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    Wireless Telecommunications Providers
                      Meghan Brown, Kathryn Buchan, Nicole
                      Grover, Elizabeth Reamer
+
    Table of Contents

    n Industry Structure
     n Industry Background
     n Barriers to Entry

    n Advertising Strategies
     n Primary Advertising Strategies
     n Top 3 Company Profiles

    n Data Analysis
     n Advertising Intensity
     n Analyzing Advertising Patterns
     n Prisoner’s Dilemma Case Study

    n Analysis and Recommendations
+
    Industry Evolution

    n Motorola “brick”
      phone sold for
      $3,995 in 1983
+


    n By the end of 2012 the number of mobile connected devices
      will exceed the number of people on earth
                                                         Number of Wireless Subscribers in US

                             400

                             350
           Wireless Subscribers (Millions)




                             300

                             250

                             200

                             150

                             100

                                             50

                                             0
                                                  2002

                                                         2003

                                                                2004

                                                                       2005

                                                                              2006

                                                                                     2007

                                                                                            2008

                                                                                                   2009

                                                                                                          2010

                                                                                                                 2011

                                                                                                                        2012

                                                                                                                               2013

                                                                                                                                      2014

                                                                                                                                             2015

                                                                                              Year                                                  2016
+
    Industry Products

    n Total Industry Revenue (2011): $195.8Billion

                                           Industry Revenue


                                                   Equipment,
                                                     10.0%




                                                                Data, 30.0%
                            Voice, 60.0%
+
    Industry Competition

    n ~1600 companies

    n Highly Concentrated                       Market Share
     n HHI = 2714
     n CR4 = 94.7%                      5.3%
                                10.7%
                                                               Verizon Wireless
                                                   36.5%       AT&T Inc.
                                                               Sprint Nextel Corp.
                        15.4%                                  Deutsche Telecom AG (T-Mobile)
                                                               Other




                                        32.1%
+
    Table of Contents

    n Industry Structure
     n Industry Background
     n Barriers to Entry

    n Advertising Strategies
     n Primary Advertising Strategies
     n Top 3 Company Profiles

    n Data Analysis
     n Advertising Intensity
     n Analyzing Advertising Patterns
     n Prisoner’s Dilemma Case Study

    n Analysis and Recommendations
+
    Barriers to Entry

    n High and Increasing
      n High cost of Spectrum Licenses
      n High cost of network infrastructure
      n Market nearing saturation
        n 96% of US population currently subscribes to cell phone
          services
+ How do these issues affect current
  players?
+


    n Firms have attempted to
      lower the cost of spectrum
      licenses and infrastructure
      through consolidation
      n In 2011, AT&T made an
         attempt to acquire T-
         Mobile
      n FCC ruled NO.
         Consolidation in the
         industry has reached its
         limit



       http://hothardware.com/newsimages/Item16626/Wireless_Carriers.jpg
+
                                                                       Employment
                                     250
    Industry Employees (Thousands)




                                     200

                                     150
                                                                                                                                                    n Firms are seeking new
                                     100                                                                                                              ways to limit costs 
                                     50                                                                                                               employment outsourcing
                                      0
                                           2002

                                                  2003

                                                         2004

                                                                2005

                                                                       2006

                                                                              2007

                                                                                     2008

                                                                                            2009

                                                                                                   2010

                                                                                                          2011

                                                                                                                 2012
                                                                                                                        2013

                                                                                                                               2014

                                                                                                                                      2015

                                                                                                                                             2016
                                                                                        Year
+
    Customer churn

    n Churn rate- # of customers an industry player loses over a
      given period of time
     n Most user surveys rate quality issues as primary reason for
       changing carriers

    n Most firms have an average monthly churn rate of 1.5%-
      3.5%
     n This indicates high level of competition in industry
+
    Open Access Requirements



    n Any Phone, Any Service
      n Decrease Provider Differentiation
      n Decrease Subscriber Loyalty
      n Increase Subscriber Churn




                                            http://rmc.library.cornell.edu/ezra/imag
                                            es/ezra2_w.gif
+


    n Increasing

      Consumer churn?
+
    Table of Contents

    n Industry Structure
     n Industry Background
     n Barriers to Entry

    n Advertising Strategies
     n Primary Advertising Strategies
     n Top 3 Company Profiles

    n Data Analysis
     n Advertising Intensity
     n Analyzing Advertising Patterns
     n Prisoner’s Dilemma Case Study

    n Analysis and Recommendations
+
    Combative Advertising

                    n Shift consumer preferences,
                      but not expand category
                      demand, in a mature
                      market

                    n Product differentiation
                      creates inelastic demand

                    n Could just be undercutting
                      profits
+
    Combative Advertising

    n Comparative advertising – a form of combative advertising
+
    Combative Advertising


                     n Prisoner’s Dilemma is a
                       possible outcome

                     n Optimal strategy = no one
                       advertises

                     n Dominant strategy = advertise
+
    Informative Advertising

                     n Differentiate providers on
                       the basis of:
                       n The variety of phones
                         that are compatible with
                         the service
                       n The speed and range of
                         the networks
                       n Data storage capabilities
                       n Payment plans
+
    Informative Advertising

                     n Reducing consumer search
                       cost may have pro-
                       competitive consequences

                     n In wireless telephone
                       service provider industry:
                       n Very concentrated
                       n Mature market

                     n Informative advertising
                       instead leads to advertising
                       war
+
    Informative Advertising


                       n Expanding primary demand?

                       n Signaling high quality rather
                         than increasing competition
                         n Only efficient, high quality
                           firms can afford expensive
                           ad campaigns
+
    Table of Contents

    n Industry Structure
     n Industry Background
     n Barriers to Entry

    n Advertising Strategies
     n Primary Advertising Strategies
     n Top 3 Company Profiles

    n Data Analysis
     n Advertising Intensity
     n Analyzing Advertising Patterns
     n Prisoner’s Dilemma Case Study

    n Analysis and Recommendations
+


    n #1 wireless phone operator in terms of sales and
      subscribers

    n informative advertising
     n showcase the capabilities of network and devices
     n “It’s not just about putting a device and a price in the
        advertising.”
+



    n “Rethink Possible”

    n “It’s What You Do With What We Do”
       n ads “showcase how mobility helps power human
          ingenuity in creative and entertaining ways”

    n Lumia 900 released April 8
       n “At all levels, this is a notch above anything we've ever
         done”

    n first Spanish language commercial aired on April 9th
+


    n Brand Names: Sprint PCS, Clear, Boost, Virgin Mobile

    n “All. Together. Now.”

    n offers unlimited data usage for smartphone users
+
    Table of Contents

    n Industry Structure
     n Industry Background
     n Barriers to Entry

    n Advertising Strategies
     n Primary Advertising Strategies
     n Top 3 Company Profiles

    n Data Analysis
     n Advertising Intensity
     n Analyzing Advertising Patterns
     n Prisoner’s Dilemma Case Study

    n Analysis and Recommendations
+
    High Advertising Spending

                        Top 5 Advertisers in 2011
                     n Procter & concentration
                     1. High marketGamble
                         high advertising
                          AT&T
                     2. elasticity

                     3. Advertising as barrier to
                     n General Motors
                        entry
                     4. Verizon Communications
                     n Prisoner’s Dilemma?
                     5. Comcast
+
    Ad-to-Sales Ratio

    n Depends on the type of product, advertising elasticity of demand,
      and the price elasticity of demand:

    n Industry ad-to-sales ratio is moderately high  differentiated
      products, a low price sensitivity of consumers, and/or a high
      advertising sensitivity

 Company Name          Total Revenue         Advertising        Ad to Sales Ratio
                      (Million $) - 2011   (Million $) – 2011      (%) - 2011
    Verizon                110,875               2,523                 2.3
 Communications
    AT&T Inc.              126,723               2,359                 1.9
Sprint Nextel Corp.        33,679                1,400                 4.2
Industry Average           39,111                1,135                 2.9
                                Mergent Online, 2011
+
    Ad-to-Sales Ratio

    Industry Name          Ad/Sales Ratio
                              % 2011                 n Fairly high ad/sales ratio for
        Wireless                  2.9                  wireless telephone service
        Providers                                      providers compared to other
     Grocery Stores               0.8                  industries
        Beverages                 5.1
      Commercial                  0.4
        Banks
          Hotels                   1
      Motocyclces                 1.6

    http://www.seattletimescompany.com/advertise/a
    dtosales.htm
+
    Number of TV Ads Aired

    n Sprint Nextel’s
      ad/sales ratio is the
      largest, yet
      comparatively
      small number of
      ads

    n Incredibly
      concentrated
      industry


                              2011 Data from Prof. Liaukonyte
+
    Table of Contents

    n Industry Structure
     n Industry Background
     n Barriers to Entry

    n Advertising Strategies
     n Primary Advertising Strategies
     n Top 3 Company Profiles

    n Data Analysis
     n Advertising Intensity
     n Analyzing Advertising Patterns
     n Prisoner’s Dilemma Case Study

    n Analysis and Recommendations
+
    Analyzing Advertising Patterns – Day
    Part
    n AT&T
       1.      Prime                 n The day part in which you
       2.      Late Fringe             choose to advertise
       3.      Afternoon Daytime 2     corresponds with how
                                       many people see your
    n Sprint                           advertisement which is
        1.     Prime                   related to how much you
        2.     Overnight               will pay for that time slot.
        3.     Late Fringe

    n Verizon
        1.     Prime
        2.     Overnight
        3.     Late Fringe
+
    Why does Day Part Matter?

                     n Three Reasons

                     1.   Competitive Industry

                     2.   Similar Services

                     3.   Similar Target Market
                                                                                                                                                                 +


                                                                      AT&T



                                                                         3. Situation
                                                                            Comedy
                                                                         1. Slice of Life
                                                                         2. Feature Film
                                                                                                                                       Programs


                                                      Number of Ads
                          D
                 D            oc
                     ra            um




                                                  0
                          m




                                                       5000
                                                              10000
                                                                        15000
                                                                                20000
                                                                                        25000


                         a/ en t
                             A d ar y
                                  ve
                         Fe           nt
                                          ur
                              at
                                 ur           e
                                     e
                           G            Fi
                 Lo           a            lm
                    c a me
                        lS            S
                In          po ho
                                             w
                   st            rt
                      ru            sS
               N         ct             ho
                 ew io n
                      s           /A w
                        Do            d
                             c u vi c
                                 m            e
                                    en
                            Lo           ta
                                ca          ry
                       N            lN
                         et
                Su          w            ew
                    sp o rk                   s
                        en            N
                            se           e
                 Si            /M ws
                    tu
                                                                                                               Type




                       at            ys
                          io            te
                             n              ry
                                 C
Program Type
                                    om
                           Sl            ed
                              ic              y
                                 e-
                                     of
                           So           -L
                   Sp          ap i f e
                       or           O
                           ts          pe
                               M            r
                                  ag a
                                                                                                                                       Analyzing Advertising Patterns – TV




                                      az
                             Sp           in
                                  or e
                                      ts
                                         ca
                   V                         st
                      ar
                                                                                                AT&T: Number of Ads Aired by Program




                         ie             Ta
                            ty              lk
                                -G
                                    en
                                         er
                                            al
                                                                                                                                                                                                      +


                                                                                                                             Sprint




                                                                    3.Sportscast
                                                                                                           1.Slice of Life

                                                                                   2.Feature Film
                                                                                                                                                                            Programs

                                                         Number of Ads
                        D
                            oc
                 Dr              um




                                                  0
                                                      1000
                                                             2000
                                                                          3000
                                                                                   4000
                                                                                                    5000
                                                                                                                    6000
                                                                                                                             7000


                      am           en
                         a/             t
                             A d ar y
                                  ve
                         Fe          nt
                                         ur
                              at
                                 ur          e
                                    e
                           G           F
                 Lo           am i l m
                    ca            e
                        lS           S
                In          po ho w
                   st           rt
                      ru           s
                         ct          Sh
               Ne           io            ow
                  w            n/
                                  A
                      s
                        D            dv
                           oc             i
                               um ce
                                   en
                            Lo          ta
                               ca           ry
                      N            lN
                         et
                Su          w           ew
                   sp o rk                    s
                        en           N
                            se          ew
                 Si
                    tu         /M             s
                       at           ys
                          io           te
                             n              ry
                                C
Program Type
                                   om
                           Sl           ed
                              ic             y
                                                                                                                                                Program Type




                                 e-
                                    of
                           So          -L
                   Sp          ap i f e
                       or          O
                           ts         pe
                               M            ra
                                 ag
                                     az
                                          in
                                             e
                                                                                                                                                                            Analyzing Advertising Patterns – TV




                             Sp
                                 or
                                     ts
                                        ca
                                                                                                                                    Sprint Nextel: Number of Ads Aired by




                                             st
                   V
                      ar
                         ie            Ta
                            ty              lk
                               -G
                                   en
                                        er
                                            al
                                                                                                                                                                                                      +



                                                                                                               Verizon:




                                                       3.Sportscast
                                                                                            1.Slice of Life

                                                                        2.Feature Film
                                                                                                                                                                            Programs

                                                       Number of Ads
                          D
                 D            oc
                                   um
                     ra
                          m




                                                0
                                                    2000
                                                                 4000
                                                                          6000
                                                                                         8000
                                                                                                       10000
                                                                                                                12000
                                                                                                                          14000




                         a/ en t
                             A          a
                                d v ry
                                   en
                          Fe           tu
                              at
                                 ur re
                                    e
                          G           F
                 Lo           am i l m
                    ca
                        lS eS
                In          po ho
                   st                      w
                      ru rt s
               N         ct          Sh
                                        o
                 ew io n
                      s          /A w
                        D
                          o c d vi
                               um ce
                                   en
                            Lo         ta
                                ca        ry
                      N            lN
                         et
                Su          w          ew
                    sp o rk                 s
                        en           Ne
                 Si         se
                    tu         /M ws
                       at
                                                                                                                                                   Type




                                    ys
                          io           te
                             n            ry
                                C
Program Type
                                   om
                           Sl
                              ic e dy
                                 e-
                                    o
                           So f-L
                   Sp          ap i f e
                       or          O
                           ts         pe
                               M          r
                                 ag a
                                     az
                             Sp         in
                                 or e
                                                                                                                                                                            Analyzing Advertising Patterns – TV




                                     ts
                                       ca
                  Va                       st
                      ri
                         et           T
                            y
                                                                                                                                  Verizon: Number of Ads Aired by Program




                               - G al k
                                   en
                                       er
                                          al
+
    Why does Program Type Matter?

                    n Consider the conditions
                      that allow for combative
                      advertising.

                    n We see that the only way to
                      differentiate from
                      competition is to advertise.

                    n Prisoner’s Dilemma ensues.
+
    Table of Contents

    n Industry Structure
     n Industry Background
     n Barriers to Entry

    n Advertising Strategies
     n Primary Advertising Strategies
     n Top 3 Company Profiles

    n Data Analysis
     n Advertising Intensity
     n Analyzing Advertising Patterns
     n Prisoner’s Dilemma Case Study

    n Analysis and Recommendations
+
    Prisoner’s Dilemma Case Study:

                     n Sprint is attempting to
                       engage AT&T and Verizon
                       in prisoner’s dilemma
                       advertising.

                     n Why? Beneficial if you can
                       get others to play.

                     n Truly Unlimited campaign.
+
       Advertising Patterns 2011

                                          Number of Television Ads By Month - 2011
                    14000



                    12000



                    10000



                    8000
    Number of Ads




                                                                                                                             AT&T
                    6000                                                                                                     Sprint
                                                                                                                             Verizon

                    4000



                    2000



                       0
                                              ch




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                              ry



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                                                                                                        ov
                                                                                      pt




                                                                                                                   De
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                                                                                                       N
                                                                  Month
+
    Will it Work?

                    n Maybe, but combative
                      advertising making false
                      claims is heavily monitored
                      by the NAD.

                    n Is Sprint’s Truly Unlimited
                      Ad enough to get you to
                      switch wireless providers?
+
    NAD as a Deterrent to Prisoner’s
    Dilemma

                        n Since 2008 there have been
                          9 cases brought before the
                          NAD that involve AT&T,
                          Sprint and Verizon.

                        n 3 of which were Verizon
                          challenging Sprint over its
                          claim as “America’s most
                          dependable 3G Network.”
+
    Table of Contents

    n Industry Structure
     n Industry Background
     n Barriers to Entry

    n Advertising Strategies
     n Primary Advertising Strategies
     n Top 3 Company Profiles

    n Data Analysis
     n Advertising Intensity
     n Analyzing Advertising Patterns
     n Prisoner’s Dilemma Case Study

    n Analysis and Recommendations
+
    Analyst Recommendations – Verizon
    (VZ)
+
    Current Analyst Recommendations
    (VZ)

    n Verizon (VZ) holds the #1
      market share (36.5% of
      wireless market).

    n Current stock price as of
      April 16, 2012 is $37.30.

    n Overweight = Buy
      n Investors believe Verizon
        will outperform other
        stocks.
      n Feasible since they hold
        #1 market share over
        AT&T by about 4%.
+
    Analyst Recommendation:
    Investment Opportunities
    n Mobile advertising
        n cellphone is the ‘third screen’

    n ‘Spectrum chasers’
        n Clearwire
        n LightSquared
+
    Firm Recommendations

      1.    Shift spending from advertising to customer
            retention.
           a. Customer loyalty programs
           b. Customer service

      2.   Invest in wireless infrastructure.
+
    Any Question?
    Thank you!

				
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