EXECUTIVE SUMMARY In the 1990s, the Australian telecommunications industry has undertaken one of the most dramatic changes in its history. For the very first time, Australians are no longer forced to contend with Telstra s monopoly in telecommunication services. With the deregulation of the industry in 1992 and again in 1997, the Australian Government has allowed new and experienced international players to come and take part in this growing market. The mobile sector is perhaps the most competitive area of the Australian telecommunications market with one analogue AMPS network and 3 GSM operators, as well as numerous air time re-sellers. During 1997, the mobile market grew by 22% with on average 83,000 new users each month. Due to the phenomenal rate of growth, the market is considered to be the major money-spinner for the telecommunications industry, well into the next millennium. The total revenue from mobile telecommunications in Australia in 1997 is estimated at around $3 billion. Further growth is expected with industry commentators predicting that between six and eight million mobile phones will be in use in Australia by 2000. The mobile sector provides the foundation of Optus business, representing about half of its annual revenues of $2.5 billion. The balance is in long-distance calls, selected local calls, business network services and pay television. The goal of Optus Mobile is to provide cost-effective telecommunication services. This is to be achieved through the provision of sophisticated mobile phone products, availability of a wide range of pricing plans and mobile phone packages to suit every individual s needs. Despite Government policy to close down the analogue network by the year 2000, there are still well over 2 million users in late 1997, representing about 75% of the market (worth $2.5 billion). The future core of Optus Mobile business, however, lies within the digital network, with 66% of all new mobile sales being digital. As of November 1997, Optus has 37% share of the mobile digital market in Australia. Over the years, Optus has invested $1.3 billion in its digital mobile phone network and is planning to double its investment to enhance the quality of its coverage. Optus revenue in the market grew by 23% to $652 million, as compared to Telstra s 6% over the same period. Optus Mobile customers are divided into three broad segments residential, Small and Medium Business (SMB), and Corporate. The residential market has been the fastest growing segment, accounting for over 80% of all new connections and is growing at an increment of approximately 10% per annum. However, Optus SMB and Corporate segments are on the decline, as businesses are looking to industry s service providers who can cater for their special needs. According to Optus, the Corporate sector was worth around $520 million in 1996, which equates to around 670,000 mobile phones (30% of which are digital). The aim for Optus Mobile is to sustain long-term profitability and growth. To achieve this however, Optus must obtain the optimal balance in its SBU portfolio between the SMB and Corporate sectors (greatest revenue generators) and the residential sector (greatest growth). The alternatives available include: Concentrate its resources to developing the growing residential market Concentrate its resources to develop all three markets Using the residential market to generate profit and channel the funds to give adequate support to the SMB and the Corporate markets and turn them into Stars again. After considerable evaluation, the last strategy seems to be the most viable alternative for Optus. Through the high cash inflow generated from the residential market, the profit can be used to nurture the SMB and the corporate markets back to dominance. For the strategies to be implemented, actions taken must be coordinated internally and externally in order to meet both schedule and allocated budget. Departmental responsibility, datelines and budget is specified in a detailed action plan. To ensure all targets are met, control measures are incorporated into the 4 Ps to minimise the gap between goals and actual performance. In summary, the challenge for Optus will be to continue to generate profit from the residential market and redirect resources and funds to regain and increase its SMB and Corporate market share. Company Background 1.0 Optus Communications Optus is Australia s first private telecommunications company, established in 1992 following major deregulatory initiatives of the Australian telecommunications market by the Federal Government. In November 1991, Optus won tender for the second general telecommunications carrier license. Operations began soon after the purchase of a licence for $800 million in January 1992. Since then, it has built a telecommunications network that consists of three primary components wireline, mobile, and satellite - which deliver services to all around Australia. Optus services include long distance, local telecommunications services and mobile communications services, pay television, local calls, enhancing communications and business network services to homes and businesses (Who is Optus, 1996:1). 1.1 Optus Vision & Mission Optus has established a clear vision, mission and values set to identify the enterprise it aspires to be ( Optus Industry Development Plan 1997 - 2002, 1997:5). Optus vision is to be an innovative, high growth, world-class communications company, helping people and enterprises to succeed with quality Optus service and solutions delivered by the most capable and committed workforce in Australia. Optus mission is to be the customer focused leader in the provision of voice, data and on-line communication services and solutions, achieving the highest standards in Australia for employee, customer and shareholder satisfaction. Optus Communications is committed to using some of the world s most advanced technology to help Australians communicate with each other and with the world simply, reliably and cost-effectively. 1.2 Optus Shareholders As of August 1997, the equivalent equity of each company holds in Optus Communications are as follows: Table 1: Optus ShareholdersShareholder Stake in Optus (%) 49.0 25.0 10.3 6.1 9.6 (Source: Optus Shareholders, 1997:1) IDENTIFICATION OF SBU 2.0 Optus Mobile The mobile business provides the foundation of Optus business, representing about half of its annual revenue of $2.5 billion. The balance is in long-distance calls, selected local calls, business network services and pay television (Hughes, 1998:1). The goal of Optus Mobile is to provide a cost-effective telecommunications service to people on the move. Such a goal can be achieved through the provision of sophisticated mobile phone products, availability of a wide range of pricing plans (Appendix Optus Mobile Analogue & Digital Pricing Plans) and mobile phone packages to suit every individual s needs (Competitive Communications, 1994:40). Thus, in its endeavour to offer superb customer services, Optus has provided its mobile customer with a range of value-added services as shown below: Service DescriptionAutoroam Enable customer to use their current mobile phone overseasSurefax Receive and store faxes, then download them to any fax machineMobile Safeguard An insurance plan which can insure customer against theft, loss or accidental damage to mobile phone.Digital Fax & Data Use a phone and a laptop to create a mobile office: fax, email, or access the internet124 YES Be connected to any directory number in Australia with one single callSurePage Receive text messages direct to the screen of the customer phoneCaller ID Let the customer see the number and the name of the person calling, provided the caller is also an Optus Mobile Digital customer.Mobile Text Send text base messages using the keypad on the phone Update Receive the latest information such as stock prices and weather forecastsOptus mobile division offers two basic types of mobile phone services to its customers analogue and digital. 2.1 Analogue Mobile Service The analogue service was introduced by Telstra in 1988 and Optus began resale of the service in June 1992. Both Optus and the resellers have to pay an interconnect fee for the use of this service via Telstra. The mobile market is currently moving away from analogue to digital and will continue to be upgraded until the analogue service is totally phased out by the year 2000. Vodafone is the only complete digital system, while both Telstra and Optus continue to offer the analogue system. 2.2 Digital Mobile Service The digital service, using the GSM (Global System for Mobiles) standard, was mandated by the Federal Government in 1993. Optus, Telstra and Vodafone each introduced a GSM service based on their own independent networks. Optus has a digital coverage of over 91% of the total population in Australia and has claimed that 66% of all new mobile sales are digital (Australia Mobile Communications Statistical Overview, 1998:6). As of November 1997, Optus has 37% share of the mobile digital market in Australia. The advantages of digital GSM include elimination of crossed lines, better sound quality, greater security of conversations and fewer call to call drop outs. Digital phones can receive text messages and can be used internationally in unlimited circumstances due to an automatic roaming capability (One.Tel Prospectus, 1997). Over the years, Optus has invested $1.3 billion in its digital mobile phone network and is planning to double its investment in the coming years to enhance the quality of its coverage. The new spending of about $250 million a year will see Optus build another 650 base stations in 1997-98 to cope with the 40 million digital mobile calls made by customers every week (Hughes, 1998:1). Optus subsidises digital mobile handsets as an incentive to customers. These subsidies are being offered to customers on the basis that they sign a contract to use the Optus mobile digital network for a minimum period (Optus Communications Financial History, 1997:3). An example of Optus subsidy of mobile handset is illustrated in the TodayPlan for Motorola Startac 80: The first in a new class of digital Motorola phones, combining the latest technology in an incredibly compact phone. Designed for people who want to manage their social and professional life easily and quickly. Compact battery with up to 30 hours standby and 100 minutes talk-time. Programmable quick access menu keys and large display. Comes complete with plug-in charger, holster and 1 year manufacturer's warranty. * Conditions apply, including connection to TodayPlan 75, $65 connection fee and monthly access fees of $75. Minimum total costs over 12 months are: Motorola Startac $1713. All include up to $600 pa. in prepaid calls. If connection is not maintained for 12 continuous months $400 extra is payable. Subject to credit assessment. While stocks last. Limit 3 per customer. ** Conditions apply including connection to TodayPlan 30, $65 connection fee and monthly access fees of $30. Minimum total costs over 12 months are Motorola Startac $1313. If connection is not maintained for 12 continuous months $250 extra is payable. Subject to credit assessment. While stocks last. Limit 3 per customer. 2.3 Optus Mobile Revenue The following table shows the mobile service revenue of Optus from June 1994 to June 1997. It includes revenue from users of the Optus GSM network as well as revenue from the re-sale of the Telstra analogue network: Table 2: Optus Mobile Analogue and Digital Revenue Year Optus Analogue Users (000 s) Optus Digital Users (000 s) Total Market Users (000 s) Optus Market Share (%) Optus Revenue ($Million)1994 399 9 1,120 33 166.91995 609 116 1,196 31 261.01996 795 401 3,134 31 430.11997 701 829 4,448 31 601.9(Source: Optus Communications Financial History, 1997:1) As at December 1997, Optus had 31% share of the total mobile market. Optus revenue in the digital mobile market grew by 23% to $652 million, as compared to Telstra s 6% over the same period (Optus Half Yearly Results, 1997:1). SITUATION ANALYSIS 3.0 Mobile Telecommunications Market The mobile sector has been one of the most competitive sectors of the Australian telecommunications market with one analogue AMPS network (being phased out) and 3 GSM operators (namely Optus, Telstra and Vodafone), as well as numerous air time re-sellers (The Australian Telecommunications Market, 1998:1). Wireless communication is the saviour of carriers around the world, who are seeing their large profit margins in the fixed networks decline, due to competition (Australia Mobile Communications Statistical Overview, 1998:6). Thus, the mobile market is considered to be the major money-spinner for the telecommunications industry for the rest of this decade and beyond. During 1997, the mobile market grew by 22% with on average 83,000 new users each month (Sainsbury, 1998:2). The following table provides an overview of the number of mobile subscribers for the three carriers as at December 1997, including both the number of users from the GSM network as well as the analogue network: Table 3: Telstra, Optus, and Vodafone Market ShareOperator Analogue Digital Total Market shareTelstra 1,500,000 1,400,000 2,900,000 57.0%Optus 600,000 1,100,000 1,700,000 33.0%Vodafone n/a 500,000 500,000 10.0%Total 2,100,000 3,000,000 5,100,000 100.0% (Source: Australia Mobile Communications Statistical Overview, 1998:2) 3.1 Mobile Market Growth During the mid-nineties, the effects of increased levels of competition at infrastructure level in the cellular market have become evident. Increased network coverage, product innovation, lower tariff and handset prices, improved levels of customer service and new distribution strategies have all contributed to the continued growth (around 65%) in the market (Australia Mobile Communications Statistical Overview, 1998:5). The penetration of the mobile telephone in Australia has grown rapidly. A total of 25% of Australians own mobile phones, compared with 29% in Sweden, 12% in the United Kingdom, 17% in the USA, 7% in Germany and 4% in France (The Australian Telecommunications Market, 1997:1). Australia has one of the highest mobile phone take-up rates in the world on a per capita basis. More than one in four, or 5.4 million people now own a mobile phone (Optus Half-Yearly Results, 1997:1). The following table shows the increase in the number of mobile phones per 100 inhabitants from 1993 through to 2000 (estimate): Graph 1: Number of Mobile Phones Per 100 Inhabitants (Source: Australia Mobile Communications Statistical Overview, 1998:5) The Australian trend parallels a worldwide trend responding to the need for mobility and convenience in telecommunications services. Globally, the use of mobile telecommunications has grown from 11 million in 1990, to over 50 million by the end of 1994. This figure is expected to increase to over 350 million by the year 2000 (Mobile Phones and Consumer Demand, 1997:1). 3.1.1 Analogue Mobile Growth Despite Government policy to close down the analogue network by the year 2000, there are still well over 2 million users for the analogue mobile services in late 1997, representing about 75 per cent of the market, or $2.5 billion (Conway et al, 1998:1). Spending on the analogue network, however, has dropped significantly from 90 minutes per user per month in 1996 to 45 minutes in 1998. This is due to the fact that most high-end users have moved to the digital network and that a large number of the analogue phones are now only used as second phones, or only used in emergency situations (Australia Mobile Communications - Statistical Overview, 1998:8). The following table shows the breakdown in the overall market share for both the analogue and digital mobile market: Graph 2: Analogue and Digital Mobile Market Share (Source: Australia Mobile Communications Statistical Overview, 1998:5) 3.1.2 Digital Mobile Growth Digital sales began to edge ahead of analogue in August and September 1995, with an average of new connections of around 16,000 per week. By mid 1997, 95% of all new mobile phone sales was digital (Australia Mobile Communications - Statistical Overview, 1998:2). The increase in digital market is a result of (One.Tel Prospectus, 1997): Current Commonwealth Government policy to phase out the analogue network Continued decline in the cost of purchasing a digital handset Increase in digital handset availability Broader distribution of handsets Better features and services provided to digital customers The table below shows a significant increased in the number of digital mobile subscribers from June 1995 to June 1997: Table 4: Digital Subscribers for Telstra, Optus, and VodafoneOperator 1995 1996 1997Telstra 120,000 350,000 1,000,000Optus 124,000 350,000 750,000Vodafone 74,000 200,000 300,000Total 318,000 900,000 2,050,000 (Source: Australia Mobile Communications Statistical Overview, 1998:2) As Vodafone only offers GSM digital services, its share of the total mobile market is only around 8 per cent (Conway et al, 1998:1). 3.2 Mobile Market Revenues The total revenue from mobile telecommunications in Australia in 1997 is estimated at around $3 billion. Further growth is expected in the Australian mobile market with industry commentators predicting that between six and eight million mobile phones will be in use in Australia by 2000 (The Australian Telecommunications Market, 1998:1). The table below shows the mobile revenue ($ millions) of the three carriers from 1994 to 1997: Table 5: Mobile Revenue for Telstra, Optus, and VodafoneOperator 1994 1995 1996 1997Telstra 830 1,000 2,000 2,000Optus 167 261 430 601Vodafone 10 33 135 210Total 1,000 1,294 2,565 2,811 (Source: Australia Mobile Communications Statistical Overview, 1998:1) While growth in mobile subscribers is still phenomenal, revenues per subscriber is rapidly declining as the growth cannot keep up with the discounts offered. During 1995- 1996, on average, the price has been around $500 - $750. By late 1996, however, prices have dropped below $250. This last amount is basically the accepted rate involved in acquiring a new customer on an existing network (mainly marketing and advertising costs) (Australia - Mobile Communications - Competition, Roaming, Fixed-to-Mobile, 1998:1). The following table shows the average spending and value per mobile customer from 1993 to 1997: Table 6: Average Spending and Value Per Mobile CustomerYear Average Spending p.a. Value Per Customer1993 $1500 $10001994 $1200 $7501995 $1000 $6001996 $850 $5001997 $750 $2501998 (est) $550 $250 (Australia - Mobile Communications - Competition, Roaming, Fixed-to-Mobile, 1998:2) 3.2.1 Fixed to Mobile Market As revenues from straight mobile services are beginning to level-off, the current saviour for the carriers is the $1 billion in extra revenues generated from calls made from fixed network into mobile network. Overall this is keeping profit margins in the wireless market on a high 50 - 80% (The State of the Telecommunications Services Market in Australia, 1998:3). Telephone calls made to mobile telephones from the fixed network are charged at a much higher rate than those that stay on the fixed telephone network. Most calls made in Australia are local calls, which are untimed on the fixed telephone network. The growth in mobile telephony forces more and more people to dial mobile phone numbers rather than fixed numbers. As an average call lasts approx 3 minutes people are suddenly paying $1.12 (peak rate) for this local call rather than the 25c that is charged on the fixed network (Australia - Mobile Communications - Competition, Roaming, Fixed-to-Mobile, 1998:6). 3.3 Optus Market Segmentation Mobile customers can generally be divided into three broad groups residential, small and medium business, and corporate. The following table shows Optus percentage shares for each segment as of June 1997: Graph 3: Optus Market Segmentation (Source: Optus Mobile Market, 1997:2) 3.3.1 Residential Market The residential market has been one of the fastest growing segments in recent years. According to the Australian Telecommunications Market (1998:1), there is an increasing number of residential users taking up mobile phones for convenience, personal security and safety. It is estimated that in 1997 more than a third of all mobile subscribers were residential users. In 1992, this was only 2%. Over 80% of all new connections are now coming from the residential market (Australia Mobile Communications - Statistical Overview, 1998:3). Opportunities that exist in this market include: Fastest growing segment (Graph 3). Residential buyers are easier to sell to as they tend to be less discriminating in terms of price, quality and service, as compared to business customers. Compared to business customers, residential customers may not have sophisticated access to information and the leverage to bargain for the lowest possible price. In relation to Optus, this segment is a Star with Optus commanding a relatively high market share and high growth. Threats in serving this market include: Propensity to use the mobile service may be less compared to business customers. More aware of the cost factor, such as expensive to talk on mobile phone as calls are charged according to rates (peak, off-peak) per second. Therefore, it is very likely that this segment will soon become a Cash Cow. 3.3.2 Business Market The current trend in the business mobile market includes (Australia Mobile Communications - Statistical Overview, 1998:3): Over 80% of small businesses spend A$5,000 or less on mobile per annum. The ratio for mobile to fixed telephone calls for business users is 20% - 80%. It is estimated that this trend might totally reverse within the next 5 years. According to Optus Communications, the Corporate and Government sector (those companies spending more than $250,000 per annum) was worth around $520 million in 1996. This equates to around 670,000 mobile phones - 30% of which are digital. Since mid 1996 all new purchases in this market have been digital. Opportunities that exist in this market include: Revenue generating source, as the Corporate and Government sector spends a huge amount, and tends to write-off old mobile hand sets on a frequent basis for taxation purposes. Potential for product usage propensity is high as the trend ratio for mobile to fixed telephone within the next five years may become 80% - 20%. Threats in serving this market include: Corporate as well as Small and Medium Business (SMB) segments are declining markets (Graph 3). More discriminating and demanding, wanting top-class customer services and more product features at the lowest possible price. Better access to information, and bargaining leverage, more likely to switch provider if competitor offers a better deal. To Optus, the SMB and the Corporate market have both been Stars to the organisation. However, as Optus has been losing market share gradually, these two markets are moving towards the Question Mark category. 4.0 SWOT Analysis for Optus Mobile 4.1 Optus Strengths Optus has positioned itself as a more customer oriented organisation than Telstra with its Yes slogan. It is perceived to be more responsive to its customer needs due to its well-trained, friendlier staff and less bureaucratic operations. Around 40 percent of Optus staff are customer service representatives devoted to meeting the direct needs of Optus customers. Optus customer service staff are available 24 hours a day, everyday of the year (Who Is Optus, 1996:1). Another major strength of Optus lies with its company reputation. Optus has been in operation since 1992 when it was first granted its general carrier license. With massive public campaigns over the years, Optus name has received widespread recognition in both the Australian households as well as businesses, giving it an unprecedented coverage in the public arena. As a result, Optus has established a good brand image that people have come to trust. Optus' high-profile brand name should prove to be a major strength for the company as customers seek reassurance among a bewildering number of new suppliers (Simpson, 1997:1). Optus has one of the most sophisticated telecommunication networks in the world. Three main types of networks are currently being utilised fixed networks, wireless networks, and satellite networks. These networks are linked together to provide the flexibility and services required of a modern communications network. Optus MobileSat, the world's first land mobile satellite telephone service, provides complete mobile coverage to the Australian landmass and up to 200 kilometres out to sea. The MobileSat service is a vital tool for those Australians who live or work in remote areas. It is used by customers in the transport, mining and agricultural fields as well as those involved in shipping and commercial fishing industries (Optus Mobilesat, 1997:1). Optus is the only carrier currently in Australia to offer its customers with a single bill solution Optus Account One. It combines Optus long distance and most mobile plans on the one phone bill. The service is particularly significant for customers with multiple telecommunications services as it has been identified by the Telecommunications Industry Ombudsman (TIO) that billing is the number one concern for all phone users (Owen, 1997:1). 4.2 Optus Weaknesses A major weakness of Optus mobile market lies in the fact that it has to pay a hefty interconnect fee to Telstra for the use of its analogue mobile and long distance networks, revenue that goes straight back to Telstra. As noted by the Optus Communications Financial History report (1997:2), the largest single area of cost is payments to other carriers, about two thirds of which are paid to Telstra, mainly in respect to analogue mobile resale and Long Distance networks . The following table shows Optus payments to Telstra for use of the carrier s fixed and mobile networks: Graph 4: Optus Interconnect Fee to Telstra (Source: Optus Communications Financial History, 1997:2) Another weakness of Optus lies in its inability to operate successfully in its pay TV venture. In February, Optus revealed an $83.6 million loss for the December half, including an $11.5 million loss from the continuing restructuring of its pay TV operations (Hughes, 1998:2). Thus, any extra profits generated from the mobile market will have to compensate for the losses in pay TV as well as losses in the traditional wired markets. 4.3 Optus Opportunities The Australian Government has announced its decision to auction spectrum in the 800 MHz and 1.8 GHz bands late in 1997. Re-allocation of this spectrum is expected to expand and improve mobile phones services in Australia and provide the opportunity for new players to enter the dynamic Australian telecommunications market (Auction of Australian PCS Spectrum, 1997:1). For Optus, a successful bid for the spectrum in the 1.8 GHz band would grant them the right to built more mobile towers and base stations, giving them a wider digital coverage of the Australian population. As such, Optus has the capacity to improve the quality of reception for its mobile customers, which are believed to be currently inferior to that of Telstra. In October 1997, Optus and Telstra struck a deal whereby Telstra voluntarily agreed to cut about 15% off the $500 million plus that Optus pays in interconnect fees. The agreement covers more than 90 per cent of the call traffic between Telstra and Optus (Davies & Kidman, 1997:1). This would mean that Optus will pay less for its customers to interconnect to Telstra's analogue mobile, local and long distance network. Government planned to phase out analogue network by the year 2000. However, there are still more than 2 millions analogue mobile service users around Australia, these users provide a huge opportunity for Optus to increase its market share in the digital mobile market. As shown on Table 3, there are still a large number of Telstra s customers on analogue (1,500,000) as compared with those on digital (1,400,000). Optus has the opportunity to switch these customers to digital network, and chip away at Telstra s market share in the mobile market. 4.4 Optus Threats As from 1 July 1997, Australia has moved from an oligopoly to a competitive market through the introduction of a regulatory framework for full and open competition (Australia Opens Telecommunications Market, 1997:1). Since then, many mobile telecommunication providers began their operations. For instance, One Tel, Hutchison and AAPT have been marketing their mobile services very aggressively in the Australian market place. With the new deregulation, companies will be free to compete with Telstra, Optus and Vodafone across the entire spectrum of telecommunications services. They will be free to build their own infrastructure such as cables or wireless networks; use any satellite facilities; or, if they choose, resell the capacity of the incumbents, Telstra and Optus (One.Tel Prospectus, 1997). For Optus, the deregulation would mean an increasingly competitive environment, both as a general licensed carrier as well as a mobile licensed carrier. This can prove to be a major threat for Optus as it has been unable to establish a foothold in the local call market, which is plagued with technical problems. As such, Optus mobile would come under increasing pressure to generate the much needed funds to support growth (The Australian Telecommunications Market, 1997:1). Mobile communications can prove to be a worry for Optus in the development of major health concerns with possible links between diseases such as cancer and Alzheimer's disease and long-term exposure to mobile phones. These concerns exist because the antennas of these phones can deliver large amounts of radiofrequency energy to very small areas of the user's body. This has undoubtedly caused tremendous concerns among frequent users even though the claims are made without substantial scientific evidence (Moulder, 1997:1). 5.0 Environmental Scanning of Optus Mobile An organisation is a creature of the environment. As such, its survival and all of its perspective, resources, problems and opportunities are generated and conditioned by the environment (Jain, 1997:122). Thus, it is important for Optus to monitor the relevant changes taking place in its environment and formulate strategies to adapt to these changes. 5.1 Economic Environment The present Australian economy has been characterised by sluggish growth coupled with low inflation and high unemployment rate. Generally, the economy is moving slowly towards recession. In an attempt to boost demand for goods and services and thus the economy, the government is currently introducing low interest rates to induce investment by firms. In response to the ever-changing economic environment, Optus Mobile could take advantage of the present low interest rate by expanding its investment in its cable network, improving the quality of its mobile reception as well as the extent of its digital coverage. The current Asian Crisis will have a negative impact on the performance of Optus Mobile. For instance, Optus Mobile present Asian customers may not use its services as much because each unit of service consumed becomes more expensive when converted to their own currencies. Further, the currency devaluation may also discourage Asian students utilising mobile services. For Optus, this would translate to a loss of current and future potential customers. 5.2 Political/Legal Environment Optus Mobile must be aware of certain changes in its regulatory environment following the liberalization of the Australian telecommunications market as of 1 July 1997, namely, the Telecommunications Act and the Trade Practices Act (TPA). Generally, ignorance and non-conformance of such laws result in heavy penalty to the organisation. For instance, in 1995, Optus Mobile was declared to have contravened Section 52 and 53 of the TPA by misrepresenting that the Optus Freestyle Plan allows free local mobile calls on weekends of up to $52 per month, whereas in fact calls from mobile phones under such are not free. Optus Mobile non-conformance with the law has resulted in a restrain order against Optus from making such misrepresentations. The Court has required Optus Mobile to use corrective advertising for the alleged misrepresentations, as well as to send all Freestyle Plan participants a letter pointing out the exclusions and inviting them to make an application for compensations, refunds or credits (TPA v Optus Communications (1996)). The recent rise of Independent MP Pauline Hanson may also have indirectly affected Optus Mobile performance. Hanson s controversial view on Australia was being swamped by Asians has prompted racial hatred towards the Asian community throughout Australia. The result of which may have affected the number of Asians migrating to Australia as well as the number of Asian students furthering their studies in Australia. For Optus, this would mean a less than optimal number of people using Optus Mobile services which translates to less profits. 5.3 Technological Environment Optus is the first carrier in Australia to offer Enhanced Full Rate (EFR) service to its GSM customers. The new service is the latest technology for improving voice clarity over mobile networks. The voice quality with EFR is comparable to home or business phone voice quality (Optus leads mobile into new quality standards, 1997:1). Optus Communications is the first carrier in Australia to deliver the GSM-based mobile EFTPOS system which will enable merchants to make electronic transactions over the Optus GSM network from mobile devices (Optus to deliver Australia s first GSM-based mobile EFTPOS system, 1997:1). Prices of mobile phones will increasingly come under pressure with new technologies such as Personal Communications Services (a cheaper version of the current cellular mobile systems) that will become available later on in the year. Carriers will find themselves facing a dilemma: if they keep the current mobile prices high PCS will be used to offer a cheaper alternative; if they start employing PCS themselves they will have to rebalance their mobile tariffs to prevent a mass changeover to this new technology. Regional (pay TV) operators will certainly use the PCS technology to include a range of telecommunications services in their offerings (The State of the Telecommunications Services Market in Australia, 1998:3). 5.4 Social Environment Perhaps the most important social issue in the mobile industry at the moment is the public concern over suggestions that the repeated use of mobile phones, with their radiating antennae held close to the head, might trigger brain cancers, leukemias and lymphomas. Also, some studies have suggested that children who live close to Electro-Magnetic Fields (EMF) emitting power lines have an approximately 50% higher risk of leukemia (UN Urges Study Into Mobile Phone Risks, 1997:1). Such findings may cause local councils and community groups to be increasingly vocal in their objections to the erection of digital mobile towers, as the transmitters emit low levels of electro-magnetic radiation. Such objections may pose difficulty in the expansion of Optus Mobile networks to meet the growing demand for mobile services (Davies, 1996:1). 6.0 Optus Competitor s Strengths and Weaknesses 6.1 Telstra Strengths An obvious strength of Telstra Mobile is the interconnect fees which Optus and service providers must pay for the use of its analogue network, revenues that go straight back to Telstra. For 1997, this amounted to a total of $1.2 billion (Davies & Kidman, 1997:1). Telstra has more experience in the Australian telecommunications industry. As such, it possesses better knowledge in resource management, technology and so forth. Telstra is also the biggest cash powerhouse in the country, generating EBITDA earnings of $7.3 billion (Gottliebsen, 1997:1). In the lead up to the changeover from analogue to digital, Telstra has an advantage over its competitors because it can re-use some of its analogue mobile phone towers for digital transmission (Davies, 1997:1). Telstra cable networks are more established than those of Optus and Vodafone. In a survey conducted on digital reception, it was found that MobileNet Digital has the best in-building coverage and the clearest reception in more places across Melbourne, Sydney, Brisbane, Adelaide and Perth (Telstra MobileNet Tops Survey of Digital Reception, 1996:1). While the Government initially announced the analogue service will cease, being gradually phased out between 1997 and1999, there has been slippage in the phase-out rules. This may deliver a further competitive advantage to Telstra over other players (Conway et al, 1998:1). 6.2 Telstra Weaknesses Telstra is paying significant interconnection fees to Optus to carry digital mobile calls to Optus customers on the Optus network (Davies, 1997:1). In the transition from analogue to digital, Telstra s problem is that it developed its mobile-phone customer base using analogue technology. The Government s decision to eliminate the analogue phone system has forced Telstra to depreciate its analogue system much faster than was originally planned (Gottliebsen, 1997:1). 6.2 Vodafone Strengths As Vodafone specializes solely in providing services to the GSM network, it can focus all its resources to serving customers within the digital mobile network. It is also free from the worries of phasing out the analogue mobile system. Vodafone has always appealed more to the higher end of the market and has therefore attracted a higher revenue market (Australia Mobile Communications Statistical Overview, 1998:2). Globalstar is a revolutionary satellite communications system currently being developed by Vodafone which will enable customers with dual mode handsets to use their mobile phones almost anywhere in the world. It is estimated that by 2002 Globalstar will be providing service to 2.7 million customers, and to 16 million customers by 2012 (Vodafone Network, 1998:1). Vodafone is the only non-distance based network that charges interstate call for the cost of a local mobile call (Vodafone Network, 1998:1). 6.3 Vodafone Weaknesses Unlike Optus and Telstra, Vodafone does not have an analogue user base that can be convert to digital. As such, its total share of the mobile market amounts to just 8%. In addition, Vodafone will have no real gain in the switch from analogue to digital as both Telstra and Optus will maintain its customer base after the transition. Vodafone lacks the financial strength when compared to Telstra and Optus. Vodafone is less publicised than both Telstra and Optus by the Australian media. Thus, it must rely heavily on pay promotions to generate the same amount of awareness as that of Telstra and Optus from the Australian public. Objectives and Goals Objective GoalTo maintain its leadership position in the mobile telecommunications technology second to Telstra, but ahead of Vodafone and all the other service providers To introduce mobile technologies such as tracking lost or stolen mobile phones and other value added services that matches beyond Telstra and Vodafone by 1999 To achieve 45% share of the total mobile market in five years, an increase of 12% from 1997 result To reverse the declining trend in the mobile market share of the corporate segment, back to 35% in the next five years To reverse the declining trend in the mobile market share of SMB, back to 65% in the next five years To improve digital network coverage of 91% to 99% by the year 2000, thereby enhancing the quality of reception Continue to maintain an excellent level of customer service that established the benchmark for the telecommunications industry Strive to achieve endorsed recognition from the industry, such as winning award of excellence in customer service in the next five years Establish policy on calls to 24 hours customer service hotline be picked up by the third ring To maintain an omnipresence in the mobile telecommunication market To build intensive distribution channels by appointing an extra 500 independent sales agents nationally in order to increase distribution in the residential market for the next five years To appoint 200 Optus own marketing representatives/account managers nationally to increase service and distribution in the SMB and corporate markets in the next five years. Continue current spending on advertising and marketing in order to maintain presence and brand awareness in the marketplace. ALTERNATIVES AND EVALUATION It is no doubt that Optus needs to employ market-commitment strategy in the mobile telecommunication market, as half of its total annual revenue comes from this market. The question is, however, the varying commitment that Optus need to consider for each segment in the mobile telecommunications market, namely the residential market, SMB market, and the corporate market. As the analysis (Graph 3) shows that Optus is losing market share in both the corporate and SMB markets, whereas its market share in the residential market is growing at increments of approximately 10% each year. But both the SMB market and the corporate market are revenue generating sources as was mentioned previously. Therefore, the alternatives available to Optus include: Concentrate its resources to developing the growing residential market, but this market could soon become a Cash Cow as customer s propensity to use the mobile services is relatively low, thereby generating low growth volume. Concentrate its resources to develop all three markets, but need to consider financial as well as resource constraints. Using the residential market to generate profit and channel the funds to give adequate support to the SMB and the corporate markets and turn them into Stars again. Criterias that needs to be consider in choosing the appropriate alternatives are: Financial resource constraints Management and human resources constrain Competition Each segment long-term return and growth Therefore, the last strategy seems to be Optus most viable alternative with the residential market still growing and generating high cash inflow, which can be used to nurture the SMB and the corporate markets back to dominance. RECOMMENDATIONS 7.0 Market Strategies 7.1 Residential Market In light of the above analysis, Optus will need to adopt the average-commitment strategy in serving the residential market, since it is a high growth market. It will be adequate to be aware of the market development in the segment and meet customer expectation. Keeping customers satisfied in this segment would not be difficult as customers in this particular segment are not as demanding as those in the SMB or corporate markets. 7.2 SMB and Corporate Markets In order for these markets to emerge as Stars again, abundance of financial and management resources must be invested to develop new services, improve service quality, and increasing expenditures for sales force, advertising, and sales promotion. Since Optus has already developed a reputation in the marketplace as well as established a network in the business community (Optus came into the telecommunication market after Telstra, but before Vodafone and every other service providers), it is in an advantageous position to realise optimal returns for its investment. 8.0 Product Strategies In order for Optus to achieve its goals and realise its objectives, Optus need to adopt the product improvement, quality and customer service strategy. 8.1 Product Improvement Strategy Since Optus pricing for mobile services is already cheaper than Telstra, any improvement made to its products/services, such as that of tracking lost or stolen mobile phones, will put it on par or even ahead of Telstra. Strategies include: Establish policies which acts to stimulate innovative ideas from employees ie. Using employee feedback constructively and implementing useful ideas. Develop a database on customer feedback, such as the kind of services they seek even though it may not be possible at this point in time due to technological constrain. Establish and maintain close working relationship with industry leaders in mobile technology development, such as Nokia. This will keep Optus informed on the latest mobile technological developments, which it can utilise to service customers beyond their expectations. This is particularly important if Optus is to regain its market share in the SMB and corporate segments. Increase allocation of financial resources to R&D by 15% of previous budget. Build 200 new base stations and 350 mobile towers each year for the next five years to improve digital network coverage and eliminate so-called blackspots . 8.2 Quality Strategy Establish Total Quality Management (TQM) program and committee that will be responsible for product quality assessment from the customer perspective and internal quality standards. Develop standards and measurements to gauge organisational performance, such as measuring job skills and identify areas for improvement. Implement programs to facilitate staff training and development. 8.3 Customer Service Strategy Recruit and train more telephone operators to improve response time on 24 hours customer hotline. Empower trained telephone operators to improve response time for handling customer problems. Conduct technical skill and customer service training seminars for staff regularly. Appoint Account Managers to Corporate and SMB accounts when monthly spending exceeds $1,000, Account Managers main responsibility is to monitor service usage patterns and recommend use of new service features when applicable. Link sales and performance targets to incentives and rewards as to encourage highest level of service quality and functional performance. 9.0 Pricing Strategy The price function serves to pay for the expenses incurred in acquiring a customer as well as to provide a profit margin for Optus. Since Optus has three distinctive market segments it is in a position to adopt flexible-pricing strategy. 9.1 Flexible-Pricing Strategy Maintain current pricing for the residential segment since it is already a growing market. Offer an incentive discount scheme to profitable business clients. Match competitor s pricing in retaining large Corporate accounts. Offer analogue mobile users free digital handset and free diversion from analogue to digital. 10.0 Distribution Strategies 10.1 Multi-Channel Strategy The multi-channel strategy is the most suitable one given Optus situation. External intermediaries will be engaged to aid in the sale of mobile services to the residential market either through existing or new channels. Remuneration for external intermediaries will be based purely on commission. This way, Optus can minimise investment costs and maximise returns from the residential market. The distribution of mobile services to the SMB and Corporate markets, however, will remain the sole responsibility of Optus own marketing representatives/Account Managers. Specific strategies are: Provide sales and product training to third parties such as agents and brokers so they can sell Optus mobile services to residential customers. Convey an attractive commission based incentive scheme which offers 100% once off up front payment of customer s chosen talk plan for residential market. Develop a retainer and an attractive bonus incentive scheme which offers Optus own marketing representatives/Account Managers a share of the profit of their customer s accounts.11.0 Market Communication Strategy Optus main objective will be to achieve an omnipresence in the mobile telecommunications market through active advertising, personal selling and sales promotion of their services. Optus existing advertising campaigns have been effective in positioning it as a customer oriented company, therefore, it should maintain this level of exposure in the market place. Other strategies are: Maintain an Optus website on the internet to keep residential and business segments informed on products and services offered as well as information on purchase details easily accessible. Engage marketing representatives/Account Managers in cold calling exercises to promote Optus mobile services to prospective clients and those who are already using Optus other services such as local calls, long distance etc. When dealing with existing customers, Account Managers will actively promote new mobile services. Offer sales incentives to external intermediaries when they exceed sales quotas in the form of money or other incentives they might prefer. Offer sales promotion such as free tickets to sporting events when a company s monthly spending exceeds $1500, or a weekend in a five-star retreat when monthly spending exceeds $3,000. When customer spends over $10,000, the client can have a choice of their preferred reward. IMPLEMENTATION 12.1 Product Product Development Activities Responsibility Date BudgetEstablish Planning & Review Committee Business Market Department (BMD) As soon as possible, in 2 weeks time NAOrganise internal training for marketing representatives or Account Managers and Customer Service personnel Human Resource Department (HRD) Training sessions every 2 months or before new product launch 10% of total training budget(1) Print and circulate employees and customers feedback forms among internal staff and intermediaries.(2) Collect and convey business customers feedbacks to R&D team for action Departmental Heads, Marketing Representatives/Account Managers and Customer Service Officers Ongoing Not exceeding 0.5% of total marketing research budgetAct upon employee feedbacks by establishing a liaison team within the R&D division All Departmental Heads Ongoing Expend under R&D umbrellaAct upon customer feedback by translating problems into solutions and incorporate into existing products/services R&D team Ongoing Expend under R&D umbrellaAppoint specific key personnel to be accountable with establishing and maintaining cooperating relationship with Nokia Senior Management Ongoing Public Relations/MarketingCost efficiency review R&D team Ongoing NA 12.2 Price Pricing Activities Responsibility Date BudgetMonitor business customers call patterns and monthly bills Account Managers BMD Ongoing NAMonitor competitor s price levels for the product BMD Ongoing Not exceeding 1% of marketing research budgetImplement discount plan for SMB and corporate users BMD Ongoing Discount according to total monthly bill 12.3 Distribution Distribution Activities Responsibility Date BudgetSend invitations to existing intermediaries, book function room and arrange company speaker(s) to introduce new products and services BMD Once every 2 months or before new product promotional launch Function room rental, printing of promotional materials and brochures are marketing expensesSend information kits to intermediaries to advise on commission scheme available BMD Every 2 or 3 months before new product promotional launch Commission not exceeding 10% of customer chosen talk plan.(1) Communicate reward schemes to staff(2) Reward staff for productivity and efficiency via: A bonus scheme Variable merit increments Quota performance BMD & HRD End of every financial year Expend from the net profit of the BMD, less than 20% of each business account monthly total. 12.4 Market Communication Promotion Activities Responsibility Date BudgetAppoint an electronic marketing specialist to maintain a website. Must be accountable for any transactions on the Net Marketing Dept Business and Residential Ongoing $50,000Cold calling prospects (20 calls per day) Relationship Manager Commence calling first month after promotional launch NACommunicate reward schemes to external intermediaries BMD Every commission payment period Expend from the gross profit of the BMD as part of marketing costs.Communicate sales promotion schemes to business customers by sending them brochures on entitlements when monthly spending reaches various threshold BMD Beginning of each year Expend from the gross profit of the BMD as part of marketing costs.SYSTEM FOR MONITORING, EVALUATION & CONTROL To gauge the effectiveness of the marketing strategies, a system for monitoring, evaluating, and controlling the performance and expenses of each marketing/operation function will be as follows: 13.1 Market Measure gross and net profitability, market growth, market share in the Residential Market every 3 months to ensure it is in line with prediction and forecasts. Also, conduct quarterly financial and market analysis on the SMB and Corporate market to ensure they are performing according to expectation. Any changes in profitability in the 3 segments, the strategic marketing plan will need to be reviewed. 13.2 Product The priority of the research and product development is to produce a service that meets the current needs of mobile customers. The best way to learn about the product performance is to receive customer feedback. All those in with customers will actively seek feedback, such as Relationship Managers, Customer Service Officers, support personnel and intermediaries. Every customer feedback will be documented and routed to relevant departments for action within 3 months. 13.3 Price The correct pricing used, is one which attracts sales and provides an expected profit. Customer retention implies customer acceptance of prices charged. The customer retention ration to use is: If retention rate drops below 5%, a pricing review will be commissioned by planning committee. 13.4 Market Communication In making enquires, complaints, suggestions or sales requests through print mediums or customer service hotline, customers are either provided with request slips, or communicate verbally with customer service officers. The Business Market Department will keep record of these responses to gauge the effectiveness of the chosen communication mediums. The Business Market Department will also engage a market research company to measure the effectiveness of customer service, handling of complaints, promotional or advertising campaigns that were launched. Other monitoring activities include measuring sales volume against commission/incentive schemes. 13.5 Distribution To maintain optimal distribution arrangements, ongoing evaluation and critical review of current channels is necessary in order to accommodate environmental changes. 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