Strategic Management Assignment

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In comparison, the television and broadband industries are more attractive. However, substitutions are rising. Increasing use of streaming based services could reduce the number of Television based subscriptions, making the television industry less attractive unless additional services are added or the industry innovates to incorporate streaming and make it a complementary product. As the industry is experiencing change, high entry barriers could be added to stop other competitors. Increasing usage of Broadband in the UK could make Dongle internet services less popular. But Dongle internet services could become an important niche product by serving the needs of consumers that travel frequently and thus need portable internet services.

Section 2.3 - Threat of new entrants:

An attractive industry has high barriers to entry to stop new entrants from competing with the incumbents. The communication industry has high barriers in terms of costs, brand loyalty and regulation. Nevertheless, each industry faces new entrant’s threat due to innovation and the bundling of services, which is forcing companies to enter new markets in order to compete.

Legislation has made it cheap and easy for new entrants to enter the telephone industry. LLU has meant operators can enter this market without high maintain costs. Thus, the threat of new entrants is high making the industry unattractive.

In contrast, the UK mobile telephone industry is very competitive and means the threat of new entrants is very low. The capital cost of developing 4G forced Orange and T-Mobile to merge and O2 and Vodafone in response enter a network agreement to reduce costs and compete with EE. The competitive nature of the industry shows high investment capital is required to enter the industry, creating a deterrent.

The increase in product differentiation in the television industry has increased the competiveness of this industry, making it less attractive for new entrants. In the Broadband Industry, companies that are perceived to offer superior services to their customers dominate this market. (Virgin is touted as the speed and reliability champion).

Section 2.4 - Bargain power of buyers

Buying power is high, although there are industry variations. This is natural given innovation which creates more communication choices. Before privatization, the telephone industry was a monopoly leaving consumers with limited power. But privatization changed market dynamics with more operators entering, increasing competition and giving more customers power to choose. This has reduced market attractiveness. Compared, to the telephone industry, bargaining buyers are higher in the mobile industry. There are more mobiles than the UK population altogether and these consumers demand high quality. However, operators have taken significant action to reduce buying power. Mergers have led to less market choice and rising contracts usage have tied consumers to deals and mean contract customers pay an estimated 10% more than prepaid consumers.

The television industry is more attractive than mobile and telephone because consumers have less bargaining power. If the consumer wants sport packages then they have to choose between Sky and BT. Providers can charge a premium and consumers have little choice. This illustrates that buying power is low when compared to the choices consumers can make in the other communication industries. But in the broadband industry, bargaining power is high since customers require fast speeds and are prepared to switch. Nevertheless, this does not reduce attractiveness. The four largest providers having 85% of market share despite consumer being prepared to switch. In contrast to Porter’s framework which suggests high consumer bargaining power makes an industry unattractive (Porter, 2004), the communication industry is still an important part of the UK economy and thus attractive despite Porters framework suggesting otherwise.

Section 2:5 - Bargaining power of suppliers

Suppliers have low power, in contrast to consumers, which makes the industry highly attractive as operators have greater control over pricing. Suppliers have weak bargaining power in the telephone industry as Openreach supply and maintain all wholesale services and Ofcom regulate prices. If there are price increases these has little effect on competition because all competitors comply.

But suppliers have a major impact in mobile industry. Operators rely on smartphone manufacturers to create products. If smartphone manufactures use exclusivity deals then other competitors can lose vital market share, showing supplier power is higher than the telephone industry. Nevertheless, suppliers need operators to offer upgrades. They will be reluctant to put too much pressure given that the operators have consumer tied into contracts and thus so not necessarily need to upgrade their customer every year.

The exclusivity of sports packages means suppliers can charge a premium. Firms have little power but pay for the market price if they want to these channels for their consumers. While, the bargaining power of suppliers in this industry is low like the telephone industry as BT Openreach supply and maintains all wholesale services with Ofcom regulating line rental prices.

Section 3: Key drivers of change

Having outlined the attractiveness of the communications industry, this report will now identify the key drivers of change in this industry and assess the likely impact they will have on the industry over the following five years. To achieve this, a Pestle analysis is undertaken to highlight the key drivers of change.

Table 2: Pestle analysis of the communication industry

External factors:

Trend over the next five year

Political

The political environment is likely to be relatively stable, giving the confidence the communication industry need to invest in new infrastructure. However, the upcoming 2017 EU referendum in Britain could change industry competition as the UK Government will have the ability to provide direct state aid to UK firms and thus domestic firms could have obtain an unfair advantage.

Economic

Greater economies of scale have reduced the cost of operating the communication industry. This reduction will allow firms to enter into more communication services and create more bundled services for consumers. This expansion of services will allow firms