The paper attempts to analyse British Telecommunication’s shortcoming and capabilities, and provides recommendations to the company on effective and efficient use of resources. The paper will consider Lynch’s (2006) corporate strategy concepts and Porter’s (1985) 5 Forces analysis to evaluate BT’s current strategy and to explore various improvement areas.
Table of Contents
Introduction 1
British Telecommunications History 2
BT Products and Services 2
Company Strategy 2
Challenges to BT 3
SWOT Analysis 3
Porter 5 Forces Analysis 5
Entry Barriers 5
Rivalry Determinants 6
The Bargaining Power of Customers 6
Determinants of Supplier Power 6
Determinants of Substitution Threat 7
Recommendations and Conclusion 7
Appendix 8
References 9
Introduction
Telecommunications is an integral part of world economy and the worldwide telecommunication industry is booming at an accelerated rate. The UK telecommunications market is growing and is projected to grow at a promising rate of 2% to 4% between 2010 – 2014 (UK Telecommunications Market Research, 2010).
British Telecommunications Group plc has been the largest and oldest telecommunication service provider in the UK. The company started with landline and broadband services, gradually entered the mobile market and then expanded its horizon to television services. BT has the highest number of fixed lines and offers loads of low price calling and broadband plans. The tall tasks that the company faces is managing operational costs, lack of competitive advantages and a long term vision. The set strategies are not being implemented and the company is losing Brand value resulting in reduction of customer base. Development of Communication technologies and more importantly ‘rapid’ communication technologies, movement from production to service economies as well as globalisation and global development have changed the perspective on assets. We now see lessening of tangible assets in favour of the growing importance of intangible assets. (Rowe, 2008).
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British Telecommunications History
British Telecommunications Group plc is a global telecommunications Services Company headquartered in London, United Kingdom. Through its Global Services division, BT became the leading supplier of telecommunication services to corporate and government customers worldwide, its Retail division was leading supplier of telephony, broadband and subscription television services in the UK, with over 18 million customers.( “BT history – Looking back to the future”, 2007)
BT Products and Services
BT offers a wide range of telecommunication products; Landline phones to mobiles, Broadband to Wi-Fi and various Television services (BT Vision). BT product range is not only limited to the Telecom domain but it is slowly expanding into the Storage company arena as well. Its online shops have Storage Devices, Routers/Hubs – Networking devices, Printers and Scanners apart from the usual Landline Phones, Mobiles and Broadband that it is known for.
Company Strategy
The baseline strategy for BT is to create value for shareholders by being the best provider of communications services and solutions for everybody in the UK, and for corporate customers in Europe, achieving global reach through partnership.
Our strategy
Increased focus on providing global, real-time and open platforms and putting the customer at the heart of everything we do
(Strategic and performance review, 2008)
Challenges to BT
In spite of having such a huge range of products and services, BT has constantly struggled to gather the response it anticipated and thus failed to achieve estimated profit targets in the past decade. BT’s attempt to revive its fortunes in the mobile phone market is faltering, with subscribers to its service languishing at an all-time low. BT Vision launched as a competitor to SKY & Virgin media also failed to establish itself giving BT a customer base of only 423,000 customers at March 31, 2009 in comparison to 3.65million for Virgin and 9.32 for SKY(Market Share: The Latest Subscriber Figures on Sky, Virgin and BT Vision, 2009).
Delays on the product launch and substandard product quality have been major factors and areas of concern for BT’s dismal performance.
SWOT Analysis
The central purpose of SWOT analysis is to identify strategies that align with an organisation’s resources and capabilities to the demands of the environment in which the organisation competes. The purpose of generating this analysis is to build up on the strengths in order to exploit the opportunities, counter the threats and to correct the organisational weaknesses. (Ritson, 2008)
The Summary of the SWOT for BT is indicated in Figure 1. The strongest point for BT is its network being spread all throughout UK which it should cash on.
Figure 1: SWOT Analysis for BT
Strengths
Global telecommunication services in more than 170 countries worldwide.
Official telecommunication partner for the Olympics 2012
Responsible for most British fixed-line telephones with local loop and trunk network connections, and telephone exchanges
BT Infinity, Fibre Optic Broadband – Providing powerful internet connection
Weaknesses
Underdevelopment of mobile business and lack of fixed-mobile convergence
Lack of Business Strategy towards promotion of Products and Services
Inefficient ordering systems
Slippage of deadlines in launches
Dissatisfaction amongst customers over the post sales service.
Opportunities
Threats
Extension of ‘BT Tradespace’ online service platform to serve small businesses
Enhancements of ‘BT Vision’ to provide high-definition broadband television services
Expansion of Internet smart-phone services and improvise on Broadband speed
Expansion of services on highly-dynamic UK telecom market and internationally
Tie up with more overseas partners to promote its global expansion
Fierce competition from BT’s main rivals: O2, AT&T, Virgin, SKY, Vodafone, etc
Global economic depression
Workforce and management shortages in BT core business divisions, increased operational cost
Potential risk for BT bond markets
Lack of foresightedness and long term vision.
BT experiences stiff competition in the fields of Broadband & television and therefore needs a major revival to compete.
Porter 5 Forces Analysis
The industry analysis is best described by using Porter’s 5-forces analysis. Porter’s concept describes five forces that determine the attractiveness of a market. According to Porter, five forces create a microenvironment within the company that affects its ability to serve its customers and make a profit. Since BT consists of majorly Broadband, Mobile and Vision Customers, Porter’s analysis will be performed for all these segments. “The collective strength of these five competitive forces determines the ability of the firms in an industry to earn and to evaluate the rates of return on investment in excess of the cost of capital. The strength of the five forces varies from industry to industry, and can change as an industry evolves” (Porter, 1985)
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Entry Barriers (Low Risk)
British Telecom provider owns 27% market share of the UK Broadband Market (Livingston, 2010) as compared to Virgin its major competitor at 37%. Virgin Media is the second-largest fixed-line broadband provider in the UK, with 22.5% of the overall market share; BT has 26.7%. (Virgin Media steps up battle over broadband speed advertising, 2010). Although Virgin entered into the telecom market much later it grew at a much faster rate capturing wider customer base possibly due to better services and eventually customer satisfaction. Failure to promote its low cost products and services has led to BTs downfall and been a major growth hindrance.
The low price of product, high cost of infrastructure, Government Regulation and product differentiation acts as barrier to entry for new competitors. But the Government moving away from the dominance of British Telecom has opened the market to new entrants. Virgin entered the UK Telecom industry in 1999, and was able to grab a huge customer base due to its innovative products.
Rivalry Determinants (High Risk and Growing)
BT faces intense competition from fast growing TalkTalk/AOL (Market Share 23%) and Virgin Media (Market share 22.5%), threatening its current market leader position (Market Share 27%) in Internet/Broadband market. In Mobile phone operator segment, it finds competition from likes of T-Mobile & Orange combined (Market Share 37%), Telefonica, S.A (Market Share 25%) and Vodafone (Market Share 20%). On the television services front BT Vision has got fierce competition from SKY (Market Share31.7%) and Virgin (14.09%) while BT has a market share of less than 2%. With the Government moving away from the dominance of British Telecom (BT) to new fixed lines and mobile operators, the UK telecom market became the most open and competitive telecoms markets in the world. Its broadband suffers speed; Vision has got many competitors who provide better fetching set top boxes having the push technology which facilitates high picture quality resolution.
BT is set to launch Chrysalis a touch screen landline Smart phone, which is expected to give BT an edge over its competitors as far as fixed line phones are concerned. Huge investments have been made in Chrysalis as well as Canvas (enhancement of Vision) and BT is expecting huge returns. Chrysalis and Canvas would provide BT the competitive advantage of innovation at low price as compared to its rivals. Competitors are pursuing aggressive growth strategies, also the exit barriers to leave this industry are very high and hence a greater rivalry is exhibited by competitors.
The Bargaining Power of Customers (buyers) (High Risk)
BT has a customer base of over 5m (BT’s broadband customer base surpasses 5m, 2010) while Virgin has a customer base of 8.2m(Virgin Media beats expectations,2010) and SKY at 10m(Low prices for high definition pushes Sky’s customer base close to 10 million(Low HD prices boosts Sky’s customer base to10million,2010). BT has a large number of substitute products as compared to its competitors. The two biggest advantages with BT are its highest number of fixed lines and low cost. The price sensitivity of the budget customers is however higher which is often compensated by the high range of products with less price variance. BT is having a tough competition by Virgin and SKY who offers various packages at prices comparative to BT. The biggest challenge with BT now is to continue at its prices but improvise on the quality and customer service front.
Determinants of Supplier Power (Low Risk)
The bargaining power of suppliers determines the cost of raw materials and other inputs determining an important factor of the operational cost for any company (Porter, 1985). BT has very strong ties with its chain of suppliers. The company deals with a number of suppliers for the same product or a part of it. This gives the company an advantage to keep a check on the quality. Due to the huge orders made to the suppliers, the suppliers remain committed to BT. BT’s Openreach acts as guardians of the nation’s local access network.
Determinants of Substitution Threat (Low Risk)
The relative price performance of substitutes is at par to BT. Having the highest number of fixed lines provides an advantage to BT. The major substitutions, are accredited to the poor customer service and unacceptable quality of products. The switching cost is comparatively higher, as buying a new broadband means paying for the installation charges again to the new provider.
Recommendations and Conclusion
Every Organisation has to manage its strategy against, the internal resources, external resources (organisation operations) and the organisation’s ability to add value to what it does. The Organisation’s decision makers have to realise that strategy is not only about having a plan in place but to ensure sustainable decisions, develop processes to deliver the strategy, offer competitive advantage and have a long term vision. (Lynch, 2006). I would suggest that, BT should not just think of the present but should try and build its reputation amongst its customers by providing them good service prior to the sale as well as post sales.
BT leads the fixed line market and should cash on this advantage. BT’s major areas of concern are its lacklustre mobile business and underdeveloped fixed-mobile convergence, lack of promotion of its various cheap call schemes, occasional payphone problem and high ratings on customer dissatisfaction on post sales service. BT should take utmost care of product quality and post sales customer service for its future product launches. Since BT has all the infrastructural means to provide a superior broadband service than its competitors, the efforts must now be focused on facilitating uninterrupted internet services at much better speeds.
The testing of BT products and services should be done extensively before offering it to the customers, this would ensure a better quality product being given out in market thus help BT get a better reputation as customer service provider which is often a key resource in customer centric businesses.
BT has to realise that its sustainability in the market is only possible if the strategy adopted delivers sustainable competitive advantages over its actual or potential competitors. BT’s ability to grow forward in a significant way beyond the current environment will require a major revival of their existing operational and promotional strategies.
Appendix
Threat of New Entrant
Barriers to entry
Economies of Scale
Product Differentiation
Capital Requirement
Government Regulation
Industry Growth Rate
Summary of Market Forces
Determinants of Supplier Power
Availability of Substitute inputs
Buyers switching cost to other inputs
Uniqueness of Service
Cost of Changing
Suppliers product differentiation
Rivalry among existing rivals
Number of competitors
Relative size of competitors
Product Differentiation
Industry growth Rate
Strategic Stakes
Determinants of Buyer Power
Buyers purchasing power
Product differentiation
Differences between competitor products
Importance of Product to buyers
Buyer’s volume
Switching cost to use other products
Threat of Substitute product
Relative Price of Substitute
Relative Quality of Substitute
Switching Cost of Buyers
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