constraints from a new entrant?
“A recent example is the announcement of an increase in the retail price for pre-pay handsets, which include connection and initial service, by One 2 One; this was almost immediately followed by announcements of similar increases from 02, Orange and Vodafone ”
-Oftel 2001
This is an example of the actions that can be taken in anticipation of a new entrant into the market that is also introducing a brand new service. Other action that in the past has be taken by Vodafone and other operators includes MMS interconnect with another operator, as was done by the big four in the UK in 2203. Also in 2003 an agreement was reached between T-Mobile and 02 to extend co-operation on rollout of 3G mobile networks in Germany.
The following also emphasizes Vodafones’ active behaviour in differentiation and response to conditions such as competition, new entrants, new services, the lack of scope for barriers of expansion etc.
“Reports on plans outlined by Microsoft Corp. and Vodafone Group PLC to develop a mobile Web services specification for application development. Potential of the project to upset activity within the Open Mobile Alliance ...Partners' claim that their efforts will expand opportunities for developers to promote solutions that work seamlessly across personal computer and mobile environments.”
- (Business Source Elite) 2003.
Vodafone seems to have taken on board the role that computers and the internet have in everyday life, and who better to work with in improving and delivering a new service than the world leader in computers - Microsoft? Although, the response is muted: -
“Analysts have poured cold water on the marketing and technology joint venture between Microsoft Corp. and Vodafone .... it will have little initial impact on the growth of next-generation mobile services. (P.T.O.)
The two companies are planning to develop a range of services and devices to boost the growth of Internet via mobile services and kick-start mobile commerce ..... analysts argued developments will only be of interest to consumers who are traditionally early-adopters of technology and not consumers who have never shopped online before.”
- (Business Source Elite) 2003.
This correlation between Vodafone and Microsoft underlines the complexity of firms and in the way they operate, but as they expand, it should be noted that costs can be expected to rise.
BIBLIOGRAPHY
Business Source Elite (2003)
Oftel (2001)
The Guardian Newspaper (2002)
Class Handouts.
Class Notes.
Pictures are from the website of Vodafone U.K.
