The Irish telecommunications industry has been heavily regulated since the 1980s. A state-owned body, Bord Telecom Eireann, being simultaneously the largest employer in the country and the provider of the poorest quality Telecom Systems in Europe, introduced the controls that fundamentally eliminated the competition and created a monopoly. This seemingly new, but propitious industry faced numerous obstacles, as its capital requirements related to infrastructure were excessive.The investors were not willing to risk their resources for the supply of telephone lines, routers or essential networks.
This combination of high prices, subdued investment and poor infrastructure prevented modernisations. To rectify the problems, the Director of Telecommunications Regulation originated a solution: privatisation of Telecom Eireann, as well as opening the Irish telecom market to competition.2 Ireland’s policy of liberalising own telecommunications markets was indeed initially driven by the European Commission derogation, nevertheless country’s prompt action proved that Irish regulatory framework is comparably as effective, as one of OECD’s countries.As a result, the deregulation of the Irish telecommunications market was introduced on the 1st December 1998.
3 “I believe that the type of regulation that has been developed will allow competition to work and will help encourage market entry. It will also herald a fast transition to an era where consumers are offered the best possible telecoms services at an affordable price” (The Director of Telecommunications Regulations, 1998)1. This confident statement proved government’s eagerness to provide services that benchmark themselves with more advanced countries, as well as successfully award 29 operator’s new licenses. 3 Interestingly, the Irish Telecom Market was becoming enriched by a new growing demand for mobile phones.In order to fully recognise the progression of growing market for mobile phones in Ireland, we must engage in comprehensive analysis of the telecommunications industry in 1998.
Michael Porter’s five forces framework explains, that competition is not exclusively manifested in other players. It is also intensely rooted in the underlying economics. According to Porter, the strength of these five forces is the main determinant of the given industry’s profit potential. Consequently, the mild character of the contending forces in the mobile phone industry indicates capability for considerable profitability and high returns on the capital employed. (Book)1. Competitive Rivalry The Cellular Mobile Industry of 1998 presented a duopoly, that concentrated the industry on the two principal companies: The leading provider of mobile telephone services and a subsidy of Telecom Eireann, Eircell, with 330,000 customers (purchased by Vodafone in 2001), and Esat Digifine, with 80,000 customers (became O2 in 2001)book.
Both players competed for brand identity and renowned quality in the market.Estat Digifone emphasized the commitment to young people and technological innovations that would essentially serve the customers through the sponsorship of Young Scientist 6. , while Eircell’s strategy involved remaining the leading company in the duopoly by focusing on customer’s care and maintaining superior quality 7 . Among the two players, Eircell controlled the majority of market share- 60% at that time.
The mobile industry was at its infancy stage, nevertheless it created a market with an enormous potential to grow, trying to expand their market segments from businesses to households. The main cause for its low competitive landscape was a moderate rivalry between the leading companies. Lack of price competition caused high prices being charged for excessively limited services. 4 and Q1 Report2. Threat of new entrants With the aim of reducing high prices and encouraging the mobile industry in 1998 Ireland, Etain Doyle endeavoured the introduction of another, more competitive mobile phone operator. Among the two applicants, Meteor succeeded over Orange Communications.
Book Nevertheless, Meteor’s entry into the Irish mobile market was overly delayed due to the legal action pursued by Orange that was motivated by biased media coverage. The entry of new companies into restricted duopolistic market is extremely difficult, as it involves heavy investments in R&D, marketing, start-up costs and establishment of a brand identity. In Meteor’s case, locating posts generated unforeseen obstacles, which essentially limited their access to resources Book . 3.
Bargaining power of customersThe impact of buyers on the telecommunications industry in 1998 Ireland was exceptionally limited. In this duopolistic industry, both Eircell and Esat Digione freely exercised their powers through high switching costs and excessively raised prices. When obtaining a phone on network, a customer was tied to that network for at least a year, which artificially attached him to a company BOOK.According to the research conducted in 1998 in Ireland, it was the small business sector, which had been identified to be a target market of the mobile telephone industry. Due to the growing number of small and medium enterprises, mobile phones provided new flexibility and convenience, as well as efficiency.
As businesses are usually not as price sensitive as households, they could afford new services. Reliability was strong factor that attached them to mobile phone providers of supreme quality. 8. Despite the fact that the market penetration rate in mobile phone industry increased in 1998 to 25.
5%, the customers still possessed a low bargaining leverage and consequently were unable to influence the decisions or strategies or the primary players in the mobile industry.4. Threat of Substitute Product The threat of substitutes in the telecommunications industry in 1998 was almost non- existent, as buyers’ inclination to substitute was extremely low. Despite the growth of the mobile sector to 40% in its revenue, the delay of the entrance of Meteor to the Irish market until 2000 diminished the threat of more competitive prices for Eircell and Esat Digifone.
The high switching costs, required investment in the new, quite uncertain market and product development have certainly reduced the threat of incoming companies in duopolistic Irish telecom market of 1998 3. The two prime movers in the market enjoyed increased opportunities, as after entering a contract a customer was attached to the network for a prolonged period of time.5. Bargaining Power of Suppliers The Bargaining Powers of suppliers of the two major players in the industry was extremely high. As in 1998, the connection could only be maintained through costly building of base towers/masts with antennae, networks co-operated. Eircell, that was the owner of the majority of masts in the country charged excessively high prices and limited the potential of the competitor.
Estat Digifone on the other hand functioned primarily because of an attractive arrangement with the Gardai to use their masts. Multinational companies, supplied mobile phones to the two networks for a rather low and attractive cost.The application of Porter’s five forces model to the Irish Telecommunications industry in 1998 reveals the heavy restrictions of the new heavily regulated, yet expanding market. It highlights the sizable profit potential, premium pricing affordable exclusively by the Irish businesses and underpins the economic link between the lack of competition and high prices with inflexibility in the market, which had a negative effect on mobile penetration rates.The analysis insinuates, that Eircell and Esat Digifone possessed all added value.
They provided a high quality services that their target markets could afford. Their new strategies, including Eircell’s ‘ready to go’ and ‘Chatterbox’, which provided mobile phones for £79 in department stores targeted new potential buyers- households 8 . Between 1985- 98, the telecommunications sector considerably increased its share in GDP (2.4% - 2.
9%). Due to the networks expansions and progressive digitalisation, both Eircell and Estst Digifone operators had a significant market power in public and drove the mobile telecommunications industry of 1998 Ireland3.2. Meteor’s Strategy upon Entering the Irish Market & Factors that caused it to change Meteor entered the Irish duopolistic telecommunications industry in 1998, nonetheless due to the legal action pursued by Orange Communications, its operations began in February of 2001. The company was granted a third mobile phone licence by the Irish government and swiftly captured 22% of the market share. The company’s innovative attitude, commitment to customers, ethical behaviour, as well as an open environment undoubtedly contributed to Meteor’s exquisite success on the Irish market12.
By 2001, the mobile phones market penetration have soared up to 55%. The market continued to be dominated by Eircell with 1.55 m customers, and Esat Digifone with 997,000 customers. As the Irish mobile market remained exceptionally expensive, Meteor saw an opportunity in targeting the price-conscious market segment (the youth with pre-paid preference). The company’s innovation and effectiveness allowed to create great price plans accompanied by low cost mobile phones with music and cameras.
The effectiveness of this strategic ploy was certainly emphasized by sponsorship of the Meteor Ireland Music Awards and an easy access to the most popular social network of that time – Bebo. Meteor’s product differentiation through low prices created the mobile phone industry accessible and affordable.The billing became convenient and customer friendly due to Meteor’s removal of on and off peak ratesBook. The prompt initial evolution was driven by attracting young people to buy the mobile phones for the first time, nevertheless attracting other market segments could only assure Meteor’s progression11. The advertising campaigns and marketing accounted to 20% of Meteor’s overall market share. These humorous and distinctly Irish advertisements, contrasted with competitors’ formal approach, which further differentiated MeteorBook.
Nevertheless, in the 2004 a substantial decrease in brand consideration was identified to be a critical weakness of Meteor. Firstly targeting exclusively young users created a negative brand image of a cheap, unreliable student network. The market for mobile phones, which equalled to 89% by 2004 was uncertain in relation to future prospects. Similarly the two major players in the industry, Vodafone and O2 quickly imitated Meteor’s strategy. They could afford substantial decrease in prices, therefore posed a serious threat to Meteor11.
On 25th July 2003, the number porting created another opportunity for Meteor, as it allowed the customers to alter the network operator, while retaining the mobile phone number. Despite the fact that it created an extensive drop in the customer loyalty, Meteor used it for its advantage by targeting other market segments, offering supreme quality service, initiating the 3G network coverage, and most importantly repositioning itself on the telecom market through ‘Girls & Guys’ campaign. Meteor’s priority became the acquisition of post-pay customers (aged between 25-34) and keeping clients contented. It offered free Meteor to Meteor texts and 5cent Meteor to Meteor calls, as well as formed a social network through heavy spending on marketing.
Eircom’s takeover of Meteor in 2005 for 423m euro posed an additional financial advantage in forms of bundles (fixed line& mobile services)book. Another opportunity arose when Meteor recognised a need to gain customers from all backgrounds and ethnic groups. To accommodate a heavy wave of incomers from Poland, Lithuania and Latvia, Meteor launched their website in numerous languages. 127,000 Poles living in Ireland were successfully targeted through Polish advertisements that skilfully reflected their thoughts on the foreign land13.
Meteor undoubtedly accomplished a strong position in previously duopolistic market. Looking at SWOT analysis, it turned threats into opportunities and weaknesses into strengths. The company’s strategic was innovative and adaptable to the market situation. Despite being a national network, Meteor, negotiated with 230 partner networks in 133 destinations on roaming issue and enlarged their retail sphere up to 40 stores in 2007. The company’s motivation to improve efficiencies and create a friendly workplace allowed them to reach 1m customers in 2008Book.
