Porter’s Five Forces Analysis

Meteor Mobile Communications Limited

By

David Egan
Abayomi Olagboye
Yan Li
Shanaka Ekanayake Mudiyanselage

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 Table of Content

Page Number

Acknowledgment 3

Introduction 4

The Rivalry of Existing Competitors 5-6

The Threat of New Entrants 7-8

The Threat of Substitutes 9

The Bargaining Power of Buyers 10

The Bargaining Power of Suppliers 11

Summary 12

Reference List 13

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 Acknowledgement

We would like to thank our Management Lecturer Ms. Vanessa Diaz

And

Our group members for giving their full contribution to complete the assignment successfully

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 Introduction

Porter's five forces model can be applied to analyse the nature of the competitive environment in
any industry. To illustrate its application an Irish Communication sector has been chosen – Meteor
Mobile Communication Limited

Meteor is a GSM and UMTS mobile communications company which was established in 2001.It
operates a cellular communication network. Meteor was the third entrant after Vodafone and O2 and
it is the only Irish owned mobile operator in Ireland.

Historical Background
In 1998, Meteor and Orange submitted bids for the third mobile communications license
competition which was held by the Director of Telecommunication Regulation. On 19 June 1998 it
was announced that Meteor had been ranked first and finally Meteor was issued with the third
mobile communications license on 29 June 2000.

Products and Services

The main products of Meteor are Mobile phone network, mobile phone services and related goods.
The company offers MMS, GPRS, EDGE and 3G services through their Pay As You Go and Bill
Pay brands.

General Information
Meteor has also launched mobile broadband at HSDPA speed, which comes with download
allowances of 5GB, 10GB and 15GB. Meteor mobile internet based services offers access to mobile
internet, real tones, music downloads, news, weather, sports and other content available for
download.

Meteor Headquarters are located in Dublin and it has three regional offices in Limerick, Cork and
Galway. The company is fully owned by Eircom. Meteor network covers about 99% of the
population and has 40 stores across the country. Meteor has become a value leader in prepaid
market and has grown rapidly in recent years. It now has over one million customers and almost
20% market share.

The aim of Meteor is to “bring real competition and benefits to the Irish mobile market”.
Source: (Modern Management by Siobhan Tiernan...., 2006; www.meteor.ie, 2011)
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 The Rivalry of Existing Competitors

Numerous or Equally Balanced Competitors

There are many equally balances competitors in the mobile phone industry. The main competitors of
Meteor are Vodafone, O2, 3 Mobile and Tesco Mobile.

Slow Industry Growth

Absolutely, the mobile phone market is growing. So, it is difficult for a company to take customers
from their competitors.

High Fixed Costs or High Storage Costs

Mobile phone operators have high fixed costs due to spectrum licensing and establishment of
wireless network points of access. As a result, these mobile companies try to maximize their
productive capacity, which leads to excess capacity and intense rivalry.

Lack of Differentiation or Low Switching Costs

Mobile phones are very important to customers and it is a commodity in their lives. So, the rivalry
within the mobile communication industry is high. Switching costs for mobile phone consumers are
low, so competitors can easily attract buyers through pricing and service offerings.

High Strategic Stakes

All operators in the mobile phone industry considered it their primary market, so competitive
rivalry is strong. Europe is large market and high strategic stakes also exist because of the
geographic location.

High Exit Barriers

Assets in the mobile communication industry such as the spectrum licenses have a high resale
value. Fixed costs of exit, strategic interrelationships, emotional barriers, government and social
restrictions are all negligible.

Advertising and special Offers

Mobile phone operators have to spend a huge amount of money on advertising to get their products
and offers to customers. This can be a major fact of attracting new customers and taking customers
from competitors.

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New product Launches
Mobile communication companies have introduces new products such as High Speed Mobile
Broadband. So people don’t need to stay at home to surf internet. They can bring their
laptops/notebooks and Broadband stick anywhere they go for internet browsing and social
networking.

Overall, The Rivalry of Existing Competitors is High.

(Source: Vodafone Air Touch Case Analysis by Sky Huvard..., May 2006)

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 The Threat of New Entrants

There are several factors that can limit or prevent new entrants from entering mobile
communication industry.

Economies of scale

“The mobile phone companies are expanding internationally, but the potential benefits of
economies of scale in R&D and network exploitation remained unclear”.

Mobile phone manufacturers have great economies of scale in production, marketing and R&D. As
a result, these producers are allowed to dominate the industry and to obtain sustainable competitive
advantage. Tactical contracts with these producers could allow the mobile phone operators to share
in these economies, to lower costs for both companies and to lower the threat of new entrants.

Product Differentiation

There is no product differentiation among mobile phone operators. However, consumers are more
concerned about mobile phone manufacturing brands than mobile phone operators. Because of this
reason, product differentiation of mobile phone operators could only be successful with conjunction
of phone manufacturing brands. It is expected that the multimedia content of mobile phone
operators will be successful for product differentiation in the future.

Switching Costs

Normally, switching costs are low for customers because there is low product differentiation
between mobile phone operators. However, switching costs may increase if multimedia content
becomes a major opportunity for product differentiation.

Capital Requirements

Capital requirements are a main barrier to entry to the mobile phone industry. When mobile
communication licenses went up for auction, only the highest bidder or “the most financially fit and
liquid mobile operators” are issued with the license.

Access to distribution channels

Distribution channels act as a barrier to entry for new entrants because they are essential when
getting mobile operators' products and services to customers. New companies would have to
undertake promotions, price cuts and intensive selling to displace existing products.

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Cost Disadvantages Independent of Scale

Usually, there are no cost advantages that the mobile phone operators have established that new
entrants cannot duplicate.

Government policy

Government controls the entry into the mobile phone industry through their spectrum licenses. New
entrants should need a license from commissions for communications Regulations before
establishing a mobile communication company. However, Deregulation can become a major threat
to existing mobile phone operators to a certain extent.

Overall, there are several entry Barriers in this Industry. So, The Threat of New Entrants is Low.

(Source: Vodafone Air Touch Case Analysis by Sky Huvard..., May 2006)

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 The Threat of Substitutes

At present, majority of people have mobile phones and it is the most popular form of
communication. It is very difficult for people to move to some other device and it takes a long time.

Fixed Line phone products can be considered as substitute products for mobile phone industry. An
example would be Eircom fixed line phones. The prices of substitute products are usually higher
than mobile phone products. However, consumers compare the quality and performance capabilities
of substitute products. Even though the switching costs are low the advantage goes to the mobile
phone industry. The reason is that it is easy to switch from fixed line phones to mobile phones than
the other way around.

There are substitute products for mobile broadband products too. An example would be Eircom
Next Generation Broadband (Also known as NGB). These types of broadband come with fibre
power speed and this is a considerable threat for mobile broadband products. However, the
advantage goes to the mobile broadband products because they allow consumers to browse internet
not only in home.

Except fixed line phone products, Skype phones are also getting popular. If Wi-Fi coverage will
improve in future, Skype can become a considerable threat to mobile phone operators.

Overall, the Threat of Substitutes is Low.

(Source: Vodafone Air Touch Case Analysis by Sky Huvard...., May 2006; www.eircom.net,
2011)

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 The Bargaining Power of Buyers

Customers are a critically important element of the competitive environment.

The entire portion of the mobile phone operator's output is purchased by mobile phone customers.
The sales of the mobile phone services generate the annual revenues for sellers. The mobile phone
customers can switch to another mobile phone operator at little cost. Buyers do not pose a credible
threat of backward integration because of the high capital requirements.

There is very little product differentiation among mobile phone operators. The industry firms battle
for higher quality, greater levels of service and lower prices than competitors and the consumer's
benefit.

Overall, The Bargaining Power of Buyers is High.

(Source: Vodafone Air Touch Case Analysis by Sky Huvard..., May 2006)

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 The Bargaining Power of Suppliers

Mobile phone manufacturers are the main suppliers to the mobile phone operator market. Some of
them are Sony Ericsson, Nokia and Motorola and they account for 61 percent of the market.
Because the mobile phone manufacturing brands are more important to customers than the mobile
phone operators themselves, suppliers have a high bargaining power.

Industry firms are not a significant customer for the supplier group because suppliers operate in far
more international locations and markets than the mobile phone operators. Suppliers’ goods are very
important to buyers’ marketplace success. Mobile phone manufacturers could integrate forward into
the industry. These suppliers are credible, having substantial resource and provide a highly
differentiated product.

The mobile phone accessories are also very important to customers because there is high product
differentiation between them.

However, the standard conditions of Purchase agreement between mobile phone operators and their
suppliers may have little influence on the bargaining power of suppliers.

Overall, the Bargaining Power of Suppliers is High.

(Source: Vodafone Air Touch Case Analysis by Sky Huvard...., May 2006; www.meteor.ie,
2011)

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 Summary

“An unattractive industry has low entry barriers, suppliers and buyers with strong bargaining
positions, strong competitive threats from product substitutes, and intense rivalry among
competitors”.

There are high entry barriers and a low threat of product substitutes in the mobile communications
industry. But these attractive forces are not enough to face the threats posed by the high bargaining
power of suppliers and buyers and the strong rivalry among competitors.

Therefore, Mobile Communications Industry is unattractive.

Competitive Environment for the Mobile Communications Industry

The Rivalry of Existing Competitors High
The Threat of New Entrants Low
The Threat of Substitutes Low
The Bargaining Power of Buyers High
The Bargaining Power of Suppliers High

(Source: Vodafone Air Touch Case Analysis by Sky Huvard...., May 2006)

Reference List
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Chapter 3 (The Business Environment) Modern Management Theory and Practice for Irish
Students, Third Edition 2006 by Siobhan Tiernan, Michael J. Morley, Edel Foley
http://www.meteor.ie/about/
http://www.meteor.ie/terms_and_conditions/condition_of_purchase/
www.cybozone.com/.../Vodafone_Air_Touch_-_The_Acquisition_of_ Mannesmann.pdf May 2006
by Sky Huvard, Rodrigo Salcedo, Lateshia Tuppince, Matt Wentz, Lindsay Zolad, Dr. Charles
Byles, Strategic Management, Virginia Commonwealth University
http://www.eircom.net/broadband/?WT.svl=2
http://www.eircom.net/productsServices/pstn/?GWPage=PhoneHead
http://www.google.ie/imgres?
imgurl=http://www.eircell.ie/wpcontent/uploads/2009/01/vodafonelogo_rev.jpg
http://www.google.ie/imgres?imgurl=http://mobilenews.omio.com/wpcontent/o2logo.jpg
http://www.google.ie/imgres?
imgurl=http://www.unbeatable.co.uk/images/uploaded_images/tescomobile.png

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