T-Mobile Competitive Analysis, Essay Example

Introduction

T-Mobile is a rapidly expanding wireless phone service provider company, which is following a merger/acquisition strategy. In the United States, according to a 2013 GSMA report, the average revenue of mobile providers per subscription is 69 dollars, compared with the average value of 38 dollars in the European Union. This makes the mobile service market profitable, and highly competitive. The below analysis will focus on a competitive analysis of T-Mobile’s position, using Porter’s Five Forces Model and a review of the company’s services, offerings, prices, and market share.

Market Position

According to a recent Reuters article (Carew), T-Mobile is currently the number four mobile service provider. One of the main decisions that affected the market position of the T-Mobile brand was a strong competitor of AT&T, and the threat of the takeover. The DOJ blocked the merger, claiming that the disappearance of T-Mobile from the U.S. market would negatively impact customers: prices are likely to increase, and people would have limited options. Besen et al. (3) state that the U.S. market is segmented unevenly, and there are four competing main players with national coverage in the industry: AT&T, Verizon, Sprint, and T-Mobile, owned by Deutsche Telecom. There are other players, as well, however, they have limited coverage and offerings.

Product Differentiation

Besen et al. (4) find that the customer base of the four above companies differs significantly. While all carriers prefer selling postpaid plans, the proportion of these contracts within AT&T is 95 percent, while only 84 percent within T-Mobile. Indeed, postpaid plans are more profitable for wireless carriers. As the authors (Besen et al, 4) confirm: prepaid customers tend to be younger, and of a lower income, and would usually limit their spending on wireless services and phones. On the other hand, postpaid customers deliver a higher revenue for customers per contract.

In 2014 Q2, T-Mobile had a market share of 15 percent, compared with 14 percent a year before. However, it has been increasing since 2011, according to Statista. The same website provides historical data on market share based on revenue in the U.S. between 2008 and 2012. The statistics show that based on revenues, and not the number of contracts, the market share of T-Mobile declined from 12,6 percent in 2008 to 9.7 percent in 2012. The main competitors of T-Mobile in the market, as it has been previously stated, Verizon, AT&T, and Sprint. Verizon is competitive because it has the best national network coverage. AT&T attracts business customers and high profile subscribers through its technological advancements, while Sprint is known of its customer centered approach.

Overview And Comparison of Services

The company focuses on the family-oriented customer, and has several family plans to accommodate the middle aged generation. It builds its plans around young families with working parents. It offers clear pricing for all lines offered, and it is one of the most popular products. However, recently, the company also rolled out “Jump!”, a new service that costs only 10 dollars a month, and allows customers to upgrade to a new model of phone (postpaid contracts) and add insurance on their phone. This shows that the company is now opening up towards younger customers, as well.  The Simple Starter 2GB plan is an easy to handle contract:  data service stops automatically, when the customer reaches their contract limit. This clear pricing, and the fact that no annual contract is required means that young customers can benefit from greater flexibility and better budgeting options. There is also an option to add more data to the existing packages to the Simple Choice Plan.

The response of competitors to rolling out an early phone upgrade plan was quick.  All three companies: AT&T, Verizon, and Sprint introduced similar plans, taking away T-Mobile’s competitive advantage created through offering extra flexibility for technology-conscious customers.

The majority of the revenues of mobile carriers comes from long term contracts and mobile phone sales. The below chart will compare the prices of contract for two of the most popular models: Samsung Galaxy S4 and Apple iPhone 6.

From the above analysis, it is evident that the pricing of the most popular phones is similar in each carrier.  Customers will be likely to compare lease plans and monthly packages alongside, in order to find the right deal for their needs. Unlike in the UK, carriers do not offer free data, text messages, or calls for customers included in their long term contract deal on the phones. This is a disadvantage, and it is likely that many customers have to take a long time comparing plans. The T-Mobile website states the reason for this: “It’s our mission to not be like all the other wireless carriers and one way we’re doing that is by not locking you into a restrictive 2-year contract with our plans. And since there are no annual service contract requirements, there are no early termination fees and you can upgrade when you want.” However, this makes the comparison of mobile phone deals and monthly packages challenging for customers, and disadvantages them.  It takes away the clarity of pricing.

One of the main weaknesses identified on all the carriers’ website is that they do not offer a simple price and deal comparison application. In the modern age of technology, apps, and software, companies could go the extra mile for customers and help them choose the most suitable product. Introducing this feature on the T-Mobile website is likely to increase customer satisfaction and create a competitive advantage.

SWOT Analysis

The strong market position of the company creates an advantage for T-Mobile, and its existing  presence on the family market, being known as the family, 4G carrier can create several opportunities. The low reputation of T-Mobile’s customer service is the main weakness, and the company needs to focus on improving services. While several improvements have been made recently in the call centers and online support systems, it is not enough. T-Mobile is now using automatic testing in order to increase customer satisfaction (SAP). However, implementing an online service on the company’s website to help visitors choose packages would have a more positive impact on the reputation of the company. It is also important to note that the revenue share in the industry of T-Mobile has been declining in recent years, as it has been identified before, while the market share is increasing. This means that the company is losing profitability. With the introduction of lower priced packages, aimed at younger generation, the company started to attract more low-income customers, while AT&T still focuses on high profile and business clients. On the other hand, according to First Research (1), the wireless industry is mainly driven by customer income. This means that the spending power determines the income of the company. Still, customer loyalty towards the T-Mobile brand is low, due to the previously low quality of customer service. T-Mobile needs to find a way to create a competitive advantage. Based on the price comparison table of the two most popular models, it is evident that there is little space for competition, and as the company has limited profitability, reducing prices to create a price advantage is not recommended. However, increasing customer service quality and offering extra services that other companies would find hard to copy would increase both the company’s reputation, customer loyalty, revenues, and the value per lifetime customer over time. The below Five Forces Analysis will examine the opportunities on the highly competitive marketplace.

Porter’s Five Forces Analysis

The five forces that define competition within markets are bargaining power of suppliers, threat of substitute products or services, bargaining power of customers, and the threat of new entrants.

Bargaining power of suppliers. – Low

Phone manufacturers rely on carriers to sell and promote their devices, therefore, they offer each company similar deals.

Threat of substitute products. – High

The packages of companies are compatible on the US market, and there is a high threat of substitute products. All carriers offer more or less the same devices, phones, and services.

Threat of new entrants. – Low

It is not likely that any of the regional carriers would be able to expand its operation on a national level. Infrastructure and support system development’s investment requirement makes this step nearly impossible for most of the smaller carriers.

Bargaining power of customers. -High

Customers can compare and select from four national and about a dozen regional providers’ deals. Their bargaining power is high, and they are likely to choose based on reputation, customer service level, price, and network coverage.

Conclusion

The above overview of T-Mobile’s market position, offerings, and products has highlighted that there is a need for improving customer service, effectively communicating the strengths of the brand, and focusing on the most profitable customers in order to increase the market share based on revenues. In order to remain a strong player on the U.S.  marketplace, T-Mobile needs to improve customer facilities, monitor the steps of the competing companies, and focus on innovation. The two main opportunities determined based on the findings of the above research are: implementing a phone and monthly plan selection tool that helps customers select the right service for their needs, and improving Wi-Fi hotspot and 4G availability. Through these two improvements, the company could improve its two main weaknesses: lack of innovation, and low brand loyalty.

Works Cited

Besen, S., Kletter, S., Moresi, S., Salop, S.  and Woodbury, J. An Economic Analysis of the AT&T-T-Mobile USAWireless Merger. Journal of Competition Law & Economics. 2014. Print.

Carew, S. Analysis: T-Mobile strategy could eat into business of AT&T, Verizon. Reuters. http://www.reuters.com/article/2013/10/24/us-tmobile-wireless-analysis-idUSBRE99N16T20131024 2013. Web.

First Research. Wireless Telecommunications Services Industry Profile. http://www.firstresearch.com/Industry-Research/Wireless-Telecommunications-Services.html 2014. Web.

GSMA The Mobile Economy 2014 http://www.gsmamobileeconomy.com/GSMA_ME_Report_2014_R2_WEB.pdf

2014. Web.

GSMA Mobile Wireless Performance in the EU & the US. http://www.gsmamobilewirelessperformance.com/GSMA_Mobile_Wireless_Performance_May2013.pdf 2013. Web.

SAP SAP Customer Success Story | Telecommunications | T-Mobile USA.http://www.sap.com/bin/sapcom/en_gb/downloadasset.2011-12-dec-27-20.t-mobile-usa-pdf.html 2014. Web.

Statista. Market share of mobile wireless telecommunications revenue in the United States from 2008 to 2012, by service provider. http://www.statista.com/statistics/184016/market-share-of-mobile-wireless-revenues-by-provider-in-the-us/ 2014. Web.

T-Mobile. Website. http://www.t-mobile.com/cell-phone-plans/individual.html 2014. Web.