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Strategic Management (Australia)

Identify a company (Australian Company only) in any industry of their choice. This could be the company you are currently working in or have worked in previously, or a company you are otherwise familiar with, either through personal experience or through a literature search.

Step 2: Your task then is to examine the environment the company has been operating and its growth strategies drawing on relevant concepts and theories taught in this unit.

Step 3: Based on your examination in step 3 above, make specific recommendations on alternative growth strategies for the company.

Answer -

The Australian telecom sector is seeing quick changes with the implementation of cutting edge technologies and ever-evolving customer behaviour. This paper is going to analyse the business of Vodafone Australia or VHA - Vodafone Hutchison Australia.

This analysis is interesting because of three aspects - Firstly, the technology that the telecom sector uses, is evolving at a great speed. The success of any Australian telecom service provider will lie on how quickly it is able to keep pace with this rapidly evolving technology.

Secondly, the telecom market in Australia is shrinking. With the TPG-Vodafone merger, the telecom industry is now left with three major players - Telstra, Optus and Vodafone. When any market has fewer players, chances are there will be no competition and the prices will not be in favour of the customers. However, the interesting thing is, in Australia despite the industry having left with only a few telecom players, the service providers are heavily competing against each other.

This brings us to the third point. The competition among the telecom service providers are making them take up newer technologies faster. So, price is not the factor in this competition - quality is. The telecom service provider that can provide superior network coverage will win this game.

Sadly, Vodafone had to suffer from poor network infrastructure and dwindling customer base in the recent past. It is interesting to se

e how Vodafone Australia capitalises on the TPG merger and how it uses 4G service and upcoming 5G services to lure the customers.

A Brief Company History Of Vodafone Australia - ( Micro Environment)

Although Vodafone and Hutchison are the ones that have the reins of Vodafone Australia, the company first entered Australia as a separate entity. Vodafone Australia entered the country way back in 1992. Till 2009 Vodafone operated its own 2G/3G network. In 2009, the two companies - Vodafone and Hutchison Whampoa ( Three Network Brand) merged. And in 2013, the new merged entity came up with their own 4G network.

Compared to Telstra and Optus, Vodafone Australia has fewer customers and has low service quality. It is because of this reason, Vodafone Australia keeps the price of its recharge packs and Postpaid plans lower than those of its competitors. So what we said earlier - price war being replaced with quality-war - is getting reversed by VHA.

A detailed analysis of Vodafone’s service quality and pricing structure is discussed in the latter part of the paper.

The Australian Telecom Market - (Macro Environment)

Just like other countries, the telecom and fixed-line industry has evolved rather too quickly when 4G came to the fore. Today, Australians need more data per month. The outdated norm of fair usage policy is being phased out gradually. The main competition among the telecom players is now limited to the price of data and the quality of network. Most of the telecom networks now offer free voice and SMS service.

Here are some of the key takeaways from the 2019 ACCC report -

  • There is a 6.6% drop in the pricing of the packs compared to the price of them in the previous year.

  • The data allowance has seen a 65% rise from the previous year.

  • Because more and more people are now using data and OTT services to communicate with one another, the traditional voice call is seeing a decline - From 67 Billion minutes in 2018 to 64 Billion minutes in 2019.

  • The broadband market is also expanding. The percentage of people who use mobile data alone for internet access decreased from 23% in 2014 to 16% in 2019. Added to that, 88% of all data downloaded in Australia happened through broadband data connection.

  • Although NBN adoption is increasing, a significant number of people complain about the lack of entry level plans for people who require less data. They have no way but to pay more.

  • The telecom service providers are taking baby steps in implementing 5G. They have bought 5G spectrum and are currently using 4G network to test run the 5G service.

Now, if we analyse these data presented above, there are certain deductions that can be made. This price war is negatively affecting the ARPU of the companies. The ARPU is constantly taking a nosedive. Telstra had conceded in its 2019 financial report that they are expecting more dip in the ARPU. This is true for Vodafone Australia as well - the ARPU fell by 4.9% in 2019.

This downward trend in the telecom sector will go on because of the further implementation of 5G and the related cost. However, the person who penned this paper predicts that the price of prepaid and postpaid plans will ultimately stabilise after a certain point as the competition gets more and more focused on providing quality services. The three player market will be seeing some cooperation between the service providers to stop incurring losses.

Vodafone’s Current Situation In Australia - ( The Combination of Micro and Macro Environments)

The reason behind this paper’s author’s choosing of Vodafone Australia is - it is a perfect case study to show how a company degrades gradually and then tries to gain trust of the customers again by leveraging current competitive advantages. So, in order to understand the current market situation of Vodafone Australia, it is needed to understand the past pains of the company.

Vodafone To Vodafail -

As the 3 Network and Vodafone Australia signed the merger deal in 2009, there was something big happening in the telecom world of Australia. Smartphones flooded the market by 2010 and the telecom usage habits of the Australians changed - voice became secondary and data started to take the centre stage.

While most of the other telecom operators anticipated this shift from voice to data, Vodafone failed to anticipate this sweeping change in the consumer behaviour. As a result, when the engineers took up the task of merging the networks of Three and Vodafone, they were caught off guard when the demand for mobile data surged. They could not handle the extra pressure of upgrading the technology of the merged entity - their hands were full. This resulted in the massive outage of Vodafone’s network that severely dented its reputation. That was in 2011. One can estimate how bad this outage was when he sees the fact that as many as 554,000 people left Vodafone within a year. Vodafone was ridiculed day in and day out.

But this failure of Vodafone was not just hurting the company. The consumers were also at the risk. There were only two big networks back then - Telstra and Optus. With Vodafone getting reduced to a distant third - the market was at the risk of suffering from duopoly.

How The Ghost Of Vodafail Is Still Haunting The Present Day Vodafone Leaders -

After what happened in 2011, Vodafone’s chief technology officer Benoit Hanssen, in 2014, said that such an outage would not happen again and promised the Vodafone customers of quality service. The new CEO - Inaki Berroeta was played safe - he did not promise much and stopped himself from speaking about statistics and numbers.

The network outages resulted in the top leadership of Vodafone Australia being overtly cautious. The same CEO, in 2019, reported that Vodafone Australia had lost 275,000 customers in the year. He blamed this over-cautiousness of the company for the decline of the customer base.He said Vodafone deliberately stayed away from aggressive customer acquisition because they were fearful of another network outage in the event of too many people using the network.

This lack of aggressive attitude is preventing Vidafone from spreading its wings.

The Silver Lining - Competitive Advantage -

Vodafone had been suffering from lack of a good network because of low infrastructural development. It hoped to change the situation when the talks of merger between TPG and Vodafone was being finalised. These talks happened as early as in 2014-15. However, the ACCC played the spoil-sport for the companies and blocked the merger. Thankfully in February 2020 the merger was green-lighted by the Supreme Court. Ultimately the merger took place in July 2020.

This merger is a god-send for Vodafone. On one hand there was unused spectrum on the part of TPG that Vodafone will benefit from. It can now expand its network capacity. On the other hand, prior to this meger Vodafone did not have any broadband infrastructure in its kitty. TPG has. This is extremely beneficial for Vodafone. There are two benefits - it can now be 5G ready and the merged entity can now enter the broadband market as well.

Prior to this merger, Vodafone was could not compete properly with Telstra or Singtel. Now that its infrastructure has been upgraded thanks to TPG, it is now able to compete in a much more heroic way. This merger with TPG is obviously a competitive advantage for Vodafone.

Cost Leadership -

In order to bring in more customers after almost a decade of sub-par service, Vodafone Australia is providing its service at the lowest cost. When the standard plans of Optus and Telstra start from A$ 50-60, the standard plan of Vodafone starts from A$35.

Thus, Vodafone toeing the line of Porter’s Cost Leadership strategy in order to differentiate itself. What’s more, unlike Optus Vodafone provides unlimited data. After the data allowance is finished, a Vodafone user can access the internet at 1.5 Mbps. This is a decent speed. This relaxation of Fair Usage Policy will surely attract customers.

Diversification Strategy -

Before the merger with TPG, Vodafone did not have any fibre line. But now it can utilise the fibre infrastructure of TPG to expand its data business. The duo are now planning to establish their own broadband network and compete head on against NBN. This could be an interesting case as NBN is not that favoured by the customers because of lack of entry level plans and unsatisfactory service in certain areas. If the renewed Vodafone succeeds in gaining the trust of the broadband customers, it will give it a moral boost.

SWOT Analysis -

In order to give strategic recommendation to Vodafone Australia, it is necessary to analyse the Strength, Weaknesses, Opportunities and Threats that the company has.

Strengths -

Vodafone’s main strength is its powerful parent companies. The parent companies of Vodafone - Vodafone UK and Hutchison Whampoa have the financial ability to invest more to improve the infrastructure.. With the TPG merger, Vodafone’s network is all set to be stronger than its counterparts. And it will have the added advantage of having a broadband arm as well.

Weakness -

Vodafone Australia’s main weakness is its dented reputation. Its reputation is slowly getting repaired nonetheless. It is still not capable enough to give a tough competition to Telstra.

Opportunities -

The TPG merger can help Vodafone branch out to broadband business that can improve its revenues. With unused spectrums of TPG, it has the opportunity to shed the Vodafail nickname.

Threats -

Before Vodafone sets up its own broadband network, it has to partner with NBN. And NBN’s foundation is not that strong. And Vodafone cannot do anything about it. Thus there is threat of making the customers angry because of unreliable broadband service.

Strategic Recommendation -

Since its merger with Three, Vodafone has been struggling to improve its network. There is a long way to go.

In this precarious moment, it is not advisable for Vodafone to compete for 5G licence. 5G as of now is still in its nascent stage - a hit or miss proposition. Vodafone will not benefit much even if it achieves first movers advantage by implementing 5G on a pan Australia basis.

So, Vodafone should focus on improving its 4G network which still has patchy services. It must try to have a leveraged position by building its own broadband network that can work independently of NBN. Only after its position starts to seem stable, it can go for 5G implementation. By then the other two networks will complete the R&D regarding the 5G infrastructure. Vodafone can leverage on this knowledge to build its 5G network.

Conclusion -

The mother companies of Vodafone Australia must stop the step-motherly treatment to the Australia division of Vodafone. Vodafone Australia could have easily avoided the loss of face that it endured during the ‘Vodafail’ years had its parent companies helped it. Now that Vodafone Australia has got a second chance, the parent companies must not squander it.

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