Airtel Pest Analysis and Porters Five Forces

Airtel Pest Analysis and Porters Five ForcesAIRTEL PEST AnalysisPoliticalThe ministry of telecommunicationmunication industry hiked FDI limits from 49% to 74% which enabled Indian promoters of telecom atomic number 18a to spark off the ambition and consolidation by sell their post to foreign enti quarters. Airtel already ask tie up with foreign partner SINTEL which is going to facilitate in investing to a greater extent in infrastructure and latest technology to provide the best serve to their subscribers. Also due to this increase in foreign direct enthronization in telecommunication market, Airtel pull up s busys be able to modulate the foreign stakes in their companies that have already acquired a range between 67-69 percent of their assets.With the increase in globalisation and tremendous growth of Indian telecommunication sector, Airtel launched its lively work in Srilanka in Jan 2009 and investing to expand its network with latest technology in next five years. Rece ntly Airtel have also acquired Zain for Africa trading operations which is the bite biggest overseas purchase by an Indian comp whatever.EconomicalIn telecom budget 2008, raw material for the manufacture of specified electronic iron state of w atomic number 18 items have been exempted from excise duty which lowers the network equipment be to benefit major spry operate provider, so Airtel can expand their network coverage to more rural areas at much cheaper cost.During the recession periodGovernment policy to reduce the custom duty on convergence product from 10% to 5% helped in establishing parity devices used in communication sector, so this ordain help Airtel in lowering their cost for DTH expansion.Government has announced per second accusation tariff for the subscriber along with the per minute billing plan. Though the per second plan is not beneficial for the telecom doers as this could reduce the sectors annual receipts by 10-15%.Operators are already struggling wit h the low Average Revenue Per user (ARPUs) due to graduate(prenominal) taxes (30 % of the gross revenue earned by the operators goes as various taxes) levied by government will now struggle more with this raw plan. To overcome this situation Airtel has launched low tariff per minute plans along with per second plan. As majority of the subscribers make longer duration calls and the per second call could be detrimental for them with the new reduced per minute plan. Airtel could also launch turn over per character for SMS services to increase the VAS revenue.SocialGovernment has hiked FDI limits which would lead to come apart infrastructure in telecom due to intake of more investment by the foreign investors. As 70% of Indian population still resides in rural areas, improvement in telecommunication infrastructure and services will reduce isolation, increase business viability, farming productivity and access to educational and medical services. Airtel has already announced to set u p 100000 service centres and telecom infrastructure in rural India by march 2010.Rollout of national rural employment scheme to all 596 districts in India with a provision of Rs.160 billion, to aid smart penetration of mobiles and consequently faster growth of Airtel as they hold major Indian telecom market with 24% growth at the end of thirty-first March 2009.Government has announced the auction for 3G and BWA spectrum and Airtel is one of the qualified bidders for the same and Airtel has already signed a deal with Ericsson to upgrade their network for 3G. It will help Airtel to undertake social initiatives of the government such(prenominal) as e-education, tele medicine, and e-health and e- governance, providing affordable broadband and mobile services to sub urban and rural areas.As demand for the note value added services and high speed broadband is increasing among the youth. Airtel being the leading private broad band service provider in the country has introduced the extre mist fast speed of 50 Mbps for the broadband users on next generation VDSL2 technology which will allow users, the convenience to download a full sign film in less than 3 minutes. Along with it is providing free value add services like parallel ringing, website builder (Basic), PC secure (Anti-Virus software), online storage, infinite gaming on games on demand.Increasing competition with the submission of many new operators in the telecom industry has forced in reduction of tariffs. So consumers get more fillings and can change their network operator according to their need. In this Airtel has introduced many low tariff plans like youth Plan for juvenile people, ladies special, and friends prepaid plan, family celebration plan according to the requirements of the different customer segments. Segmentation st identifygy aims towards understanding the need gaps of specific consumer segments and creating special segmented products for them.Technological join on in FDI limits also b enefited inflow of latest technology with improved infrastructure, as AIRTEL is well established with better infrastructure so it can provide better services to its customers in urban and can expand its network in more rural areas.Introduction of Mobile Number Portability (MNP) which allows the consumer to retain their existing mobile number, even when they change the service provider. This will increase the competition among the service providers as the subscribers can change their network if they are not happy with the services of the existing service provider. Airtel has the edge over his competitors as their services are much better than other service providers.Government has announced the auction for 3G and BWA spectrum which will allow telecom companies to offer additional valued services like high resolution video and multimedia services with high data rate transmission capabilities. Airtel has already qualified to bid for the auction. Also Airtel has signed a 1.3 billion dea l with Ericsson to expand and upgrade its network for 3G services in 15 of Indias 22 telecom circles.Porters 5 Forces AnalysisThreat from competitionHigh Fixed Cost The industry also suffers from high fixed cost which makes the entry barrier also very high for the industry. It comes as no surprise that in the capital-intensive telecom industry the biggest barrier to entry is access to finance. To cover high fixed costs, serious contenders typically require a lot of cash. When capital markets are generous, the flagellum of competitive entrants escalates. When financing opportunities are less readily available, the stones throw of entry slows. Meanwhile, ownership of a telecom license can represent a huge barrier to entry. There is already 6-7 players in each persona excluding 3 -4 big players like Bharti Airtel, reliance, Vodafone and BSNL.Very less time to gain advantage by an innovation Every company in this industrial sector in investing a huge amount in research and developmen t and marketing strategy. That is why we see when any offer launched by any company is always counter attacked by other companies very soon. This makes the industry rivalry most prominent. E.g. Caller tunes, Life time cards.Price warsThe price war is really very fierce in this industry. Price war in telecom industry has commoditized the market that branding has taken a backseat. New players are reducing their tariffs to get better hold in the market and in turn the existing big players like Airtel, reliance etc. also have to compete by introducing low tariff new plans such as youth plan for younger generation, ladies special etc.Threat of New newbieBoth potential and existing competitors influence average industry profitability. The threat of new entrants is usually based on the market entry barriers. They can take diverse forms and are used to prevent an influx of firms into an industry whenever profits, adjusted for the cost of capital, rise above zero. In contrast, entry barrier s exist whenever it is difficult or not economically feasible for an outsider to replicate the incumbents position. The most common forms of entry barriers, except intrinsic physical or legal obstacles, are as followsEconomies of scale In telecom industry the economies of scale exists from the supplier side. That is why companies try to increase their subscriber base at drastic rate.Distribution take Distribution channels are also providing a major determining factor. These channels are not loyal to any company and competitors can easily access them and make out work for them.Though huge licence fee to be paid upfront and high gestation period reduces the threat of new entrant and discourages investment and infrastructure in the telecom sector.Limited Spectrum availability, Regulatory issue which again leads to high licence fee also moderate new players from entering into the market.Rapidly changing technology and setup the efficient Infrastructure for the same accordingly is als o the major factor which stops new player to enter into the telecom sector.New entrants are ready to enter huge capital considering the attractiveness of the market.Increase in FDI limits to 74% is bringing competition from foreign players. Huge investments are being made by the foreign companies to setup better infrastructure and getting latest technology into the country.Threat from the non telecom background brand which could foray into the telecom industry by the ease of outsoucing.Customer switching cost is very low, as cost of new company is really low. And new connection offers more benefits to the customersThreat of substituteThe threat that substitute products pose to an industrys profitability depends on the relative price-to-performance ratios of the different types of products or services to which customers can turn to satisfy the same basic need. The threat of substitution is also affected by switching costs that is, the costs in areas such as retraining, retooling an d redesigning that are incurred when a customer switches to a different type of product or service. It also involvesThe potential major substitutes for telecom industry are as followsProducts and services from non-traditional telecom industries pose serioussubstitution threats. Cable TV and satellite operators now compete for purchasers. The cable guys, with their own direct lines into homes, offer broadband net income services, and satellite links can substitute for high-speed business networking needs.Wireless phones are also getting cheaper each year over the last decennium this has provided consumers with more convenience and mobility, to the extent that the younger demographic now considers a fixed line phone redundant.Just as worrying for telecom operators is the internet VOIP i.e piece over ip telephony is becoming a viable vehicle for cut-rate voice calls. Delivered by ISPs not telecom operators internet telephony could take a big bite out of telecom companies core vo ice revenues. Applications like Skype have been extremely popular among younger generation users and are fast emerging as preferred means of communication.BUYERS POWERBuyer occasion is one of forces that influence the appropriation of the value created by an industry. The most all important(predicate) determinants of buyer power are the size and the concentration of customers. Other factors are the extent to which the buyers are informed and the concentration or specialism of the competitors. Kippenberger (1998) states that it is often efficacious to distinguish potential buyer power from the buyers willingness or incentive to use that power, willingness that derives mainly from the risk of failure associated with a products useThe following points influence the buyer powerLack of differentiation among the service provider As telephone and data services does not vary much regardless of which companies are selling them.Cut throat competition Competition level has increased a lot with increase in new foreign as well as domestic players in the industry. Operators are engaging in an intense price war which is benefitting to the buyers in every way.Customer is price sensitive Every operator is offering low tariffs with better services due to high level of competition among the operators which has made customer more sensitive to price.Low switching costs from one operator to other operator.The consumer now has access to several means of communication like email, instant messaging which are diminishing the importance voice servicesAttractive Schemes for new connections.Availability of all operators everywhere.SUPPLIER POWERSupplier power is a mirror image of the buyer power. As a result, the analysis of supplier power typically focuses first on the relative size and concentration of suppliers relative to industry participants and second on the degree of differentiation in the inputs supplied. The ability to charge customers different prices in line with differenc es in the value created for each of those buyers usually indicates that the market is characterized by high supplier power and at the same time by low buyer power. In the drawback of Indian telecom industry the following should be kept in fountainheadLarge number of suppliers The industry basically has a large number of suppliers, which helps them to choose from a lot of options. So they try to select the best option to deliver the value to the customers and to have a competitive advantage from their competitor.Shared tower infrastructure Technology has helped them to share the tower infrastructure. This basically helps them to reduce the sign investment a lot.Limited pool of skilled managers and engineers especially those well versed in the latest technologies which put companies into weaker side in terms of hiring and salaries. strength cost of switching since changing their hardware would lead to additional cost in modifying the architecture.