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Autor: anton • November 12, 2010 • 2,866 Words (12 Pages) • 757 Views
Competition and Analysis
The Strategy Analysis of Sprint:
Looking Into Its Future
A Look at Sprint
Sprint is an integrated global communications company that is focused in the US market. In 2003 Sprint earned 26 Billion in revenues with 26 million customers in 100 countries. Sprint is recognized as developing, engineering, and deploying cutting edge network technologies such as the US's first all digital, fiber optic network. Sprint currently has three main divisions: the long distance division which offers phone and data services throughout the world, the PCS division that provides wireless phone and data services to customers in the US and Puerto Rico, and the Local Distance Division (LDD) that offers local telephone service to clients in 39 states. Sprint is generally ranked third in the communications industry behind AT&T (who holds significant market share) and MCI. Sprint is the fourth largest wireless phone service provider.
Sprint currently operates in two different industries: the traditional telecommunications industry and the newer wireless phone industry. The telecommunications industry provides traditional voice services (local and long distance), data networking services (technologies that provide private networks - Private Line, Frame Relay, and VPN), and Internet. The wireless industry is comprised of companies that offer wireless phone services with other value added features such as Internet, Voice Mail, Walkie Talkie, music, etc... It is important to make the distinction between the two industries now because the conditions of each are different. The first tool I will use when looking at the telecommunications and wireless industries is Porter's five forces model with the addition of analyzing complements.
The suppliers of networking and phone equipment now have little bargaining power. The main reason for this is that the technologies are based on open standards, commonly known in the industry as protocols. This means that most types of equipment can easily be replaced and/or connected to different types of equipment. In regards to data networking equipment, Cisco has long been the market leader. Their position is being challenged by Juniper Networks. Margins on network equipment of any type have been razor thin since 2000. The net effect is that the suppliers of networking and phone equipment have low bargaining power. Other suppliers of telecommunications are companies that have a monopoly of a certain market. This means that a certain company is the generally the only company to have a complete infrastructure built in an area. Mostly these companies are the traditional bell companies (aka RBC's - Regional Bell Companies) that supply the 'last mile' of service from a common meeting point in the city to the customer's doorstep. Qwest (US West), Bell South, and SBC (Pacific Bell) are examples of Regional Bell Companies. These companies are the only significant players in those markets and are regulated by the government to control prices. They have bargaining power in those markets and will continue to have that power until other companies build infrastructure in those areas or deploy new technologies to by pass the traditional 'last mile'. Suppliers of mobile phone services have a little more bargaining power than the suppliers of communications components, listed above. Some suppliers differentiate themselves with different types of features such as "Push to Talk" with Motorola and integrated Palm devices deployed by Palm and Qualcomm. Most of the standards are still open thus limiting the bargaining power of the suppliers to the mobile phone service providers.
There is little threat of new entrants into the telecommunications industry. The cost to build a network requires are large amount of capital investment. These networks are very complex because not only do they have to cover long distances in the U.S., but also connect intricate metropolitan areas where roads and buildings make it impossible to lay fiber optics. A company can bypass this step by negotiating an agreement with the local service provider, generally a traditional RBC's, but the local providers generally have a lot of bargaining power and are highly bureaucratic. These factors produce a large barrier to entry into the traditional telecommunications market which, at its basic form, is more of a commodity. The margins for telecommunications companies have dropped since 2000 as well. Potential entrants face the same high barriers to entry in the wireless industry. Cell phone networks must be established over large areas requiring thousands of cell phone towers and connectivity to each tower. The amount of capital and declining margins keep new entrants from coming into the market. Even though many new wireless providers entered the young market in the 90's, a trend of consolidation has occurred since.
The bargaining power of buyers of telecommunications services is very high. The primary reason is that the traditional services have become a commodity. This seems blasphemous for me to say because a year ago I was designing customized networks to business customers, trying to justify the value of unique solutions to my customers. These products are becoming commoditized though. Each of the major players sell the same services: Local and Long Distance, private network solutions (Frame Relay, ATM, Private Lines) that connect a business's local computer networks together, Internet services, some form of IP (Internet Protocol) based VPN (Virtual Private Network), and Voice over IP services. Buyers can pick and choose between the best deals at that time since all of these services provided by the telecommunications carrier have roughly the same services and features. Some buyers even pit the communications companies against each other, which I have seen first hand.
The products that are sold by service providers are very substitutable. The products in each portfolio can be substituted with each other. Voice over IP is replacing traditional voice networks in many situations. Old Frame Relay networks are being replaced new innovations of the IP networks (the Internet). These innovations also allow for different locations to be substituted. This means that, where traditionally all locations in a network had to be provided by one carrier,