Sample Essay On AT&T: SWOT Analysis And Porter’s Five Forces Model
AT&T is an American multinational telecommunications giant. Headquartered in Dallas, Texas, AT&T is the largest telephone service provider in terms of revenue in the world. AT&T is the largest fixed line telephone service provider and second largest wireless service provider in the USA. Apart from these services, AT&T also provides broadband subscription based television service and dedicated fiber optic based internet service. It is the 20th largest mobile telecom operator by the number of its customers (AT&T, 2014). Having started its operation as Southwestern Bell Corporation, AT&T Corp. was born in 1885 after Regional Bell Operating companies divested the Southwestern Bell Corporation.
In 2013, AT&T witnessed a stagnant revenue growth in the North America, and so it entered into a collaborative contract with America Movil to expand into Latin American countries. In 2014, AT&T purchased Direct TV for a whopping amount of $48.5 billion (AT&T, 2014). This deal ensured that AT&T expands its portfolio from the conventional fixed line and wireless services to high growth business segments like satellite television, on demand contents, mobile TV. Direct TV also gives AT&T an access to 18 million Latin American subscribers who already use Direct TV (AT&T, 2014). Like any company, AT&T too has its own growth and strategy related problems. This essay will conduct a Porter’s five forces analysis and SWOT analysis to understand the current position of the company in the telecommunication industry.
Porters Five Forces Model
AT&T like any other telecommunication company purchases huge quantities of hardware and software every year from its suppliers. It buys switching equipment, network equipment and other telecommunication supporting devices. AT&T being one of the largest buyers of these types of equipments often buys them directly from the manufacturers (Al-Agamawi, 2012). As it is the largest customer for many of such equipments, it holds good bargaining power with its suppliers. Suppliers are willing to provide products to AT&T at a lower price as they know the higher volume will compensate for the lower margin.
In order to keep the suppliers’ bargaining power within check, AT&T buys from multiple suppliers. It always tries to source its critical supply requirements from multiple sources (ASI, 2012). This strategy helps the company in averting risk and reducing the bargaining power of suppliers as suppliers know that they can be easily substituted.
The telecommunication industry provides a huge power to the buyers. This is a market with a low level of customer loyalty. Customers often switch services if they find another service provider providing better service (Hettick and McGregor, 2010). Therefore, often companies need to change their pricing and business strategies to retain customers.
Threat of Substitution
AT&T has a secure revenue stream from its fixed line customers in the USA. However, in the last few years, the number of fixed line customers is constantly declining due to the increased penetration of mobile phone users (Dalken, 2014). However, the main competition for fixed line customers is coming from the cheaper services of voice over internet protocol (VOIP). For example, Skype, Vonage and Google voice are taking away fixed telephone customers. This form of telecommunication besides being cheap also provides additional features like chat and video call as it uses internet data for telecommunication (Dalken, 2014). With much improved wireless broadband as well as wired internet broadband services, VOIP phones have the potential to replace fixed line phones.
Apart from product substitution, there is always a threat of customer substitution in this industry. Although in order to reduce the chances of losing customers to other service providers, AT&T and other telecommunication service providers enter a two year contract with the customers, but even after that, many customers show the willingness to break out of a contract paying the penalty if they find great savings or functionalities provided by other service providers (ASI, 2012). For example, Sprint currently is offering the customers of AT&T and Verizon a package where the customers will be charged exactly half the price they are currently paying to AT&T and Verizon. This industry has no customer loyalty (Dalken, 2014). Therefore, customer substitution will always be a reality.
However, due to the high cost of switching in terms of direct penalty cost and associated intangible costs, customers are often not switching services. For example, AT&T not only tries to create a barrier by creating long term contracts, it also tries to bring in the whole family or friends by offering attractive family plans (Hettick and McGregor, 2010). Even if a person in that plan wants to shift to other carrier, he is unable to do so because then the entire group of family and friends included in the family plans need to shift to other service provider, which is not a cost-effective move.
Finally, the number of possible substitutes is less in the telecommunication industry. For example, the services offered by AT&T almost cover all the possible forms of modern day telecommunication services. There are a few other ways of communication like writing a letter (mail) or email, but they are not a great substitute for telecommunication.
Threat of Competition/ Rivalry
However, due to less number of players, almost all of them have high financial strength and have the potential to come up with major industry changing trends and service offerings.
Barriers of Entry
Apart from capital requirements, this industry also has the constraint of government regulations (Hettick and McGregor, 2010). Apart from the need of acquiring license to enter the industry, a new entrant also needs to obtain permission to use certain assets from the government. Because of this regulated nature of the telecommunication industry, AT&T has less threat from new entrants.
AT&T is one of the most recognized global cellular service providers in the world. The strong brand image of AT&T as a high quality telecom service provider is a great strength for the company.
It has presence over 200 countries either directly or through partners or wholly owned subsidiaries. It is the number one telecommunications company in the world by revenue and second largest by market capitalization, only ranked next to China Mobile (Lee, 2013). The company is also the second largest mobile telephone and largest fixed line phone service provider in the USA.
AT&T has a strong customer base of over 100 million (ASI, 2012).
It has a diverse and skilled employee base. It employs over 250,000 people across the globe (Lee, 2013).
Among all the US based telecommunication companies, AT&T is the most profitable company (ASI, 2012).
U-Verse internet and TV service (Direct TV) through optic fiber cable is one of the unique offerings that set AT&T apart from other service providers (Lee, 2013).
1) Currently, AT&T does not offer an unlimited data plan being offered by almost all of its major rivals, which is taking away customers who are increasingly focusing on data plans than voice plans (ASI, 2012).
2) AT&T has presence in emerging markets but the exposure is very limited. For example, AT&T’s presence in emerging and high growth markets like India and China is extremely limited and it does not even feature as a major player in these two economies (Lee, 2013).
3) The major revenue earner for AT&T is still mobile voice plans and fixed telephone. Fixed telephone lines are witnessing a decline, causing continuous erosion of revenue.
4) In the USA, the wireless network infrastructure of AT&T is not at par with some of its main competitors like Verizon, which might create problem for the company in the coming days (Hettick and McGregor, 2010).
U-Verse provides a unique opportunity in a market that is still unexplored by big mobile phone service providers. AT&T has the first mover’s advantage in this market.
Aggressive expansion into high growth market is an option that AT&T can explore.
Mobile digital television is another market showing enormous signs of growth. This market has a huge potential for making profit.
Telecommunication is a regulated market. Many a times, changed regulation by the government can make a huge impact on the service providers (ASI, 2012).
Competition in this market does not come from the presence of a huge number of players, but comes from the consolidation of a few large players posing threat to AT&T’s growth.
Rapid changes in technology also create thereat for future growth.
AT&T is one of the largest telecommunication service providers in the world. Especially, after collaboration with America Movil, the joint entity has become the largest company in the world in terms of revenue. AT&T provides wireless, fixed phone line, broadband based services, satellite TV and U-Verse fiber optic based internet service. AT&T has one of the best profitability in the industry and continues to grow in the saturated US wireless market. However, the overall growth rate for AT&T is slower than its biggest competitors like Sprint, Verizon and T-Mobile. One of the main reasons for that is the big base of fixed phone customers of AT&T is decreasing, because fixed phone market is shrinking. Low cost data oriented services like VOIP are replacing the fixed phone lines. AT&T needs to address this issue quickly. However, AT&T after acquiring Direct TV now has access to a huge base of satellite TV customers in the USA as well Latin American countries. Satellite based TV service and U-Verse services can be the future for AT&T’s growth. AT&T also should aggressively try to enter the high growth markets like China and India where currently it has a small presence.
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