STRATEGY, BUSINESS INFORMATION AND ANALYSIS
The telecommunication industry has totally been revolutionised. The major reason is that there are so many emerging competitors in the market which has made the survival of telecommunication industry very tough and competitive. But still there are some markets where monopoly of telecommunication is preferable due to the small size of the market.
The relationship between productivity in a macroeconomic context and the Telecommunication sector of the economy is the subject of today's world. It begins by noting that Telecommunication industry has been transformed by the microelectronic revolution, which has deeply affected society as well. Productivity increases have been greatest in three classes of companies: those supplying Telecommunication processing and storage services; those transmitting telecommunication; and those preparing the necessary services. World productivity is next set in a global context. While the United States lags behind certain other industrialized countries in this area, it is catching up due to the rapid growth of its information sector. Competition in general, as well as improving management attitudes toward workers and worker involvement in management has helped to stimulate the continuing growth in world productivity. Telecommunication industry, it is stated, is the area of the Telecommunication sector experiencing the most rapid productivity growth (Abowd, 2000).
For many years after the United Kingdom began its experiments with competition in the telecommunication industry, other countries retained their government-owned monopoly form of doing business. Even in the United States, there has long been the assumption that competition is an adjunct to the regulated monopoly marketplace, and that competitors are dependent on connecting to the regulated monopoly services of the local exchange companies. All of that is changing as competition comes to the local market in the United Kingdom and the competitive model is adopted in other countries as well.
However, the current telecommunication market is still far from the textbook model of perfect competition. For services dependent on spectrum usage, licensing procedures and the limited availability of the spectrum has tended to limit the number of competitors. For example, the duopoly structure of cellular communication was created by spectrum restrictions. The network externality makes interconnection arrangements and prices critical to competitive feasibility. The existing set of laws, rules, and expectations regarding communication networks limits the freedom of companies to enter new markets. The critical importance of communications for defence and economic development causes most countries, including the United States, to limit the freedom of foreign-owned companies to offer a full range of communication services. The various chapters in this volume focus on the policy issues created by the difficult transformation of telecommunication services around the world from a monopoly-oriented, government-dominated structure into a more market-oriented structure (Agnew, and Romero 2001, P: 273-88).
Telecom Industry Competitive Analysis
Given the present market structures of telecommunications, we are able to make use of some simplifying assumptions. First, it seems justified to assume that the firm, due to its unique tangible and intangible assets, faces a downward-sloping demand curve and hence has some pricing flexibility. However, this flexibility might be reduced or even eliminated by the degree of competition in a market and/ or regulatory oversight (Evans, 2005).
For the sake of simplicity, we assume that effective regulatory oversight (if it exists at all) imposes an upper boundary on the prices the firms can charge and thus limits the degree of market power the firms can exert. To simplify the analysis of the investment and pricing decisions, we assume that effective regulation has similar effects as a tax on profits. 5 The global net profits of the firm are the sums of the profits of the individual firms expressed in the currency of the source country. Second, we assume that there are barriers between markets that enable the firm to price discriminate between its markets. Third, we assume that the firm has a clear nationality and aims to maximize its profits in the currency of this source country (Barro, & Sala-I-Martin 2005).
Assuming first conditions of certainty and an absence of barriers to entry, the decision of the firm can be envisioned as an interrelated two-stage process. In a first step, the production capacity for each location is selected and in a second step optimal policies to allocate production between those locations and policies for the internal transfer prices of transactions are implemented. Both decisions are dependent on the specific market and production conditions, the regulatory and tax conditions, the exchange rates between the different countries involved, tariffs levied on transactions between locations in different countries, and the possible transfer prices between different locations (Garrette, et al 2004, pp. 395-412).
By totally differentiating the first-order conditions, important comparative static results of the impact of marginal changes in the exogenous variables can be derived. Other things being equal, an increase in the cost advantage of a firm or an increase in tariffs will increase the incentive to invest in another market. On the contrary, an increase of the exchange rate of the foreign currency or an increase in the intensity of regulation in the host market will reduce the incentives to invest abroad. For our problem, particularly interesting are the effects of asymmetric regulatory policies on the price and output decisions of the multinational telecommunications operator. A relaxation of the regulatory conditions in a host country (or a tightening of regulatory control in the source country) will provide incentives for a profit-maximizing telecommunications operator to increase investment in the country with more relaxed regulatory oversight and vice versa. If regulatory entry barriers exist, the globalization may take the form of alliances or joint ventures to accomplish a similar effect (Berman, & Bound, 2001 P: 367-397).
Regulatory and Antitrust Implications
Starting from a status quo ante of monopoly or joint provision of services, global networks in telecommunications evolve in an only partially competitive business environment. It is difficult to predict whether telecommunications is indeed going through a transition period toward a truly global and competitive industry (as many vivid supporters of rapid deregulation believe) or whether the ongoing process will lead to oligopolistic structures, continued fragmented networks and service availability, only weak stimuli for competition in many submarkets of telecommunications, and limited ubiquity in service diffusion. From a policy perspective, some short-term implications may deserve careful analysis. Regulatory concerns may emerge in two related areas (Grubel, & Lloyd, 2005). First, the implications of the globalization of networks for the existing approaches of national regulatory control as well as the repercussions of these regulatory approaches on the globalization strategies need to be assessed.
In addition to such a predominantly domestic perspective, the design of an international, or perhaps global, framework that would maximize the efficiency gains from the global restructuring process of the industry needs some thought. Under conditions of very heterogeneous deployment of telecommunications infrastructures worldwide, particular interest needs to be paid to the tension between regulation as a promotional tool to speed up infrastructure development and regulation as a restraining tool to avoid welfare-reducing effects of market power (Bockerstette, and Shell, 2003).
If firms do not operate in perfectly competitive markets (and other things being equal), profit-seeking firms will have incentives to reallocate their investment portfolio from jurisdictions with tighter regulatory control to jurisdictions with less rigid explicit or implicit regulatory constraints. However, the intensity of this effect will depend on the specific regulatory instruments employed. It will be less articulate under a regime of price regulation (which allows profits to fluctuate) than under a regime of profit regulation. In network-based industries, the quality of service is dependent on the condition of the network infrastructure (Breslow, N. 2001, P. 89-99).
Telecommunication industry and technology impact
The telecommunications industry is the setting of an impressive dynamic process of multiple and interrelated innovations. While this is partly due to the pace of innovation in related technological domains - especially computers and electronics - the industry did generate per se essential technical advances in domains such as radio and satellite communication, optic transmission, among others. These major evolutions were concomitant with the ascent of a generalized and global competition in an industry that was previously highly regulated and vertically integrated until the middle of the 1980s (Chenais, 2000 P: 51-121). While the above-sketched developments have been discussed and analyzed separately in numerous academic journals and business publications, one of the essential contributions of this Special Issue is that it addresses jointly these two major phenomena. Indeed, most of the papers are dedicated to getting a better understanding of the dynamics of innovation in relation to institutional and organizational changes at the industry level (Agnew, & Romero 2001, P: 273-88).
Past trend of Telecommunication Industry
The past decade marks the beginning of a transformation of the telecommunications services industry from a predominantly national structure to a structure in which major service providers operate on an international or global level. The emerging regime deviates significantly from the long established framework of the industry, underscoring the fundamental character of the change. Influenced by national security and strategic concerns of governments, the very early years of electronic telecommunications were characterized by more or less separated national systems.
The high costs of such an arrangement were recognized soon by business and government leaders and led to several regional and later international agreements to interconnect these national systems, including the foundation of the International Telecommunication Union (ITU) in 1865. In the political framework of the late 19th century, the emerging international arrangements were inspired by the maintenance of national autonomy and sovereignty. This was accomplished by a collaborative system of service provision by national carriers. Thus during this second era, beginning in the mid-19th century and lasting until the present, domestic telecommunications services were provided by national carriers, frequently equipped with far-reaching monopoly privileges, and international services were provided in a system of joint provision by these national carriers. Currently, this institutional arrangement is gradually being overlapped and superseded by a multifaceted expansion of telecommunications service providers into the formerly exclusive service territories of other carriers (Chunrong, & David 2002).
Several factors are commonly identified as contributing to this reorganization. Most prominently among them ranks technological change, supporting the development of a wide array of innovative and specialized equipment, services, and applications, for which the monopoly environment did not seem to provide a conducive framework. Multinational and globally operating enterprises, whose emergence was facilitated by previous advances in communication technologies, in turn demand customized and specialized global telecommunications services provided by one rather than a multitude of vendors, requiring a global presence of carriers to retain large customers.
Also, constrained by emerging domestic competition and regulatory restrictions, large equipment and service providers started to reach for profitable investment projects abroad. Last, but not least, the traditional system of service provision through state-owned monopolies frequently suffered from weak performance and did not meet the expectations and needs of their increasingly diverse customer base. As a response, many countries adopted policies of privatization and liberalization of former state-owned monopolies and began to open national telecommunications markets for foreign competitors.
Porter's 5 Forces Analysis of Telecommunication Industry
1. Threat of New Entrants
It comes as no shock that in the capital-intensive telecom business the main fence to entrance is right of entry to finance. To wrap elevated fixed costs, grave contenders characteristically need a lot of cash. When capital markets are kind, the danger of spirited entrants escalates. When money opportunities are less willingly obtainable, the pace of entrance slows. For the meantime, possession of a telecom license can correspond to a gigantic blockade to entrance. In the U.K., for case, fledgling telecom operators must still relate to the Federal Communications Commission (FCC) to obtain authoritarian endorsement and licensing. There is also a limited quantity of "good" radio band that lends itself to mobile voice and data applications. In adding, it is significant to keep in mind that hard operating skills and organization understanding is quite inadequate, making entrance even harder (Krugman, 2006).
2. Power of Suppliers
At primary fleeting look, it might seem like telecom kit suppliers have substantial bargaining power over telecom operators. Without a doubt, without high-tech broadband switching kit, fibre-optic cables, and mobile handsets and billing software, telecom operators would not be capable to do the occupation of transmitting voice and data from place to place. But there are really a number of large gear makers around. There are adequate sellers, debatably, to dilute bargaining power. The incomplete pool of talented managers and engineers, particularly those well versed in the newest technologies, places companies in a weak location in terms of employing and salaries.
3. Power of Buyers
With augmented option of telecom products and services, the bargaining power of buyers is rising. Let's face it; telephone and data services do not differ much, in spite of which companies are selling them. For the mainly part, basic services are treated as a product. This translates into customers seeking low prices from companies that proffer dependable service. At the identical time, buyer influence can vary rather between market segments. While switching costs are moderately low for housing telecom customers, they can get higher for well-built business customers; in particular those that rely more on modified products and services (Grubel, & Lloyd, 2005).
4. Availability of Substitutes
Products and services from non-traditional telecom industries pose grave replacement threats. Cable TV and settlement operators now fight for buyers. The cable guys, with their own straight lines into homes, offer broadband internet services, and satellite links can replacement for high-speed industry networking needs. Railways and power helpfulness companies are laying miles of successful telecom network next to their own path and pipeline assets. Just as perturbing for telecom operators is the internet: it is flattering a feasible means of transport for cut-rate voice calls. Delivered by ISPs - not telecom operators - "internet telephony" could take a large bite out of telecom companies' centre voice revenues (Grubel, & Lloyd, 2005).
5. Competitive Rivalry
Opposition is "cut throat". The wave of manufacturing deregulation together with the open capital markets of the late 1990s paved the method for a rush of new entrants. New skill is prompting a push of alternative services. Nearly everyone by now pays for phone services, so all competitors now must lure customers with subordinate prices and more thrilling services. This tends to make industry abundance down. In adding up to low profits, the telecom business suffers from high exit barriers, for the most part due to its dedicated equipment. Networks and billing systems cannot actually be used for much else, and their swift obsolescence makes insolvency pretty hard (Garrette, Bet al. 2004).
PEST Analysis of UK Telecommunication Industry
The Telecom division all around the globe and particularly in UK has knowledgeable a marvellous enlargement in the last few years. The telecommunication segment of UK was prized the position of industry in 2005 and since then it has been one of the best ever mounting sectors of UK fairly well-known from a variety of factors such as the mobile density reaching 52.87 in April, 2008 and the number of mobile subscribers reaching 85 million.
PEST stand up for Political, Economical, and Social & Technological factors of the external macro-environment, a PEST examination is an examination of the outside macro-environment that have an effect on all firms, Such outside factors more often than not are away from the firm’s management and sometimes present themselves as intimidations. Many macro-environmental issues are country detailed and a PEST investigation will require to be carried out for all countries of attention.
Political surroundings of UK are steady in the present state of affairs and state is doing outstanding on financial front.
Environment is saver welcoming for telecommunication subdivision.
Government is also following telecom manufacturing.
Marketers should believe long term and short term state of a dealing market.
Inflation is domineering by market forces and under strict eyes but joblessness rate is going up and up with the augmentation of level of deficiency.
Most of the people have an aversion to anything odd or something which damage their society or subculture.
Companies who are objective upper-end of marketplace above all published and aired their poster in English language.
Since UK ahs very precede civilization and people consider in acquiring new and innovative means of technology in order to remain up to the mark with the latest technology and information that is emerging around in their environment.
Companies have knowledge with which they can fight in UK and now companies are spending in their infrastructure to not merely get bigger but also to improve their existing arrangement.
At present chiefly companies are providing Multi-media Messaging Services (MMS), General Packet Radio Service (GPRS), Virtual Private Network (VPN), Pocket Stocks, Conference Calling, Wallpapers Animated pictures Polyphonic ring tones (WAP), and Voice Mail at low price and some are also providing feature that one can see TV channels on their cell.
Future of Telecom Industry
The future of the telecom industry is somewhat certain because many of the existing players are very much in good strength and their business and profit margin are very good. It also makes them competitive enough to provide good value of money to their customers. Telecom industry's fortunes will depend more on its ability to offer complete solutions to customers by combining internal resources with external products and services and less on internal production of technologies. That is, acquisition and marketing of technologies will replace creation of technologies, and information and marketing intensity of the firm will rise. As information intensiveness of a firm rises, its value added increasingly will be based on information exchanged as part of customer transactions that cut across traditional industry definitions and product market boundaries.
One implication of this view for a firm like telecom industry is that, increasingly, it will find itself redefining the industry in terms of markets and customer characteristics rather than "product" or service characteristics. In such an environment, entry barriers weaken and start-up firms (e.g., Internet service providers) pioneer and thrive on new segments. Large carriers like telecom industry would continue to rely on broad scope (i.e., serving many segments) and one-stop-shopping for survival.
Finally, vertical disintegration of R&D at telecom industry changes the nature of technology management. For example, management of the technology value chain becomes externally oriented toward outsourcing through contracts and alliances. As a result, new service offerings require complex monitoring and coordination of technological development across many independent firms. In short, AT&T, notwithstanding its huge investments in cable facilities, may be characterized as moving toward becoming a transacting and coordinating unit--to borrow Dunning's (1997) words--rather than a production unit with internally generated innovation at the centre of its core competency. And with the advantage of in-house proprietary technology no longer available, marketing's task in understanding a customer's value chain and creating configurations of complementary technologies that satisfy the one-stop-shopping needs of myriad segments becomes critical.
Indeed, it is telecom industry's strategy to further expand horizontally through alliances and acquisitions (into local, long distance, Internet, video and wireless); to offer a full range of communications, information and entertainment services; and to become "any distance, any service" provider for consumers and businesses. One must also not rule out telecom industry, in its search for core competencies, expanding vertically into software in the future. However, the question of whether any of these strategies are capable of creating competitive advantage that is sustainable remains open. As Teece and Pisano (1998) put it, for an advantage to be sustainable it must be strategic, which means it must not only be honed to the needs of the user, but must also be unique and difficult to replicate.
Nobody can deny this fact that telecommunication industry is very competitive industry and the monopoly in this industry is almost vanished, but there are some small areas where telecommunication monopoly is still worth a lot and it can reap rich harvest of profit from that specific small region. The main reason of this success is in monopoly market investor can get back his investment in comparatively lesser time and he can easily penetrate in the monopoly market without the threat of competition.
Swept along by the wave of deregulation and liberalization that is dramatically changing telecommunication sectors in the industrialized countries, Third World countries are currently engaged in the widespread reform and restructuring of their telecommunication sectors. These reforms have involved various degrees of corporatization, privatization, or liberalization.
It is tough to keep away from the end that size matters in telecom. It is a costly industry; contenders require being huge enough and creating enough cash flow to soak up the costs of expanding networks and services that turn out to be out of date apparently overnight. Transmission systems require to be replacing as often as every two years. Big companies that own wide networks - particularly restricted networks that make bigger in a straight line into customers' homes and commerce - are less needy on intersecting with other companies to get calls and data to their concluding purposes. By difference, smaller players must disburse for interconnection more often in command to come to an end the occupation. For little operators hoping to grow large some day, the monetary challenges of maintenance up with quick technical modification and reduction can be colossal.
Earnings can be a complicated subject when analyzing telecom companies. Many companies have modest or no earnings to speak to. Analysts, as an outcome, are often strained to turn to measures in addition price-earnings ratio (P/E) to measure assessment. Price-to-sales ratio (price/sales) is the almost certainly simplest of the assessment approaches: take the marketplace capitalization of a corporation and split it by sales over the past 12 months. No estimates are concerned. The lower the ratio, the enhanced, price/sales are a rationally successful choice when evaluating telecom companies that have no earnings; it is also of use in assessing established companies.