Australian Telecommunications the Merger of Case Study

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The in-store staff makes up the bulk of the service, but they are also actively engaged in the sales function. The telephone service staff at VHA has been largely relocated to India and Tasmania in the wake of the merger (Zappone, 2009). Consumer complaints in the industry have seen a dramatic rise of late (Cellular News, 2009).

The maintenance function requires a degree of technical skill. The main focus of this task both in the industry and at VHA is to build out the 3G coverage network. For VHA, the 3G coverage at the time of the merger was 63% of the population, and the company is making investments to bring this to 95%, which equals its coverage area. With the market trending towards 3G, it is critical for players in the industry to be able to provide access to this technology to all their customers.

The environment in which the industry players operate is becoming more difficult. Consumers demand a high degree of technology, but are price sensitive and prone to switching. The industry is characterized by intense competition, necessitating substantial investments in the marketing function. Overall consumer demand is increasing, which is a favorable aspect of the industry. However, the influence of government remains high. While this influence has to this point largely fallen in favor of private competitors like VHA, should the ACCC's attitude towards private competitors change, the results could be devastating.

Competitor Analysis

VHA was formed in the middle part of 2009 by the merging of Australian operations of Vodafone and Hutchison Whampoa, who operate the 3 brand. The two companies were the #3 and #4 players in the mobile market, and the combined entity is still #3. Both Vodafone and Hutchison are veteran players in the telecommunications business, with the former having one of the largest subscriber bases in the world and the latter being a leader in 3G technology. This section of the report will outline the strengths and weaknesses of the combined VHA relate these to the threats and opportunities presented by the external environment.

The strengths of VHA include its strong brands, its bandwidth capacity and its longstanding expertise in the mobile communications market. Both the Vodafone and 3 brands are strong, highly recognizable and well-established. The company can grow its market share by building share in either one of these brands, which makes it a threat to its competition. That said, Optus and Telstra also have strong brands, so the degree of this strength as a competitive advantage is subject to debate.

The second key strength is the firm's bandwidth capacity. Bandwidth is a fixed resource and is auctioned by the ACCC to mobile telcos. VHA has more capacity that its competitors but because of its smaller market share it also has more unused capacity (Oakes, 2009). This advantage is useful for two reasons. First is that when the other companies fill their bandwidth, their service levels will decline; VHA will not have that problem. The second is that VHA can resell some of that bandwidth for profit, if it so desires.

The third strength is that both parent companies of VHA have longstanding expertise in the business. Hutchison has a competency in 3G development, which VHA needs and Vodafone has a competency in marketing. Vodafone also brings a global network to the arrangement. Neither of the other players have the same degree of either competency, although Telstra does have extensive knowledge of the total Australian telecom market.

VHA has a few weaknesses. One is its relatively small market share. Although all three major players enjoy healthy market shares, VHA is the smallest. Its constituent brands are smaller still. The result is that VHA brands have lower visibility in the marketplace than Optus and Telstra brands. An additional weakness is that the firm is operating two brands, with no intent to merge them at present. The result is that it has higher overhead and marketing costs. While it expects to attain synergies in back office functions, it will need to work hard to attain synergies in front-end functions.

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The main opportunity for the combined entity is to build out the 3G network, since that is where the growth is in the Australian mobile industry. There are market share opportunities relating to the firm's excess bandwidth. There are also opportunities that may accrue from the ACCC's apparently obsession with promoting competition. This can lead to favorably regulations and rulings from the Commission towards VHA.

The main threats are posed by the firm's competitors. With a high degree of intensity in the industry the competitors are expected to battle for market share. Being the smallest firm in the business, VHA's market share is relatively vulnerable. The second threat is with regards to the regulatory environment. There are entrenched interests in overturning the current ACCC views on the industry. Should those interests succeed, the favorable regulatory environment could turn unfavorable. There is also the threat that technological change could bring a successor to 3G just as VHA rolls out its 3G nationwide. This shift would require more technological investment to keep up. In November, 2009, for example, Optus announced that it would test next-generation broadband, known as long-term evolution (LTE) beginning in early 2010 (Bingemann, 2009 b)

VHA's Strategy

VHA current has no discernible generic strategy. The company is not attempting to be a cost leader, so could be argued to be loosely following a differentiation strategy. The precise points and degree of differentiation, however, are open to question. The company's target market is the mass market for mobile phones. The firm at times targets segments for specific promotion. However, given that there are more cell phones in Australia than people, the firm views its market as being the sum total of Australian cell phone users. VHA's pricing strategy is driven as much by the influence of the ACCC on industry pricing as it is by competitive concerns (Morgan, 2007). As such, VHA's strategy is twofold. The company is seeking to reduce its cost base, in particular by focusing on back-end efficiencies. It is also seeking to improve its 3G network capabilities.

VHA's strategy, therefore, reflects both the consumer preference for lower price and the consumer desire for high quality of service. Because VHA is targeting the mass market, it clearly feels that it needs to be everything to everybody. While this is typically a recipe for disaster, their competitors are adopting similar strategies. Segmentation of the market is conducted, particularly for marketing and product development purposes. However, the core product (mobile communications) is a universal need of consumers and at its essence remains unchanged to matter the frills, service offerings and price packages are comprised.

VHA's main competitive advantages hint that the firm should seek a differentiated strategy. It has excess bandwidth and is set to achieve 95% 3G coverage, so it is well-positioned to compete on the superior performance of its networks. Consumers, however are driven by cost, customer service and other functions. Thus, if VHA were to pursue a differentiated strategy on a pureform basis, the company may actually lose market share even if they sign up 100% of the customers seeking better performance. As such, attention to price is also essential.

To that end, it is recommended that VHA leverage its two lines to adopt both strategies. One brand can be used as a premium brand, offering the best service and capacity to those who truly value it and are willing to pay a premium for it. For the average customer, where price elasticity of demand is much higher, Vodafone should use its other brand to target a low cost strategy. Service may not be on 3G, and the customer service function may be poorer as well.

VHA's competitors are also attempting to serve the mass market and therefore are neither cost leaders nor are they have differentiated strategies. This gives VHA the opportunity to use the fact that it has two prominent brands to truly segment the marketplace. The result will be that it owns both the high and the low end, while the other firms struggle.....

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