Analysis of the Telecommunications industry

Question: Discuss about theAnalysis of the Telecommunications Industry. Answer: Introduction The telecommunication industry in Australia is based on the use of electronic devices and services like telephone, television radio and computer in communication. Given (2010, P.60) states that the industry has undergone a lot of transformation based on the rise of digital technology, data sharing and the interconnected economy that the world faces today. This is due to the increased technological innovations that are shaping the industry. Grove (2014, P. 19) suggests that these rapid changes are presenting adaptation challenges to the telecommunication industry that have made the industry to greatly struggle with the changes. On the other hand, customer requirements are changing with the changing technology thus making telecommunication companies respond quickly to any technological change (Australian Competition and Consumer Commission, 2016, P. 4). To understand the industry well PESTEL analysis is used to investigate important factors and forces driving the industry and influenci ng companies that are operating in the sector. It describes a framework of macro-environmental factors used to do an external analysis of a business to understand the market growth and decline patterns. On the other hand, Porters five forces are used to analysis factors that shape and influence the business within the industry. Pestel Analysis Political Trends The industry is highly affected by regulations that come up frequently. This is due to competition between government led companies and private companies that are running telecommunication service. However the rise of the internet in the society has made it part of human life as so many activities are dependent on the internet today. Today the internet is described as the internet of everything meaning that the society is heavily depending on the internet. Therefore governments need to develop regulations that can favour users. Mostly many governments regulate the industry to reduce price wars and safeguard the consumer from exploitation (Pearce, 2010, P. 11). This means that the government has a problem with the service providers and the consumer since it has to ensure that there is adequate legislation that favours all the parties. Economic Trends Abdullah Shamsher (2011, P. 1451) suggests that the business environment is shaped by inflation and taxes that affect the pricing of the services that are offered to customers. On the other hand, the telecommunication industry has to build towers and satellites in rural areas which become expensive. Further, the demand for telecommunication services keeps increasing as the population grows and thus prices may go up if demand is too high.(Schmieder-Ramirez Mallette (2015, P. 11) argue that customers and technology shape the way the industry grows. Businesses are designing strategies to reach out to more people and thus using the internet and mobile phones to market their products (Venkatram Zhu, 2012, P. 11-12; Carr Junior, 2010, p. 44). This is, therefore, opening up more jobs for local economies of any country as more people are becoming engaged in the industry. This has also led to the rise of the 24-hour economy since the internet and technology in the telecommunication indust ry have given rise to new business platforms like chat rooms and websites. Social Cultural Trends The telecommunication industry grows vertically more than horizontally; most services are concentrated in urban centres where setting up is easy as compared to rural areas. The rural customer cannot enjoy all the privileges that are enjoyed by the urban customer. For example, here are no WIFI rooters and fibre optic cables in the rural areas and thus some privileges may not be available to such customer. World Bank (2012, P. 11) states that social cultural trends have entirely shaped the telecommunication industry especially the way the services are used. Today companies in the industry have more internet customers than those that use call services. In this case social cultural trends determine how the business environment looks like and how players in the industry operate. Many companies are developing strategies on how to tap internet profitability from the consumer. Consumers are increasing demanding data on both fixed and mobile networks for use is based on the role that the inte rnet is playing in society. Today the internet is the communication tool that most people use to share information and data using different platforms (Momaya, 2011, P. 155). Technological Trends The telecommunication industry has been forced to advance with the technological trends that are available in the market. The needs and requirements in the industry keep on changing as technology also advances. For example, the rise of the wireless technology has changed the industry while customer requirements are also changing. Today customers want internet enabled phones that can be used to carry out many functions. Telecommunication companies are also improving their services like the move from 3G to 4G as a way of increasing customer connectivity (Rosenberg, 2011, P 27). Due to increased competition between telecommunication companies, each company has to keep up with technological changes to meet the changing customer needs. On the other the younger generation offer the most suitable market for the telecommunication industry. To satisfy this group of customers companies have to ensure that they keep up with technological changes (Wheen, 2011,P. 12). Legal Trends Legislation issues in the industry are based on issues that affect and shape the industry. These issues are based on government, the companies in the industry and customers. However depending on the issues that affect the party that is involved, the government may intervene by legislating regulations that may control the sector. For example, some countries do not manufacture all telecommunication devices but rather import from other countries. This means that legal restrictions that existed within the importing country may affect the industry in one way or the other. On the other hand, consumer laws vary from country to country to country and thus the way they shape the industry depends entirely on the legal restrictions within the country (Boss Company, 2010, P. 21). Demographic Trends Keung (2014, P. 6479) suggests that demographic trends are shaping the world and businesses that take place on the planet. The business environment has become dynamic and it is driven by many factors that are beyond the control of players within the industry. These trends shape the future economy and affect the current business operations of the telecommunication industry. There are several major trends that will shape the telecommunication industry. The first trend is the nature of the population or ratio of children to older people. A younger generation presents future business opportunities unlike the old. The second trend is the reduced population growth in emerging economies. This presents a major challenge since if the old are more dependable than the young. Demographic trends are used by companies in analysing market segments that exist in customers (Yuksel, 2012, P. 55). Through segmentation companies in the industry determine the products that they can develop to suit the bu siness needs of the consumers within the segment. Green Environment Trends Green environment trends are based on global warming and pollution of the environment which is based on legislations that are pro nature. All industries have been forced to comply with the green environmental trends by ensuring that the services that are offered do not harm the environment (Cadle, et al. 2015, P. 4). Since the industry is based on manufacture of devices, many countries have developed laws that protect the environment. For example, Australia has a carbon law that regulates carbon in the atmosphere while other countries have enacted laws that force industry to use organic materials for packaging their products. These trends shape every industry and thus force companies that are willing to enter the industry to comply with certain aspects (Yip, 2013, P.16). Porters model Porters model proposes five forces that shape and influence the external environment of any industry, they are based on threat of new entrants, bargaining power of suppliers, bargaining power of customers, threat of new entrants and threat of substitutes (Wheelan Hunger, 2010, P. 26) Threat of New Entrants There is little threat of new entrants in the telecommunications sectors since the market seems to be dominated by the players who already exist in the market. The biggest threat that companies face when joining the industry is the capital requirement for investing. This is based on the fact that existing players in the industry have heavily invested in capita making it difficult for new entrants (Trim, 2014, P. 243). For example, in the Australian telecommunications there are bigger players who dominate the market with a larger market share. These companies monopolize the industry making it difficult for any other player to enter the field. The nature of the industry and the technological advancements that keep on changing mean that there are huge fixed costs and capital requirements that are required in the industry. On the other hand, Sammon, et al (2014, P. 19) suggests that operating abilities and management of the industry makes it difficult for new entrants to compete with exi sting giants in the market. Therefore market entry in many countries and regions is difficult since the existing giants dominate everything. Power of Suppliers The bargaining power of suppliers within the industry is low since some companies that are in the industry have stable supply sources that they have established networks for a long time. On the other hand, the contracts that exist between the companies in the industries are binding to lock out competitors. Therefore suppliers have low bargaining power. Further, some of the companies in the industry have multiple activities that include manufacture of devices and running of telecommunication services. These companies therefore rely less on the supplier for the major business value chain that they operate (Agarwal, et al., 2012 P. 15). Ayub, et al (2013, P. 93) suggests that companies in the industry have a pool of suppliers that they choose from. Also consumers have varying preferences on products that come from different companies. Segmentation of customers is also a factor that companies within the sector use to determine the supplier. For example, some customers may prefer Nokia de vices, others Samsung and other LG, this thus shapes the industry by limiting the bargaining power of the supplier. Power of Buyers The bargaining power of customers is very high due to the increased and available players in the industry. Despite the fact that there are monopoly giants in the industry; there exists one or two suppliers within the industry where the customer can compare the rates before making a decision. On the other hand, the fight for customer loyalty has led to price wars between companies that operate within the industry thus increasing bargaining power of the customer. Customers have a variety of choices within the industry that they can pick from. Information technology has also presented buyers with an easy opportunity for analysing the best companies that they can opt for (Riston 2012, P. 19). Buyers can use online applications to do a comparison of the companies within the industry to determine the one that offers the best deals for them. This has led to buyers use different services for different purposes. For example, a buyer may use a certain service provider for calling and another p rovider for internet services based on the differences that exist between the two industry players using the products that they offer. Availability of Substitutes The telecom industry faces a threat of substitutes from satellites and cable television operators. Today technology has enabled fusing of different services on devices to enable them provide other services. For example, television decoders have a wireless rooter where the user can access wifi using the decoder and watch television at the same time. This, therefore, minimises the need telecommunication services subscription. Further, this has brought a twist in the telecommunication industry, where even the telecommunication providers are diversifying their services to increase business opportunities (Whalley, 2010, P. 11). On the other hand, communication patterns are slowly changing today, many people are using the internet to communicate rather than voice calls. For example, social media has enabled communication through online chats. Competitive Rivalry within the Industry There is high competition between the players in the industry because most companies offer similar products. Most of the companies that aggressively compete with each other have been in the industry for a very long time. Some of the companies are multinational corporations offering products across the globe (Ommani, 2011, P. 9451). However new technology has changed the telecommunication industry making most people to pay for the service. They have different purposes that they need the services for like internet and calling. Further, new technology has led to the emergence of new service that offers similar products. Pearce Robinson (2015, P. 21) argues that increasing technological innovations have increased competition in the telecommunication iindustry with players within the industry going an extra mile to impress the customer. This competition leads to price wars between companies in the sector to impress and increase the customer base. This reduces the profitability in the ind ustry since the prices are set too low as compared to what the real price should be (Abdullah Shamsher, 2011, P. 1450). Current Future Profitability The telecommunication industry depends more on infrastructure rather than financial strengths. Infrastructure affects the efficiency and effectiveness of the industry and its users in general. This means that the growth, stability and profitability of industry to make the conditions better for the industry players. Reed Vakola (2013, P. 399) suggests that Telecommunication industries are fast growing capital-intensive businesses as compared to other businesses. Changes in the telecommunication technology are shaping the profitability that companies in the industry enjoy. Before the increased rise of the internet, the telecommunications industry dependent entirely on communication tariffs for its profits. Today the industry is shaped by many factors that are beyond the industry. Many companies within the industry that are offering telecommunication services have diversified their business opportunities to increase profitability. Wilkinson (2010, P. 165), suggests that apart from offe ring telecommunication services, industry players have ventured in the manufacture of digital devices that use the services that they offer. Some companies are also developing applications that support the services that they offer or managing them for different businesses. The profitability of the sector is, therefore, entirely dependent on individual players within the industry and how they strategise their business ideas. Therefore the profitability of the sector is dependent entirely on the business strategies of the individual player and the market dynamics of the environment that the player operates in. Conclusion The telecommunication industry is affected by external and internal factors which shape the nature of the business within the industry. The business environment is very competitive with players being largely affected by government regulations within the countries that they operate in. Koumparoulis (2013, P. 33) suggests that governments play a major role in providing infrastructure for enabling the industry to thrive. On the other hand, the services that are offered by different players are similar, thus very little differentiation of the products being offered. Only players that have analysed the market and developed the best strategies can survive the industry. Therefore industry profitability is dependent on external factors that shape the market and create necessary infrastructure (Pearce Robinson, 2015, P. 23). This is based on the changing needs of the telecommunication industry which makes customers to demand more form the industry. On the other hand, the increased demand for data has led to the need for industry players to develop strategies that can accommodate the increased network traffic that is a result of increased internet use. Apart from investing in network infrastructure, companies need to ensure that sufficient resources are applied in technology to boost the industry. References Abdullah, M. N. Shamsher, R., 2011. A Study on the Impact of PEST Analysis on the Pharmaceutical Sector: The Bangladesh Context. Journal of Modern Accounting and Auditing, 7(12), pp. 1446-1456. Agarwal, R., Grassl, W. Pahl, J., 2012. Meta-SWOT: introducing a new strategic planning tool.. Journal of Business Strategy, 33(2), pp. 12-21. Ayub, A., Razzaq, A., Salman, M. Iftekhar, H., 2013. A conceptual framework on evaluating SWOT analysis as the mediatorin strategic marketing planning through marketing iteligence. European Journal of Business and Social Sciences,, 2(1), pp. 91-98. Bank, W., 2012. Fixed broadband Internet subscribers (per 100 people), s.l.: World Bank. Cadle, J., Paul, D. Turner, P., 2015. BUSINESS ANALYSIS TECHNIQUES, 72 Essential Tools for Success, s.l.: s.n. Carr, L. P. Jr, A. J. N., 2010. . Delivering Results: Managing What Matters. s.l.:Springer Science Business Media. Commission, A. C. a. C., 2016. Competition in the Australian telecommunications sector;Price changes for telecommunications ACCC telecommunications reports 201415, Canberra: Australian Competition and Consumer Commission. Company, B. ., 2010. Bringing Mass Broadband to India: Roles for Government and Industry, s.l.: s.n. Given, J., 2010. Wireless politics: Marconi and the Parliament at Point Lonsdale, 12 July 1906. Telecommunications Journal of Australia, 60(4). Grove, A., 2014. Only The Paranoid Survive. 5th ed. New York: Doubleday. Keung ho, J. K., 2014. Formulation of a Systemic PEST Analysis for Strategic Anal. European academic research, 2(5), pp. 6478-6492. Koumparoulis, D. N., 2013. PEST Analysis: The case of E-shop. International Journal of Economy, Management and Social Sciences, 2(2), pp. 31-36. Momaya, K., 2011. Cooperation for competitiveness of emerging countries: learning from a case of nanotechnology", Competitiveness review. Journal of Global Competitiveness,, 21(2), pp. 152 - 170. Ommani, A. R., 2011. Strengths, weaknesses, opportunities and threats. African Journal of Business Management analysis for farming system businesses, 5(22), pp. 9448-9454. Pearce, J. Robinson, R., 2015. Strategic management. 10th ed. New York:: McGraw-Hill. Pearce, J. . R. R., 2010. Strategic management. 9th ed. New York:: McGraw-Hill. Reed, J. Vakola, M., 2013. What role can a training needs analysis play in organisational change?,. Journal of Organizational Change Management,, 19(3), pp. 393-407,. Riston N, 2012. Strategic Management.. s.l.:Neil Riston and Ventus. Rosenberg, N., 2011. Perspectives on Technology. 7th ed. Cambridge: Cambridge University Press. Sammon, W., Kurland, M. Spitalnic, R., 2014. Business Competitive Intelligence Methods for Collecting, Organizing and Using Information. 5th ed. New York: John Wiley. Schmieder-Ramirez, J. Mallette, L., 2015. Using the SPELIT Analysis Technique for Organizational Transitions. s.l.:Science Press. Trim, P., 2014. The strategic corporate intellligence and transformational marketing model.. Marketing Intelligence Planning, 22(2), p. 240 256. Venkatram, R. Zhu, X., 2012. An analysis of Factors Influencing the Telecommunication Industry Growth; A case study of China and India, s.l.: BLEKINGE INSTITUTE OF TECHNOLOGY. Whalley, A., 2010. Strategic Marketing.. s.l.:Andrew Whally and Ventus Publihing. Wheelan, T. Hunger, J., 2010. Strategic Management and Business Policy. 7th ed. s.l.:Addison-Wesley. Wheen, A., 2011. Dot-Dash to Dot.Com: How Modern Telecommunications Evolved from the Telegraph to the Internet. s.l.:Springe. Wilkinson, S., 2010. An analysis of the problems faced by project management companies managing construction projects. Construction and Architectural Management,, 8(3), pp. 160-170,. Yip, G., 2013. Total Global Strategy II: Update Internet and Service Era.4th ed. New Jersey: Prentice. Yuksel, I., 2012. Developing a Multi-Criteria Decision Making Model for PESTEL analysis. International Journal of Business and Management, 7(24), pp. 52-66.