In the face of competition, this report presents Vodafone’s strategy aimed at having a competitive advantage over its current and future competitors by adopting several measures aimed at giving consumers greater value for their money.
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Michael Porter (2004) put forward two fundamental forms of competitive advantage: cost advantage and product differentiation advantage. In cost differentiation, a company lowers its product costs than the prevailing market costs for similar or related products.
However, in product differentiation, based on a market analysis, the company chooses a strategy that will give it a unique position among competitors and enable it to have an advantage over competitors.
Differentiation frequently entails delivering benefits that surpass those of the competitors, and enables it to create superior value for its customers and establish itself in the market.
In this case study, Vodafone seeks to adopt strategies for enabling a competitive advantage over its competitors but contemplates whether it should build its own network to provide the required services or provide them through partnerships and/or acquisitions.
This case study on Vodafone, the world’s largest mobile telephone operator by revenue, presents the company’s strategy in its attempts to emerge out of competition from companies offering similar products in the UK home market in 2009.
During the said year, Vodafone faced competition from a number of companies in the rapidly expanding market for high-speed internet services in the home market.
The increasing demand for these products had attracted not only Vodafone’s traditional competitors such as British Telecom (BT), O2, and Orange, but had also drawn attention from other communication firms such as Virgin Mobile and Sky Broadcasting.
New competition also arose from arose from Carphone Warehouse and suppliers such as Nokia and Apple. Other firms were also contemplating moving into the high-speed internet services market.
Besides changes in competition, Vodafone and other providers faced challenges from rapid changes in technology and regulatory changes in the UK communications sector.
Consequently, many operators adopted their own strategies around the consumer’s need for ‘converged services’, meaning that companies could provide two or more services making up the ‘quad play ’ offered by Virgin Media (fixed line telephony, mobile telephony, television, and broadband internet).
While most of the competitors offered a combination of the services, Vodafone focused mainly on mobile services and this caused concern to both shareholders and the management. The challenge was to decide if they should provide any of the other services, and if so, should they build their own networks or through partnerships or acquisitions.
Analysis of the Major Facts
In order to determine the best strategy that should be adopted it is imperative that we determine the roots of the intense competition in the high-speed internet services. A PESTEL analysis shows that the source of competition in the communications sector originated from a number of macro-environmental factors.
Political factors had been due the regulatory changes undertaken by the government, specifically the Office of Communication (Ofcom).
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These changes included the privatization of the national telephone company, BT, forcing it to allow access to its services at competitive rates, licensing more mobile-operators and allowing virtual operators (MVNOs), and supporting competition in television and internet sector to improve service delivery.
Economic factors arose from the global financial crisis that had heavily impacted the UK economy, just like all developed nations. The UK was expected to recover more slowly than other countries due to the important role of financial services to its economy.
Economic factors also affected sociocultural factors as it affected income distribution and spending patterns. Technological factors arose from the changes in technology with the development of internet protocol (IP) technology, emergence of new broadcasting technology, and the ongoing upgrading of speeds over fixed and mobile networks.
Environmental and Legal factors did not seem to have a significant role of the competition. In adopting a strategy to emerge out of the competition, Vodafone had to address each of these issues (Johnson et al, 2010).
A number of competitors were already providing at least three of the four services in the high-speed internet market, however, Vodafone mainly focused on mobile telephony. Therefore, to gain an edge over its competitors, Vodafone had to adopt either the ‘triple play’ of the ‘quad play’.
In order to do this, the company has to analyze its competitors and determine the methods they used to roll out their service to come up with the most cost effective method.
The fixed line telephone network had been developed by the government through BT, which had subsequently been privatized, hence BT was the initial sole operator of the fixed line telephone, however, Ofcom introduced a process referred to as local loop unbundling (LLU) which required BT to allow other operators to install their own equipment in the existing BT network to provide voice and broadband internet services to their own surrounding customers.
This meant that operators such as Vodafone could provide these services without building their own network.
Mobile telephone was Vodafone’s core competency, being the world’s largest mobile telephone operator by revenue, therefore, it did not require any acquisitions or partnerships to create an advantage over its competitors.
However, the failure to create a ‘total communications’ strategy could lead to user migrating to other operators, especially with the introduction of number portability in 2007 and competitive approached adopted by operators.
The television segment is dominated by five ‘public service broadcast’ channels: BBC1, BBC 2, ITV 1, Channel 4 and Five. These channels are supported by annual license fees and advertising.
The rest of the market is taken by ‘multichannel operators’ led by BskyB, UKTV, Viacom and Virgin which are mainly supported by a mix subscription and advertisements. Ofcom reports that there were 495 channels by the end of 2008.
BBC (all channels) had a dominant share of the market with 31.8%, up 0.8% the previous year and up 1.2% in 2006, ITV and Channel 4 followed with 22.6 % and 11.7% respectively, both companies had registered growth in the past two years.
Going by this trend, the three companies, with a total share of 66.1%, will continue to dominate the market for the foreseeable future (Johnson et al, 2010).
The fourth and final section of the ‘quad play’ services is broadband. Fixed broadband was available in 65% of UK homes in 2009, most of which were served by their existing phone lines using DSL technology, the rest are supplied with cable broadband.
Analysts have predicted that this figure is likely to rise with DSL technology occupying a chunk of the market. wireless broadband is also provided by all major operators through 3G cards for laptops, however, most of the users have a DSL connection and see the mobile connection as a supplement.
In addition, there are more than 12,000 Wi-Fi hotspots in early 2008, the largest operator being The Cloud (58.3%), BT Openzone (19.3%) and T-Mobile (10%) (Johnson et al, 2010).
Together, the three Wi-Fi operators have a market share of 88.2%. The growth of the broadband sector has been encouraged by local loop unbundling, consequently, the five largest providers had 91% of all connections in 2009, with BT (26%), TalkTalk (25%) and Virgin Media (23%) leading the pack.
Owing to its dominance of mobile telephone, Vodafone is left with the other three options (fixed line telephone, television, and broadband).
The local loop unbundling process allows companies to install their own equipment in the existing BT network to provide voice and broadband internet services to their own customers, therefore, Vodafone would only have to purchase the necessary hardware and have their fixed line telephone and broadband running, rather than build their own network, which would be very costly (Yip, 1995).
However, it could acquire Wi-Fi operators or build its own network and increase coverage in other parts of the country. The only segment that would require a major partnership or acquisition would be in television as it is dominated by three major companies.
After a detailed analysis of the competitors, it is observed that the most effective measure for Vodafone would be to provide a ‘triple play’ strategy in which it would provide mobile telephone services, fixed line telephone, and broadband (Yip, 1995).
The company already has well-established mobile telephone network while the installation of fixed line telephone and broadband would require less capital outlay because, by using the local loop unbundling as provided by the Office of Communication, it will rely on the existing BT network.
Johnson, Gerry, Whittington, Richard, and Scholes, Kevan. Exploring Corporate Strategy. NJ: Pearson Education, 2010. Print.
Porter, Michael E. Competitive Strategy: techniques for analyzing industries and competitors. New York: Free Press, 2004. Print.
Yip, George. Total Global Strategy : managing for worldwide competitive advantage. NY: Prentice Hall, 1995. Print.