Wireless Communication

1. Wireless Communication Team 5 Sean Caruso Josh Jones Tim Marsh Joseph Roy

2. Introduction • Companies • Alltel • AT&T • Sprint-Nextel • Vodafone • Wireless communication carriers are increasingly relying on non-voice services to sustain growth • Premium services are of key strategic concern

3. External Environment Analysis • With increased threats posed by new entrants, comes more intense competition • New entrants open the potential for firms to lose market share to the new firm, and have the potential to drive the prices of products and services down if they choose to engage in a price war. • Losing market share decreases overall profits, while price wars squeeze profit margins and force firms to further cut costs. • In the United States, the threat of new entrants is always present.

4. External Environment Analysis • Barriers to entry of wireless communications strategic groups are very high. • A firm must have a massive amount of capital and infrastructure to be able to have a wireless network across the country, and more increasingly, the world. • Government regulations exist, too, that are hard to comply with, and a new entrant would have to have significant resources to even enter the market.

5. Competitive Speed • Fast Cycle • Constantly releasing new products and services • Rapid imitation • Reverse engineering • Standard Cycle • Competitive advantage is less specialized • Moderately difficult to duplicate technology • Competitive prices after imitation

6. Threat of New Entrants • In the United States, the threat of new entrants is always present • Barriers to Entry are very high • Capital & infrastructure (wireless network across the country & world) • Government regulations • Intensity of rivalry is not increased

7. Product Substitutes • Typical substitutes: landlines, satellite phones, email & internet chat • Voice-Over-Internet-Protocol (VoIP) phone service • Threat of new technologies • Intensity of rivalry is increased slightly

8. Bargaining Power of Suppliers • Phone suppliers have a lot of bargaining power if their product is differentiated and unique (iPhone) • Firms invent and produce their own technologies (services, network) • Components are generally commodities • Intensity of rivalry is not increased

9. Bargaining Power of Consumers • Do not have bargaining power to change the prices of individual carriers’ products or services, but can switch carriers • Number portability (2004) • Other than small contract cancellation charges, wireless carriers have nothing else to block customers from leaving • Intensity of rivalry is increased

10. Intensity of Rivalry of Competition • Several large carriers with a large amount of market share, unwilling to give up any of it • There are high fixed costs, high strategic stakes, and high exit barriers • Rivalry in the strategic group high • Intensity of rivalry increased

11. Opportunities • Ability to create new technologies/markets • Ringtones • Camera phones • Wireless internet • Strategic alliances • Apple & AT&T • Roaming

12. Threats • Technological advancements lead to new substitutes • Relationships with suppliers

13. Financial Data and Comparisons • 12 month standard • AT&T is the clear leader with nearly 55% gain in stock price • Vodafone enjoyed 25% growth • Alltel declined nearly 5% • Sprint has lost 22.5%.

14. Financial Data and Comparisons • 4 ½ month standard • AT&T has steadily added 12.5% (since the acquisition of BellSouth, T has enjoyed market dominance within the strategic group) • Sprint gained 6%, but with great variability. • Alltel had no change • Vodafone lost a few points.

15. Financial Data and Comparisons • 30 day standard • S and T have both added just over 6% • AT again was unchanged • VOD just under 4%

16. Debt to Equity (D/E) 2.15 1.65 D/E (S) D/E (T) Ratio 1.15 D/E (VOD) D/E (AT) 0.65 0.15 2003 2004 2005 2006 Year Debt to Equity Ratio

17. Interest Coverage Ratio 10.00 8.00 6.00 Interest Coverage (S) 4.00 Interest Coverage (T) Value Interest Coverage (AT) 2.00 0.00 2003 2004 2005 2006 -2.00 Year Interest-Coverage Ratio

18. Net Income 8500.00 6500.00 Net Income (S) 4500.00 Net Income (T) Gain/Loss Net Income (VOD) 2500.00 Net Income (AT) 500.00 2003 2004 2005 2006 -1500.00 Year Net Income

19. Strategic Analysis • Cost Leadership • AT&T strives to keep costs at a constant, in order to keep prices competitive and attract customers • Vodafone seeks to reduce costs across the board through outsourcing internal functions • Differentiation • Sprint Nextel and AT&T both pursue a differentiated service strategy. • Alltel primarily serves the Midwest and Southeast segments of the United States.

20. Strategic Analysis • First Mover Advantage • High risk • Heavy advertising campaign • Reverse engineering often follows • Consumers are left with fairly similar products or services offered by every company in the industry • Cycle often repeats • It could be argued that avoiding the first move and offering a competing, unique version holds the real advantage

21. Strategic Analysis • Vodafone • Takes a different approach to the first mover concept • Establishes itself in countries where the cellular phone has not yet become commodity. • They hope that, as the country progresses and wireless communication market penetration grows with societal development; an established name will secure a higher market share

22. Mergers & Acquisitions • Utilizing acquired companies to further expand their range of products and services available to customers • Large mergers, like the creation of AT&T Cingular and Sprint Nextel illustrate this idea • Vodafone proves to be an exception in some cases, however, given that they do not own a controlling stake in Verizon Wireless • Vodafone has tried to purchase the remaining shares outright, but also announced to the public that it would be content with its current stake since Verizon was making money

23. Conclusion • As competition in the wireless communications industry continues to grow, the strategies employed by companies within the industry become crucial factors that determine their success • Offering new products and services at competitive prices remains important, but it is also vital that the companies remain aware of the tastes and preferences of consumers, as well as the products offered by their competitors

24. Conclusion • Through successful differentiation, cost control and controlled growth, a company within the wireless communications industry can maintain the strategic advantage necessary to thrive in this fast paced, high tech market • A pattern exists amongst the companies which revolves around the development of new products and services, and follows with competitors adopting a similar offering soon after. This almost generates a kind of “First, Second and Third Mover Advantage,” and awareness of the cycle, as well as the means to efficiently roll out new products and services are traits needed by these companies to enjoy continued growth.