The Apple iPhone idis 619 Capstone Assignment By
Apple’s valuation using Scenario Analysis
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- Part B – Wireless Service Provider Industry
Apple’s valuation using Scenario Analysis
Sensitivity Analysis: Under each of these scenarios we arrived at different valuations for Apple Inc. In each of these scenarios we then adjusted the WACC, COGS/Sales ratio, SG&A/Sales ratio, R&D/Sales ratio, Terminal growth rate and next year growth rate to arrive at the range of valuations under each of these scenarios. The Exhibit III (E) 3a gives the high and low end valuation numbers that we calculated under these scenarios. We have not done sensitivity analysis for the scenario where Apple fails to keep its COGS under control as COGS is one of the parameters we are varying in the sensitivity analysis. After analyzing all these scenarios, it is evident that Apple’s valuation is adversely affected if it fails to keep pace with adding content on iTunes. Even in the case where Apple does not introduce iPhone, since consumers will start buying cell phones with other MP3 players, the revenues from iTunes will reduce. So iTunes is a sustained competitive advantage for Apple and it should try to defend iTunes through future product and service offering. Apple loses this competitive advantage if it is forced to open up its iTunes to outsiders as is currently being discussed in the European Commissionxciv. Part B – Wireless Service Provider IndustryII (B) 1: Level 1 Analysis & Level 2 AnalysisPlease see Exhibit II (B) 1 & 2 – Part B for a detailed Level 1 & Level 2 Analysis II (B) 3: Level 3 AnalysisFrom levels 1 and 2 analysis, we conclude that the wireless service industry in high revenue markets of US and Europe are coming under increasing pressure to provide value-added services at increasingly lower costs. The wireless service firms are driving to attain economies of scale by increasing their subscriber base and through addition of low-cost value added services in order to justify high capital costs for new technologies like 3G and 4G. Some firms are also attaining these economies of scale by means of acquisition of other wireless firms. Hence overall the wireless service industry is more moderately unfavorable than the handset industry with an overall rating of 3.7 out of 5.
II (D): Competitor Analysis a) Cingular: Cingular has entered into an exclusive contract with Apple to supply wireless service in the US to Apple’s iPhone. This arrangement with Cingular adds another dimension of competition to Apple in the service industry. The main suppliers of mobile phone service in the US are Cingular, Verizon, Sprint, T-Mobile, Alltel and Nextel. Apple’s tie up with Cingular will likely force other mobile phone service providers to get contracts with other smartphone manufacturers and to compete on products and services that are at least comparable in features with the Apple’s iPhone. For instance, since the introduction of Motorola’s RAZR in the fourth quarter of 2004, Motorola has taken 12 percentage points from Nokia capturing a total of 44% market share in US cell phone industry. This example illustrates how consumers are moving towards having more trendy handsets which provide style in addition to added functionality. As consumers get interested in Apple’s iPhone, many of them may be forced (and be willing) to switch cell phone providers and sign a two year contract with Cingular. This will eat into the existing market share of other mobile phone service providers. So there will be a lot more pressure from the service providers on handset manufacturers to provide value (in terms of additional features and making handsets that are comparable to iPhone) which may ultimately lead to exclusive contracts between other handset manufacturers and mobile phone service providers. Please see Exhibit II (D) 1 for the market share of mobile phone service providers is given below. Verizon, T-Mobile and Sprint Nextel appear to be the closest competitors to Cingular. Sprint-Nextel and Verizon share similar market shares, are the next big players in the service provider industry and are in the CDMA industry. T-Mobile has lower market share but is an emerging threat to Cingular since it is the only other major GSM provider and also has international presence. International business travelers who prefer to have their phones working in different countries usually prefer to go with GSM phones as GSM-based technologies are available in more countries. Cingular was primarily held by SBC and Bellsouth with ownership interests of 60% and 40%. With SBC’s acquisition of AT&T Corp. and Bellsouth, Cingular will now be positioned under the new AT&T Inc. brand name. AT&T corporate strategy is “give customers anytime access to all of their communications services on simple-to-use devices that go wherever they go. Our goal is to be the only communications and entertainment company our customers will ever want.”xcv AT&T will be selling Cingular wireless services under AT&T name and will be providing Cingular with a global presence. AT&T’s corporate strategy can be defined as “Related Linked”. AT&T’s business comprises of Business and Wholesale (48%), Wireless (24%), Consumer (24%), Directory and Other (4%). We have classified their strategy as ‘related linked’ since their businesses can operate independently, i.e., wireless division has little interaction with Business and Wholesale and yet fits (‘Simple Consistency’) into their overall strategy of becoming a single-stop shop for all communication needs. They are linked in that the independent units share the common brand name and communication from wired and wireless devices with plans such as AT&T unity plan. “AT&T Unity plans are part of the company's strategy to simplify the process of purchasing and using communications services, while combining wireless/wireline services in ways that provide tangible benefits for customers”xcvi. AT&T’s corporate umbrella is shown in Exhibit II (D) 1a – Part B. Since the Apple iPhone will primarily be sold by the wireless division of the new AT&T, we focus only on the business level strategy of Cingularxcvii. Cingular offers consumer services such as postpaid voice service, prepaid voice service and data services. It focuses its marketing and sales efforts on postpaid voice services since it locks in the consumers for one or two year contract periods and gives incentives such as subsidized handsets due to the low churn rate. Postpaid voice service strategy can be classified as “Broad Differentiation”. According to Cingular’s 10-K filed on 02/24/06, “significant component of our strategy consists of developing value-added plan features, ancillary services, unique equipment devices and promotions to attract and retain postpaid subscribers”. Cingular’s prepaid voice service is targeted towards niche markets such as youth markets, families and small business segment, and follows the strategy of “Focused Differentiation”. Cingular’s prepaid voice service generates higher revenue per minute but generates substantial subscriber churn rate and lower revenues per subscriber. The data services segment is a growing segment and follows a ‘Broad Differentiation’ business level strategy. According to Cingular’s 10-K, “Cingular focuses on improving the customer experience through deploying advanced data capable devices, enhancing the user interface on these devices and making the provisioning of data services on these devices as seamless as possible. To foster the continued growth in the consumer data business, we (Cingular) continue to upgrade the tools and applications that facilitate greater usage.” Cingular is also involved in equipment sales but this is only to complete the product portfolio by making hardware and services available in single stop shop. Cingular also provides Corporate Wireless Solutions, Enterprise Voice Services, Enterprise Data Service, Reseller service and Equipment sales (such as PDA’s and wireless PC cards) and follows the strategy of “Focused Differentiation”. Cingular also has access to licenses and technology for their networks through which they provide their services. Value Drivers: Technology: After merging with at&t, Cingular now has the technology capabilities to transform itself into a solution provider for IP services. Cingular enhances its network with GPRS, EDGE and UMTS network nodes to have customers experience higher data and video speed servicesQuality: Cingular offers superior quality content delivery will fewer dropped calls, is branded (and lives up to the expectation) with terms such as “Raising the Bar”, “Allover”, etc. Breadth of Line: Due to its merger with at&t, the new at&t offers broad product line with infrastructure to support, local, long-distance calling, wireless voice and data services, DSL broadband lines, directory publishing. Geography: at&t has wide geographical presence. at&t’s IP networks are available in 127 countries and is present across USA. Brand/Reputation: The brand reputation for Cingular is high especially under the new at&t umbrella. Cingular has also associated itself with terms such as “Raising the Bar”, “Allover” and “More Bars in More Places”. Network Externalities: With each new customer being added, Cingular’s network infrastructure is being utilized to a greater extent without the need to invest in adding additional resources. Complements: There are a variety of services, both voice and data, that enhances the ability to sell their services Large Subscribers: Because Cingular provides free mobile-to-mobile calls to any Cingular phones, a large subscription base means that there are more chances to call someone that is also a Cingular subscriber for free.GSM Technology: GSM Technology is the most widely used cellular technology in Europe and Asia. By selecting GSM technology, Apple can easily reach into the international market with minimal change to the design. In the United States, the largest GSM network service provider is Cingular. Hence, Cingular’s GSM network was an easy choice for Apple.Cost Drivers: Scale Economies: Cingular achieves economies of scale by adding more consumers since it utilizes the same infrastructure to deliver wireless services. Scope Economies: Cingular leverages same technology across global geographies but may have to invest capital in constructing new towers. Economies of scope are high The Learning Curve: Under the new corporate umbrella, the learning curve can lower the costs across various communication services. Low Input costs: Greater subsides on handsets as handset manufacturers are willing to subsidize their handsets to gain entry into #1 market player in voice/data services Vertical Integration: at&t is vertically integrated in the sense that landline and wireless service is available within the same corporate umbrella. Resources and Capabilities: Exhibit II (D) 4 – Part B a – VRIO Analysis for Cingular Products and Number of product markets served: at&t has businesses in retail and wholesale landline telecommunications, managed networking, wireless services, yellow and white page advertising and electronic publishing. b) Sprint-Nextel Corporation: Sprint Nextel Corporation is a holding company with operations conducted mainly by its subsidiaries. Sprint-Nextel provides wireless and wireline communication products and services to businesses, individuals and government agencies. It provides mobile telephone and wireless data services on networks that utilize CDMA and integrated Digital Enhanced Network (iDEN). It offers post-paid (under brand name NexTel) and pre-paid wireless services (under brand name Boost Mobile)xcviii. They are the providers of long distance services and one of the largest carriers of Internet traffic over all-digital long distance Tier 1 Internet Protocol (IP) Network. A large number of protocols such as MPLS, Frame relay, ATM and Managed network services run over their network to cater to the needs of Residential, Multinational Corporations, business and other communication customers. They also provide local exchange telephone service (local, long distance and data services such as DSL) to 7.4 million customers. Sprint Nextel’s Corporate Strategy is “Single Business” Business segments:
Value Drivers: Sprint Nextel’s value drivers are its large network and wireless spectrum assets which allows Sprint to offer to its customers an “array of broadband wireless and integrated communications services”, its digital wireless network in all 50 states and 297 of the 300 largest U.S. metropolitan areas, and its choice of technologies (CDMA and iDEN ) to its customers. Cost Drivers: Sprint Nextel’s cost drivers are its economies of scale and scope (which are now comparable to competitors- AT&T and Verizon) resulting from acquisition of Nextel, the resulting cross-selling opportunities with Nextel’s customers and other cost savings opportunities- higher volume discount from suppliers due to larger size, reduced network operating costs due to co-location of cell sites, reduced SG&A expenses due to combining of customer service, and marketing/sales and fulfillment savings. Resources and Capabilities: Exhibit II (D) 4 – Part B b – VRIO Analysis for Sprint Nextel Products and Number of product markets served: Sprint Nextel has the following three lines of business: Wireless phone service, Long distance landline phone service and Local landline phone service c) T-Mobile: “T-Mobile is a group of mobile phone corporate subsidiaries (all under the ownership of Deutsche Telekom) that operate GSM and UMTS networks in Europe and the United States. The "T" stands for "Telekom."xcix. The corporate level strategy of T-Mobile can be categorized as “Related Linked” since the revenues from either of these business units is less than 70% of total revenues and these business units share only a few links. For example, Broadband/Fixed network unit shares little links with Mobile communications division and these both divisions in turn complete the portfolio of Business Customers division. T-Mobile’s Business level strategy is “Broad differentiation” since mobile industry is a mass market industry but T-Mobile distinguishes itself through high-quality customer service and focusing its offering for specific segment needs (such as 5 favorites, offering mobile TV during FIFA world cup etc Value Drivers: Technology: T-Mobile focuses on continuously upgrading its networks to offer the best quality Quality: T-Mobile offers superior quality services – both in terms of network services and customer service and it won the “Mobile Operator of the Year” award. Breadth Of Line: T-Mobile offers end to end business solutions both broadband and mobile communications when combined with other subsidiaries of Deutsche Telekom. Service: “T-Mobile offers exceptional service and “T-Mobile USA has been recognized by J. D. Power & Associates for the 5th time in a row for highest ranking customer service in wireless.” c Customization: T-Mobile offers high level of customization and has both prepaid and post paid services and flexibility to choose from variety of voice and data plans Network Externalities: With each new customer being added, their standard equipment and services are utilized without the need to add additional resources. (high network externalities) Complements: Availability of variety of services (both voice and data) & DSL solutions helps them build end to end solution with Business Customers. Cost Drivers: Scale Economies: Cingular achieves economies of scale by adding more consumers since it utilizes the same infrastructure to deliver wireless services. Scope Economies: Cingular leverages same technology across global geographies but may have to invest capital in constructing new towers. Economies of scope are high Low Input costs: Greater subsides on handsets as handset manufacturers are willing to subsidize their handsets to gain entry into wireless service providers’ networks. Vertical Integration: They own and operate GSM, UMTS, EDGE networks and offer variety of voice and data plans Resources and Capabilities: Exhibit II (D) 4 – Part B c – VRIO Analysis for T-Mobile Products and Number of product markets served: Deutsche Telekom operates in Mobile communications (voice and data), provides Broadband/Fixed network, offers end-to-end solutions to business customers and has a group headquarters division that handles the real-estate issues. Geographically they are present in Europe (with 52.9% of revenues coming from Germany and 24.2% revenues from rest of Europe) and North America. d) Verizon: Verizon Communication Inc. is a direct competitor with AT&T in everyway. Verizon Communication competes in the same business sectors as AT&T: Domestic Telecom (local & long distance phone services and DSL), Domestic Wireless, Information Services (yellow pages), and International (investment in foreign wireline and wireless services)ci. Verizon’s domestic wireless business (Verizon Wireless) competes directly with AT&T’s newly acquired Cingular wireless business. They both provide the most wireless coverage in the United States. Verizon Wireless is the #2 wireless provider after AT&T Mobility (formerly Cingular) with 51 million subscribers. On the surface Verizon Communication’s corporate level strategy looks like Related Linked, because each business has the same brand name and provide single billing. However, the actual service provided is like Unrelated-businesses. Verizon Domestic Telecom purely concentrates in wireline business, while Verizon Wireless purely concentrates in cellular business. Verizon’s revenue for 2005 revenue was pretty much split between Verizon Domestic Telecom and Verizon Wireless businesses. Verizon Wireless business level strategy is broad differentiation. Verizon Wireless is trying to capture the all the mobile phone users in the United States by differentiate themselves with better wireless network technology, EV-DOcii, and more content such as V-CASTciii. However, the wireless service industry is very competitive. Verizon believe Network reliability, capacity and coverage, Pricing, Customer Service, Product Development, Distribution and Capital Resources are important competitive factors to the wireless industryciv: These are very much the same factors that Cingular is focusing oncv. Many of the features and functions that Verizon is trying to differentiate itself from the competition are easily replicable by the competition; hence, many of the features and functions are becoming commoditized, which is driving the service providers to become low cost leaders. Value Drivers: Verizon Wireless offers more exciting choices of handsets than Cingular such as LG Chocolate in various different “flavors” (aka colors). Because handsets are required to have GPS locator for 911, Verizon Wireless took advantage of the build-in GPS to offer VZ Navigator and Chaperone features. The VZ Navigator provides turn-by-turn instructions to specific location; while the Chaperone allows family members to locate the handset in real-time including notifying parents of when a child’s handset enter or exiting a zone such as school. Verizon Wireless also offers a wide range of ring tones, music, video clips and live broadcast of video, music and games (V Cast) via their “Get it now” feature. The access of V Cast streaming video is made possible by Verizon’s EV-DO 3G technology. Cost Drivers: Verizon Wireless has the typical cost driver of subsidizing handsets to guarantee retention of customers. Also, Verizon need to build the infrastructure to provide VZ Navigator, Chaperone, “Get it now” and V-Cast features to the customers. Many of the “Get it now” contents require getting licenses to distribute such as music and video. Resources and Capabilities: Exhibit II (D) 4 – Part B d – VRIO Analysis for Verizon Products and Number of product markets served: Verizon Wireless offers a variety of mobile handsets, voice plans and data plans for individuals, businesses and government users. In additional to traditional text messaging, Verizon offers video & picture messaging, Mobile IM and Mobile Email. Other features that Verizon offers are ring tones, music, games, video Clips, mobile TV, mobile Web & email. II (D) 6: Comparative Financial Analysis Financial ratio analysis provides us an opportunity to quantify and analyze operational performance of the wireless service industry involved using the following categories of ratios and financial numbers which were closely analyzed over a period of five years, dependent on the financial data available (Please see Exhibit II (D) 6 – Part B for a detailed analysis)
Over the years, the wireless industry in the US has become significantly competitive and this has led to slow growth rates, lower gross and net profit margins and increased industry consolidation. Also, the firms are now competing on the basis of network and customer service quality and by partnering with handset firms to provide value-added data services, which have comparatively lesser market penetration in the US. The firms are also heavily investing in improved infrastructure to provide these value-added data services by moving from 2G and 2.5G networks towards 3G networks, which shall also provide them with the ability to provide complementary services like Wi-Fi access in US and Europe. The firms are also investing in the wireless infrastructure in emerging markets to gain increased market penetration. Wireless service firms also faced increased regulation in Europe due to the implementation of EU framework across countries’ telecom sector. In the US, as of 2006, Cingular compares very closely with Verizon in terms of its liquidity ratios. Over a period of five years, while these ratios have declined for Cingular on one hand, the same ratios have increased for Verizon, especially since 2005. This can be attributed towards the acquisition of AT&T wireless by Cingular in Oct 2004cvi as these firms continue to work on synergies in terms of capital assets like cell sites and redundant network facilities. Cingular has been capitalizing on its reduced debt ratio over last five years and is favorably positioned against its competitors like Verizon and T-Mobile with regards to this ratio, indicating that it has done a better job at utilizing debt to acquire assets. From the Debt-To-Equity ratios, Cingular has also done a much better job than its competitors by funding its growth through its equity rather than its debt, leading to a lower Debt-To-Equity ratio. Verizon, T-Mobile and Sprint Nextel though have outperformed Cingular in their gross profit margins over last five years and this should be a serious cause of concern for Cingular. The same is true for its return on assets and return on equity ratios which have been declining over time and are very much unfavorably positioned against Cingular. This can be attributed to increased investment by Cingular in upgrading its networks from 2G to 3G and due to its strategy to acquire a larger subscriber base and reduce the churn rate, in order to remain competitive. From the ratio analysis the root cause of concern for Cingular seems to be that the cost of sales are increasing faster than the revenue, having an adverse impact on its income and reducing its ROA, and ROE. Also the critical metric of Average Revenue Per Unit or ARPU used by wireless service providers to measure performance indicates that ARPU for Cingular has been steadily declining over last five years while the same has been increasing for Verizon, expect a small decline in 2005. In addition, the customer churn rate for Cingular is higher than that of Verizon, indicating that Cingular needs to work harder on providing better network capabilities to its user along with attractive pricing and customer service to retain these customers. The bright spot for Cingular is that it has managed to beat Verizon in increasing its customer base since 2004 and continues to enjoy this lead, although even this margin is slimming. This is especially significant as Cingular sees its future growth driven by a larger subscriber basecvii and increased ARPU derived from these subscribers due to value added servicescviii. Overall Cingular faces a comparatively much more challenging financial position than Apple, in a highly competitive wireless service industry and is striving to attain economies of scope and scale, reduce redundant resources with increased synergies due to the AT&T wireless acquisition, and increase investment in developing 3G network infrastructure to provide high quality value added services for its customerscix. The partnership with Apple towards exclusive distribution of iPhone seems a strategic move to re-invigorate its current subscriber base to renew their contracts, attract new subscribers from Verizon and other wireless service providers and encourage users towards subscribing for higher margin data services. II (D) 7: Implications of above elements (Wireless Service Provider Industry) Service provider industry is highly competitive with each of the major players competing for luring subscribers from one another. Usually one firm comes up with attractive rates and plans and others try to copy the model. All the service providers pressurize the handset manufacturers to subsidize their handsets. Under these circumstances, service providers are faced with limited choices to set themselves apart. For example, T-Mobile differentiates itself in terms of best customer service and Cingular wants to differentiate itself by having exclusive ties with Applecx. The partnership with Apple will also bring customers to Cingular from Verizon and Sprint Nextel and T Mobile thereby increasing the market share of Cingular. This exclusive arrangement between Apple and Cingular will also increase the rivalry between firms as firms try to keep subscribers with incentives or tie up with new players such as LG Prada. Cingular however should watch for the possible imitation of exclusive deal strategy and work with Apple in providing complete solution or value added services such as WiFi cellular network switching capability or streaming audio content and thereby leveraging its partnership and building on it. II (E): Intra-industry Analysis for Wireless Service Providers The mobile phone service providers can be divided into strategic groups based on various criteria- bundles of telecom services (voice, data, mobile broadband, landline) provided, geographic footprint, international v/s domestic focus, affiliations with mobile handset manufacturers, service delivery technology platform, the ‘generation’ of mobile service provided (e.g. 2G, 2.5G, 3G) etc. From an iPhone strategy perspective, the pertinent criterion is the service delivery technology platform. Based on this, the major strategic groups of the mobile phone service provider industrycxi and their brief descriptions are as follows:
As is clear from above, there are some overlaps among the different strategic groups, i.e. one service provider may belong under more than one group. II (F): Threats and Opportunities Analysis for Wireless Service Providers II F: Threats and Opportunities – service providers The following are some of threats that service provider industry faces-
The following are some of the growth opportunities that the service provider industry can utilize-
II (G): Summary of External Analysis The service provider industry is moderately unfavorable. However existing service providers have found ways to differentiate themselves. These activities are easily imitated by competitors and hence the success of service providers lies in being able to come up with new offerings and locking in customers with first mover advantage. Cingular has successfully managed to come up with unique strategies to emerge as market leader in this Industry. Its original move to combine Cingular and AT &T to get greater network coverage and emerge into a service provider with fewest dropped calls, got Cingular a lot of subscribers. Next, its move to work with competitors such as T-Mobile and act as complementor to T-Mobile by allowing it to access some of its network infrastructure for a licensing fee allows it to generate incremental revenues and meet its financial objectives. Next, it tapped into exclusive partnership with Apple to gain first mover advantage by catering to consumer smartphone segment. Its unique position to be able to partner with Apple and allow Apple to make decisions on handset signals that it is willing to change its traditional working ways to generate greater value to its consumer. Cingular is positioned as “access based positioning” and serves the consumers who want access to GSM network. Cingular is better off by partnering with Apple and offering unique features such as visual voice mail to generate superior value for its customers. Cingular and Apple have entered into partnership with a “window option” strategy and depending on the success of iPhone and unique service offering, may move into “options strategy” if the iPhone meets the financial and market share objectives of both the firms. With this partnership with Apple, Cingular is uniquely positioned with a resource (association with Apple) that can take Cingular to new levels of subscriber base and enhance its market leadership position – a capability that all of its competitors currently lack. III: Internal Analysis – Cingular III (A): Business Definition/Mission Cingular provides wireless cellular services to individual, business and government users. III (B): Firm’s Management Style There is very little information about Cingular management style. However, through their organizational structure, it seems that they are more marketing and sale focused. III (C): Organizational Structure, Controls and Values III (C) 1: Firm’s organizational structure Even though AT&T acquired Cingular, it seems that AT&T is keeping Cingular as a separate entity. This is evident by the fact that Cingular CEO, Stanley Sigman, is not an AT&T executive officercxii. Cingular seems to be organized along functional and geographical structurecxiii. This is the most logical structure, because of the geographic coverage that Cingular has. Cingular needs to manage the sales and support regionally, since they are a “service” provider. III (C) 2: Controls used to monitor/appraise employee behavior and performance There is not enough publicly available data to determine what kinds of controls are used at Cingular. However, Cingular’s Values are Customers, Integrity, Performance, Teamwork and Peoplecxiv. III (C) 3: Firm’s organizational values III (D): Strategic Position Definition III (D) 1a: Corporate Level – Firm’s business portfolio Cingular’s primary business is providing voice services and data services via cellular wireless technology. III (D) 1b: Corporate Level – Firm’s Corporate Level Strategy Over 90% of Cingular’s core business is from Voice Services, and less than 10% from Data Servicescxv. So, Cingular’s corporate level strategy is Dominant Business. III (D) 1c: Corporate Level – Recent acquisitions, mergers or divestments Although Cingular was recently purchased by AT&T, there are no significant organizational changes. This is because, prior to the acquisition, AT&T already owned 60% of Cingular as a separate holding company. AT&T (formerly SBC), had used Cingular as their extension into wireless market. With the complete acquisition, AT&T now has more control in integrating its marketing strategies. This is evident in their new “AT&T Unity Plan”, where users can place calls for free to any AT&T wireline or wireless customers. III (D) 1d: Corporate Level – Recent alliances, partnerships or joint ventures Apple decided to ally with Cingular as the sole service provider for the iPhone within the United States. Please see Exhibit III (D) 1d-1 for the analysis of synergies between Apple & Cingular III (D) 1e: Corporate Level – Evaluate the firm’s business portfolio Please refer to Exhibit III (D) 1e for Cingular’s BCG matrix. With the average revenue per users (ARPU) for voice service declining for the past 5 years and being the largest subscribers in the U.S., Cingular’s voice services is categorized as a Cash Cow. Being late with 3G technologies, wireless broadband users are opting for Verizon’s CDMA services. This combined with RIM’s dominance in data service; Cingular’s data service market share is relatively low. However, there is a potential for high market growth as more users are taking internet on the go. Therefore, Cingular’s data service is in “Question Mark” category.
Cingular is trying to have a Broad Differentiation business level strategy. However, strong competition is forcing Cingular toward Cost Leadership. Cingular is aiming for the mass market. However, many of the products and services differentiations are easily duplicated by competitors. The VRIO analysis indicates brand name and integrated voice, wireless, wired services as sustained competitive advantage. One method Cingular’s attempt to provide value is to offer a wide selection of handsets that will only work with Cingular network. The issue with this model is the conflict with the handset manufacturers, who would like to sell their handsets to all users regardless of service provider. Because the handset manufacturers rely on service providers as their main distribution channel, the handset manufacturers have reluctantly ceded some design control over the handsets to the service providers such as having service providers’ logo on the handset, special buttons to directly access service providers’ complementary services, and locking the handset, so it would only work on the service provider’s network. Because of the control of service provider over handset manufacturers, as soon as there is a new handset model developed for one service provider, the other service provider will demand for similar or better model just to stay in-step or ahead of the competitor. Eventually, all the service providers will have the same popular handsets, and thus eliminate any competitive advantage with its handset offering. The Apple iPhone on the other hand is a major victory for Cingular since Apple has an exclusive deal with Cingular to offer iPhone to work with Cingular network only. This will help put Cingular’s business level strategy back in Broad Differentiation III (D) 2b: Business Level – Fit between business level and corporate level strategy Because voice service is the dominant business for Cingular, Cingular attempts to model its data service plan similar to the voice service plans. Therefore, Cingular achieves the simple consistency fit. However, because data service is an optional service or some handsets just don’t support data services, Cingular did not achieve the second order of activities are reinforcing fit. III (D) 2c: Business Level – Change in business level strategy based on strategic move Since the voice service is a matured business, there is no change in the voice business level strategy. As for the data services, iPhone’s initial version is using Cingular’s 2.5G technology, so there is no change in data services business level strategy as well when the iPhone is released. III (D) 3a: Resources & Capabilities – Analyze to determine V-P, Value & cost drivers, etc. Directory: groups groups -> What is ascaa? groups -> Tiger Leaps Progress Update from Tenafly High School March 28, 2012 English groups -> Personal Data: Name : Prasanna. S educational Qualification groups -> Traffic alert and Collision Avoidance System or tcas groups -> 1980s Type Card Master List from Standard Catalog 1980 Burger King Phillies groups -> Lima Site 85 Personnel List groups -> General knowledge groups -> Kenneth pomeranz the great himalayan watershed groups -> Christina Maria Bergqvist Download 7.3 Mb. Share with your friends:
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