Telecommunication Industry Swot Analysis

Exam One

Kelly Newton

June 13, 2019

BUSN 499-VL4

2019 Summer Semester

Professor Alexander Manga

1.                   Telecommunication Industry SWOT Analysis

        To better understand Apple from a telecommunications standpoint we must first analyze the industry itself. In terms of advantages, there are a number of items to be excited about. Exponential growth is an undeniable trend effecting telecommunications. Smartphone usage has been steadily growing over the past few decades and that dictates a good sign of business and profits for the industry as well as companies that reside within it. Furthermore, technology has advanced far greater than anyone’s wildest imagination, bringing about new ways to implement telecommunication practices while simultaneously creating more products that depend on its capabilities. There has also been an increase in access to distribution networks; this makes it easier for telecommunications to offer their services to a wider range of clientele.

        Onto opportunities, where there seem to be endless in the realm of telecommunications. As discussed in strengths, opportunities are emerging across the telecommunication sector with unprecedented growth. With the use of mobile and other various devices the role of telecommunications is driven highly by technological changes and the introduction of AI. We are becoming more and more dependent on connectivity and telecom allows for this major transition. For example, autonomous driving and related operations open thousands of doors for the use of telecom services and the use of mobile devices in the U.S. has sharply increased- seeing an average of 8 billion gazes per day (Deloitte, 2018). This comes as an increase from the previous year (2017) of 13% and a strong opportunity for telecom to take advantage of. Moreover, there are dozens of untapped markets awaiting broadband service. Third world countries overseas and rural areas with poor service make for great starting points in developing new markets.

        Externally, we see three major weaknesses effecting telecommunications- the first being slower perceived service. Network technology has advanced greatly with speeds, having grown year after year, however consumer expectation has grown even more. While speeds may have gotten faster, standards have also been heightened and need to be continually met in order to maintain satisfaction. More importantly, these perceived speeds correlate to customer retention. Without repeat business and a solid customer support center, telecommunication providers can stand to see a significant decrease in customer loyalty and a direct hit to their bottom line. This goes hand in hand with quality of service. Additional support measures like a customer service center, attentive staff and a comprehensive website benefit the telecom industry just as much as connectivity speed.

        By way of threats, it’s clear that there are opportunities for other companies to duplicate similar processes. The technology to create a wireless device isn’t a secret and it’s extraordinarily inexpensive to construct these products as well. This information proves to be a threat to those competing in the industry and to telecommunications as a whole. The economy and its unpredictability are also an important characteristic to take into consideration. There is no telling what the future holds for the U.S. economy, let alone worldwide; this could lead to unforeseen incurred debt, an investment in the wrong market at the wrong time or a decrease in expenditure from current or future shareholders. Another threat to telecommunications is the inevitable security issues. The reality is that telecommunications fraud could result in billions of dollars’ worth of damage that no company, no matter the size, can afford to be apart of. Whether this comes in the form of user authentication hacking or another cyber-attack, protecting these networks from harmful actions are an important aspect that cannot be ignored.

b.                                                Porter’s 5 Forces

Force 1: Rivalry Among Existing Competitors- HIGH

        Rivalry is the determining factor in industry attractiveness and a one of the most important of the five factors. This is the driving force of the diagram and is high in industries where there are threats coming from the existing power of suppliers and substitute products as well as buyers in the market.

        To best understand the degree of rivalry in the telecommunications industry we should address 4 major contributing elements:

Costly Start-Up Expenditures: Telecommunications expenditures consist of capital and operational. Capital expenditures pertain to the procurement of materials required for running a business and are generally a one-time cost while the ladder is the regular operations expenses of running the business. Operational costs are made up of costs that the company incurs at a fixed frequency (PricewaterhouseCoopers). The telecom industry’s largest barrier to entry is access to finance, and when financing opportunities become less available, the rate of entry slows dramatically.

High Exit Barriers: Because of the costly investment in telecommunications infrastructure, the exit barriers to the industry are extremely high. Due to specialized equipment and the average size of the normal operation, telecommunications suffer from steep barriers to exit that ultimately discourages firms from leaving the industry and increases the amount of competition.  

Advantage by Innovation: Industry rivalry can be most commonly seen though this element. Any product, offer or successful change in the industry is quickly copied or recreated by another. This copying process results in a low degree of product differentiation because competing products show only small differences pertaining to a few variables. As discussed in the threats portion of the SWOT analysis, every company in this sector is largely investing in research and development followed by a strong marketing strategy, thus increasing the level of competition and making it easier for customers to change their service provider. There is little time to take advantage of an innovation once it has been released to the public because of fierce market competition and industry rivalry.

Pricing Competition: Just like everything else in the telecommunications industry, pricing is fierce. Now that almost everyone pays for cell phone services, firms within the industry must entice customers with new services and lower prices. The telecom market continues to experience intense pricing competition as the factors of success depend primarily on technical dominance, quality of services and scalability (Zacks.com, 2017). Telecom companies lack the access to gain new customers as the market is largely tapped, thus they are all forced to compete for the same segments of consumers and find differentiation in their pricing strategies and promotional offers.

Combined, all of these factors make the rivalry among existing competitors a strong force in the Porter’s Five Factor Model.

Force 2: Threat of New Entry- LOW

The threat of new entrants is based strongly on industry specific entry barriers. In telecommunications specifically, both existing and potential competitors contribute to the profitability of the overall market. New entrants threaten an increase in the level of competition while reducing profit margins and prices for existing telecommunication businesses. In the beginning, the telecom business was exceedingly difficult to penetrate. Much like it is now, it was essential to have a strong financial backing accompanied by a huge amount of capital investment. Along with this, the FCC demanded that firms attain regulatory approval and various licenses to operate (Ross, 2019). Because of these reasons, the companies within this sector catered to strictly regulated government monopolies that were subjected to heavy taxation and price controls (US Legal, Inc). However, the telecom act of 1996 led to significant deregulation of the industry and therefore reduced several barriers to enter the market (US Legal, Inc). Although this helped make it easier for firms to infiltrate telecommunications, it didn’t do enough to make this factor a serious threat to the industry. For one thing, the high financial investment required to establish a business in this industry significantly reduces the threat of new entrants. Furthermore, the aggressiveness of highly established firms stands as another deterrent for this threat and for those reasons makes this factor a minor issue in the business.