www.oliverwyman.com
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Oliver Wyman’s Consultancy Group

Report to Eircom Group Plc Board of Directors

February 2010

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- Alia Shafiza (Head of Marketing) - Ausra Ivaskiene (Head of Human Resource) - Svetlana Klimentjeva (Head of Corporate Affairs)
Content Page

Introduction …………………………………………………………………..…………… 2
Executive Summary ………………………………………………………….……..…. 3
Part 1: Analysis of the Environment ………………………………………………… 4 1. The Environmental Forces ……………………………………………… 5 2. Key drivers of change ……………………………………………..……… 8 3. Future Orientation ……………………………………………………..…. 10 4. Industry analysis …………………………………………..………………. 12 5. Importance of Convergence in Telecoms Industry ……………. 16 6. Irish Telecom Industry Lifecycle ………………………………….…. 19 7. Strategic Alliances within Irish Telecom Market …………….… 23

Part 2: Analysis of Eircom’s Strategic Capabilities …………………...….…… 25 2.1 Resources and Competences …………………………………….……. 26 2.2 Eircom’s Cost efficiency …………………………………………….….. 30 2.3 Eircom’s Sustained Competitive Advantage …………………..… 31 2.4 Usage drivers: Innovation ………………………………………….….. 33 2.5 Importance of Knowledge Management ………………………..… 36 2.6 Benchmarking ………………………………………………………...……. 38 2.7 Advertising campaigns of Eircom ……………………………………. 39 2.8 Appraising Eircom’s Resources and Capabilities …………...….. 40

Part 3: Key Internal and External Factors …………………………...…………… 42

Part 4: Organisational purposes ……………………………………………………… 43

Part 5: Portfolio Analysis & Strategic Choices …………………………………… 45

Conclusion and Recommendations ……………………………………..…… 49

Appendix 1 Oliver Wyman Company’s Outline
Appendix 2 Fixed Line, Mobile and Broadband Usage
Appendix 3 Intangible Assets
Appendix 4 USO Public Payphones
Appendix 5 Highlights for the twelve-month period ended 30 June 2009
Appendix 6 Eircom’s Balance Sheet
Appendix 7 USO Quality of Service Information
Appendix 8 Eircom’s seven main Subsidiaries
Appendix 9 Eircom and corporate social responsibility
Appendix 10 Eircom’s Product and Services Portfolio

Bibliography

Figures and tables

Table 1.1.1 PESTEL
Figure 1.2.1 Key Drivers of Change
Figure 1.3.1 Scenarios
Figure 1.4.1 Application of M. Porter’s Five Forces in Telecoms Industry
Figure 1.5.1 Advanced Network Systems
Figure 1.5.2 Cloud Computing
Figure 1.5.3 Convergence in Telecoms Industry
Figure 1.6.1 Operator Share of Fixed Line Revenues Q3’09
Figure 1.6.2 Eircom Market Share Q3’07-Q3’09
Figure 1.6.3 Market Share of Total Broadband Market Q3’07-Q3’09
Figure 1.6.4 Market Share of Subscription (Icl. HSDPA) Q3’07-Q3’09
Figure 1.6.5 Market Share by Revenue Q3’07-Q3’09
Figure 1.6.6 Stages in the Industry Lifecycle
Figure 1.7.1 Strategic group Mapping
Table 2.1.1 Resources Audit
Figure 2.1.2 Threshold Competences
Table 2.1.3 Threshold Resources
Table 2.1.4 Eircom’s Business Processes
Figure 2.3.1 SCA
Figure 2.4.1 Telecom’s Product Lifecycle
Figure 2.4.2 Competences of Efficient Innovation Process
Table 2.5.1 The Concept of Knowledge
Figure 2.6.1 Benchmarking – Closing the Gap
Table 2.8.1 Eircom Resources and Capabilities
Table 2.8.2 Key Strengths and Weaknesses
Table 4.1.1 Eircom’s Subsidiaries
Figure 5.1.1 The BCG Matrix
Figure 5.1.2 BCG Positioning Throughout the PLC
Figure 5.1.3 Fixed Line and Mobile Divisions at BCG Matrix
Introduction
This report is provided by ‘Oliver Wyman’ Consultancy Group to Eircom Group Plc Board of Directors. The aim of this report is to analyse Eircom’s external environment to understand the forces outside organizational boundaries, which are helping to shape the company. Also, to analyse the internal environment, to identify the company’s core competences and opportunities, that the firm is currently unable to take advantage of, due to a lack of appropriate resources. Outline how organisation is able to respond to the external opportunities and threats, and imply our group’s recommendations for the future.

Board of Directors: Mr Ned Sullivan (Independent Chairman), Mr Jerome Barrett (Deputy Chairman), Mr Tan Guong Ching, Mr Lee Theng Kiat, Mr Steven Terrell Clotz, Mr Greg Sparks, Mr Paul Donovan (CEO).

Executive Summary

To fully understand the market and its industry there are several ways that Eircom Plc. can carry out. Firstly an overall analysis of the environment and the market is done. This includes assessing the environmental forces that effect the organization directly or indirectly. Findings will highlight the key drivers of change and the future orientation of the market. Information then is complied for the analysis of the industry and why convergence is essential in the telecoms industry. A table and a graph will illustrate the lifecycle of the telecoms industry in Ireland and identify the strategic alliances of the industry within the market.

Secondly, an internal assessment of the organization is undertaken to understand in –depth about Eircom Plc.’s strategic capabilities. This emphasizes on the amount of available resources and competencies within the organization. Then, Eircom can recognize how they are able to increase cost efficiency and sustain their competitive advantage in the market. Not forgetting that innovation plays a significant part in the telecoms industry and for Eircom’s future growth. Knowledge management and benchmarking will clearly explain and valued among the employees and top management. A new advertising strategy can be acknowledged for a more attractive approach to draw new customers and appraisal of Eircom’s resources and capabilities.

Thirdly, the vital internal and external factors are extracted from the results of the research. This is to illustrate the strengths and weakness of the organization internally and the opportunities and threats that may affect Eircom in the future.

Later, Eircom’s organizational purposes and strategic direction is discussed to forecast what their plans are for the entire business to continue to increase their share.

Finally, there are strategic choices available for Eircom to embark on into different markets and invest. A brief analysis of the portfolio concludes the report.

Part 1:
Analysis of the Environment

The telecoms sector has been and continues to be an important driver of global economic activity. The environment is what gives organisation means of survival, it can be considered as source of threats and opportunities. It is vital to analyse environment carefully in order to anticipate and, if possible, influence environmental change.

Layers of the Business Environment

Environmental Forces

Telecom Political Industry Influences Rivals Environ- mental Influences Eircom Economic Influences Markets Legal Suppliers, Influences Social Buyers Influences Technological Influences

1.1 The Environmental Forces

There are many factors in the macro environment that will effect the decisions of managers of any organisation. To help analyse these factors managers can categorize them using the PESTEL model. This classification distinguishes between:

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For managers, it is important to analyse how macro-environmental factors are changing and how they are likely to change in the future, drawing out trends and implications for the organisation (Table 1.1.1).

Table 1.1.1 - PESTEL
| |Comments |Major Macro-Environmental Factors |Trends & Implications |
|Political |Highlights the role of |Legislative changes IRL |- Regulatory framework are slow to change; |
| |government |Legislative changes EU |- Under new EU telecoms law to be introduced last|
| | |Industry regulatory changes |year, users caught illegally sharing copyrighted |
| | |National government change |works would be disconnected from the Internet |
| | |International regulatory change |(Ahern, 2009: 2); |
| | | |- Smart Economy; |
|Economic |Refers to factors such as |Changes in standards of living |- Economic downturn in Ireland and |
| |exchange rates, business |Economic changes in IRL |internationally; |
| |cycles, and differential |Economic changes internationally | |
| |economic growth rates |Direct & indirect taxation rates | |
| |around the world |Interest rates | |
| | |State of IRL economic cycle | |
| | |Cooperation tax | |
|Social |Influences include changes |Changes in people’s lifestyles |- Population increase in the State; |
| |in the society |Changes in aspiration & expectations |- Continued trend for broadband connections |
| | |Changes in education levels |(www.comreg.ie); |
| | |Changes in buying habits |- Corporate social responsibility; |
| | |Changes in demographics | |
| | |Changes in ethnic groups | |
| | |Changes in attitudes and opinions | |
|Technological|Influences refer to |Emergence of new technology |- Increasing numbers of Internet users; |
| |innovations in the |Emergence of rival & substitute technologies |- Issues of privacy and security of confidential |
| |technologies |(Tele)communications changes |information; |
| | |Stage of product’s technological life cycle |- Wireless internet; |
| | |Convergence |- Information Systems; |
| | | |- Convergence of products, businesses and |
| | | |services; |
| | | |- Mobile broadband; |
| | | |- Cloud computing & the evolution of |
| | | |software-as-a-service (www.comreg.ie) |
|Environmental|Stands specifically for |Cost implications |- Achieve environmental best practice: put in |
| |‘green issues’ |Public opinion |place systems to deal with office and industrial |
| | |Sites & location |waste, from packaging, office paper and office |
| | | |consumables, to materials such as fibre optics, |
| | | |chemicals and electronic waste including IT |
| | | |equipment; |
| | | |- “green tech”; |
|Legal |Embraces legislative |Technology legislation |- Illegal download and share of data; |
| |constraints or changes |European legislation |- Unionized workforce. |
| | |IRL directives | |

1.2 Key drivers of change

Handling change is an integral part of every manager’s job. The key drivers of change are “environmental factors that are likely to have high impact on the success or failure of strategy” (Johnson, Scholes & Whittington, 2008: 56).

The key drivers of change in Telecoms industry are (Figure 1.2.1): 1. Technology. The impact of technology not only on the practice of business, but on the economy in general is widely illustrated by the development and use of the Internet. In 1997, worldwide some 40 million people and 25 000 firms used the Internet. By 2005, there were 1 billion users. By 2015 the figure is forecast to be 2 billion (Worthington & Britton, 2007). [Appendix 1].

2. Entry of new players. New entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete (Crowther, 2008).

3. Social influences. Due to economic downturn, consumers are becoming more and more price sensitive, they want value for money. Therefore, it is important to know your market segments, consumer needs and expectations.

Moreover, everyone is searching for secure and reliable information systems. The increasing trend for broadband connections continued in 2008 with 43% of all households reporting a broadband connection, compared with 19% having modem/ISDN connection only (www.comreg.ie).

4. Recession. In the light of recession, people are spending less, no more investments, higher costs and companies are making redundancies. However, according to data, there is profit grow up in EU countries at average 0.4% from November 2009. Irish CEOs believe that the fundamentals of Ireland’s business environment remain strong, despite less favorable views than previous years, according to PricewaterhouseCoopers’ latest CEO Pulse Survey. But it is still difficult to predict economic situation for the next year, and how long it takes to recover the economy. 5. Regulations. Regulation seeks to promote the interests of consumers, and to facilitate the contribution of telecoms to the overall economy. There are 3 main reasons why regulation is such important part for the industry: market power, the importance of telecom services, and the need for commodity (www.comreg.ie).

6. Convergence. Technological change and innovation is undoubtedly the principal driver behind convergence. Innovativeness in convergence can give the organisation an advantage over competitors.

The telecommunication industry is constantly changing and evolving as the industry responds to changes in technology and developments that can either make for a more profitable climate or completely destabilize the major players in the sector. Without a clear sense of the key drivers for change managers will not be able to take the decisions that allow for effective action.

Figure 1.2.1 – Key Drivers of Change

1.3 Future orientation

Scenarios are “detailed and plausible views of how the business environment of an organisation might develop in the future based on grouping of key environmental influences and drivers of change about which there is a high level of uncertainty” (Johnson, Scholes & Whittington, 2008: 57). Scenarios are used to identify a number of possible alternative futures and, optionally, how we might get there.

Managers should evaluate and develop contingency plans for each scenario. Then they should monitor the environment to see how it is actually unfolding and adjust strategies accordingly.

To be successful in telecoms business, we have developed 4 scenarios (Figure 1.3.1): 1. To become the industry leader, a company has to provide high speed Internet, that requires investments; 2. The market leader may be a company which can provide high quality customer service and be marketing based. In private sector satisfied customers are what keep an organisation in business; 3. Facing competition and threats from new technology, companies need to keep investing in innovative technology, IS; 4. If managers are not able to deal with these factors and without any action, profitability will go down and organisation will fail.

Figure 1.3.1 – Scenarios

1. » Meteor » 3 Network » NTL

High Speed Internet Provider

2.
4.
No Action

Customer ??? Care

Innovativeness & Convergence 3. » NTL » Eircom » Vodafone » NTL
1.4 Industry analysis

The telecommunication industries are linked together by complex networks, telephones, mobile phones and Internet-linked PCs. Two key factors responsible for the escalation of telecommunications industry are the use of modern technology and market competition. It is hard to avoid the conclusion that size matters in telecom. It is an expensive business, and contenders need to be large enough to produce sufficient cash flow to absorb the costs of expanding networks and services that become obsolete seemingly overnight.

The Porter’s Five Forces Model needs to be examined and understood if the nature of competition in the industry is fully appreciated (Figure 1.4.1):

1. Threat of new entrants: New entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete (Lloyd, 2007). Main barriers to entry are: • Access to finance; • Transmission systems need to be replaced as frequently as every two years; • Ownership of a telecom license; • Solid operating skills, management experience, and knowledge management is fairly scarce.

The challenge is to find ways to overcome the entry barriers without nullifying, through heavy investment, the profitability of participating in the industry.

2. Existence of substitute products: the fewer the number of other services that meet equivalent buyer needs, the higher the profits. When the threat of substitutes is high, industry profitability suffers.

Products and services from non-traditional telecom industries pose serious substitution threats. Cable TV and satellite operators now compete for buyers. The cable providers, with their own direct lines into homes, offer broadband internet services, and satellite links can substitute for high-speed business networking needs.

The threat from substitutes will be greater if the alternatives provide better value for money. This can be achieved by the substitute being equally good and cheaper or by being equal on price but offering a better service or more added values.

3. Buyer bargaining power: the lower the control that sellers have, the lower the profits. Strong buyers force prices down by driving ever harder bargains with sellers. If the threat of substitutes is strong, a number of choices exist and the buyer will shop around to find the best deal and most suitable choice.

With increased choice of telecom products and services, the bargaining power of buyers is rising. Telephone and data services do not vary much, regardless of which companies are selling them. For the most part, basic services are treated as a commodity. This translates into customers seeking low prices from companies that offer reliable service. At the same time, buyer power can vary somewhat between market segments. While switching costs are relatively low for residential telecom customers, they can get higher for larger business customers, especially those that rely more on customized products and services.

4. Supplier bargaining power: the more power that suppliers have, the lower the profits. Suppliers can take more of the available profits if they control resources needed by the sellers, including raw materials, skilled workforce, specialized production facilities, access to intellectual property rights.

At first glance, it might look like telecom equipment suppliers have considerable bargaining power over telecom operators. Indeed, without high-tech broadband switching equipment, fiber-optic cables, mobile handsets and billing software, telecom operators would not be able to do the job of transmitting voice and data from place to place. But there are actually a number of large equipment makers.

5. Competitive Rivalry: the lower the competitive rivalry between businesses in an industry, the higher the profits. The strongest competitive forces determine the profitability of an industry. The structure grows out of a set of economic and technical characteristics that determine the strength of each competitive force.

New technology has paved the way for substitute services. Nearly everybody pays for phone services, so all competitors must lure customers with lower prices and more attractive services. They realised that to maintain its position in the market they had to reduce the length and inconsistency of delivery lead times, increase productivity via capacity uplift and manage the growing demand for higher bandwidth (Management Awards, 2009).

Figure 1.4.1 – Application of M. Porter’s Five Forces in Telecoms Industry

Consumers are more sophisticated and have more choices than ever before when picking their voice, television, broadband, and wireless service provider. Telecommunications companies that once could rely on a core product and its revenue, now find their products and customer relationships under intensifying pressure from the competition. Success depends largely on brand name strength and heavy investment in efficient billing systems. The role of advertising on television is critical to promoting the appropriate image to attract customers.

1.5 Importance of Convergence in Telecoms Industry

“Convergence is where previously separate industries begin to overlap in terms of activities, technologies, products and customers” (Johnson, Scholes, Whittington, 2005: 77).
The greatest area in which convergence was occurring was with information technologies. It has been created an ability to store complex human genetic information and manipulate very large-scale sets of data.

Voice, Data, Video - all of these technologies are converging. This shift toward convergence is an opportunity for organizations to optimize investments in their networks and implement new, powerful tools with which to compete. Advanced Network Systems deliver innovation to organizations of all sizes, through the implementation and integration of emerging network technologies (Figure 1.5.1: http://www.getadvanced.net):

Figure 1.5.1 – Advanced Network Systems

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The mobile handset is the most personal gadget ever. We carry it all the time for communication, entertainment, commerce and business. Mobile phones include camera and video functions, we can store and share information, have access to the Internet with Mobile Internet Broadband.

There are main issues related to the convergence: • It is often difficult to define industry because industry boundaries are continuously changing; • Technology convergence provides the possibility for new competitors to enter the markets. Telephony can, in addition to traditional PSTN operators, be offered by cable TV operators; • One of the problems with mobile broadband devices is that, for most people, it is difficult to share the connection. Unlike the wireless router that many average computer users are familiar with, the mobile device on its own is a one-machine deal.

One more example of convergence in telecom industry is Cloud computing. It is about “provisioning of computing resources remotely or at a distance from the user, over the internet” (www.comreg.ie). Cloud computing has built on trends like the widespread availability of broadband, inexpensive storage, virtualization and grid computing. Figure1.5.2 indicates some advantages and disadvantages of it:

Figure 1.5.2 – Cloud Computing

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Technological change and innovation is undoubtedly the principal driver behind convergence. Innovativeness in convergence can generate new services and products which will give the organisation an advantage over competitors (Figure 1.5.3).

Figure 1.5.3 – Convergence in Telecoms Industry

Eircom

Microsoft Meteor

1.6 Telecom Industry Lifecycle

Companies in telecommunications industry face a number of challenges as market saturation, slow uptake of new services, and the economic downturn increase pressures to cut costs and improve efficiency.

According to the ComReg report, internet and mobile subscriptions increased in Q3 (July-September) 2009, but communications revenues declined once again this quarter. This is the 3rd quarter in a row in which all sectors (fixed, mobile, broadcasting) have experienced a decline in revenues. As well as the recession, the plethora of recently introduced bundled products may also be a contributing factor to declining revenues. Presented below is a short summary of ComReg’s report: • Overall market revenues continued to decline this quarter by 1.8% ; • Fixed revenues increased its market share to 50.7%, and is followed by mobile (44.7%) and broadcasting (4.6%); • Total internet subscriptions increased to 1,517,449. This represents a growth rate of 2.2% since last quarter and 9.4% since Q3 2008; • Broadband subscriptions (fixed and mobile) continue to increase, reaching 1,361,254 in Q3’09. This is a 4.2% increase on Q2’09.

Since last quarter, Eircom’s retail broadband and interconnect market shares have increased from 54.4% to 57.3% and 62.7% to 65.1% respectively. Eircom’s overall share of fixed line market revenue has increased marginally this quarter, by 0.1 percentage points (Figure 1.6.1). However, when compared to its market share two years ago, this is a 1.3 percentage point decrease. Figure 1.6.2 shows Eircom’s market share on a quarterly basis from Q3 2007 to Q3 2009.
Figure 1.6.1
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Figure 1.6.2 [pic]

Figure 1.6.3 illustrates Eircom’s market share of total broadband subscriptions when compared to other authorized operators’ (OAO) share of overall broadband subscriptions, including DSL and alternative access technologies (which includes mobile broadband subscriptions). This quarter Eircom’s market share was 35.5% for retail broadband subscriptions, compared to 38.7% in Q3 2008. Figure 1.6.3 [pic]

Figures 1.6.4 outlines mobile market share based on the number of active subscriptions reported by each operator. Meteor accounts for 19.8% of the total active mobile subscription base in Ireland including mobile broadband and 21.1% excluding mobile broadband. Figure 1.6.5 provides an analysis of market shares by revenue for mobile operators. Meteor’s market share increased to 18.5%. Figure 1.6.4 [pic]
Figure 1.6.5
[pic]

However, telecom market would continue to grow as telecom companies make further investments into this market. The Irish telecom industry is planning to invest €724 million per annum in infrastructure up to 2011. (Irish Independent, 2008). It would still take quite a long time before we see a major up rise in broadband subscriber growth. Wireless internet will outshine broadband in future.

Communications market revenues and volumes decline as consumers seek value by reducing communications spend, however, the subscriber numbers are still growing (Figure 1.6.6): Figure 1.6.6 – Stages in the Industry Lifecycle

Irish Telecom Industry

1.7 Strategic Alliances within Irish Telecom Market

To analyse Eircom’s strategic groups within the telecommunications industry in Ireland, two variables have been identified; the price of products and the variety of products available to the customer.

A strategic group mapping (Figure 1.7.1) has been illustrated to distinguish Eircom’s strategic position among its competitors. Eircom is positioned at the top right of the graph. The strategic map shows that, Eircom provides a wider range of products than its competitors at a slightly higher price. Three of Eircom’s main competitors; Vodafone, BT Communications and Colt Telecom are positioned closely. The competitors offer a smaller range of products at a slightly lower price compared to Eircom (Brady, 2009: 2).

Strategic gaps represent untapped market segments (Johnsons et al, 2005) that Eircom can choose to enter in order to increase profits or market shares. Thanks to this analysis tool, the authors found that there are two main market gaps in the telecommunication market. The first strategic gap shows that no companies are positioned as a limited product range / high price company. The second strategic gap shows that no companies are positioned as a relatively large product range / low price company. It is of the authors’ opinion that unlike the second strategic gap, the first strategic gap does not represent a market opportunity for Eircom. The recommended market gap entry strategy is discussed in the next part.
Figure 1.7.1 - Strategic Group Mapping

| |Product |
|Company|Land line |Mobile Network |
|Tangibl|The physical assets of an |▪ Devices: Cordless phones; Corded phones; Wireless modems, routers and adapters; |
|e |organisation; |▪ Transport: vans, trucks, cars, mechanical aids; |
| | |▪ Payphones [Appendix 4]. (www.eircom.ie). |
| | |▪ The estimated economic lives assigned to property, plant and equipment directed by ComReg in respect|
| | |of the year ended 30 June 2009 (www.eircom.ie). |
|Financi|Capital, cash, debtors, | |
|al |creditors, and suppliers of |▪ €140 million sale of Australian-based Eircom Holding Ltd shareholding to Singapore-based STT; |
| |money (shareholders, bankers);|▪ Group revenue €1,997 million (for the twelve-month period ended June 2009); |
| | |▪ Meteor (the third largest mobile operator in Ireland) revenue €496 million (for the twelve-month |
| | |period ended June 2009); |
| | | |
| | |* Full report for the twelve-month period ended 30 June 2009 [Appendix 5]; |
| | |* Eircom’s balance sheet 2007-2009 [Appendix 6]. (https://berbens.nl). |
|Human |Demographic profile; skills | |
| |and knowledge of staff and |▪ By 2009, Eircom had 6,223 employees. It will be more reductions in the workforce by 1,200. About 700|
| |other people in an |have already left the business (www.http://home.eircom.net); |
| |organisation’s network; |▪ Eircom’s sponsorships are Irish International soccer, the Eircom League, People in Need, the |
| | |Weatherline photo competition and Special Olympics Ireland; |
| | |▪ Total Mobile customers of 1,026,000 (by June 2009). |
|Intelle|Patents, brands, business |▪ The estimated economic lives assigned intangible assets directed by ComReg in respect of the year |
|ctual |systems, customer databases; |ended 30 June 2009 [Appendix 3]; |
|capital| |▪ Strategic partnership of Eircom and Microsoft that will deliver a suite of advanced software and |
| | |communication solutions to businesses across Ireland (September 2009). |

In a knowledge-based economy intellectual capital is likely to be a major asset of many organisations. It is widely accepted that it provides the most sustainable source of competitive advantage. But brand equity often accounts as a major portion of shareholders value (www.allbusiness.com). Brand names and other trademarks are a form of reputational asset: their value is the confidence they instill in customers (www.blackwellpublishing.com).

The efficiency and effectiveness of resource in an organisation depends on: how they are managed; cooperation between people; staff adaptability; innovatory capacity; the relationships with customers and suppliers; the experience and learning. The term competence is used to mean: the skills and abilities by which resources are deployed effectively through an organisation’s activities and purposes” (Johnson, Scholes & Whittington, 2008: 96). [Appendix 4]

Threshold competences are activities and processes needed to meet customers’ minimum requirements and therefore continue to exist. In the Telecommunication industry threshold competences (Figure 2.1.2) and resources (Table 2.1.3) are:

Figure 2.1.2 – Threshold Competences

Protocols Core & Local Access Networks

Services Products

Table 2.1.3 – Threshold Resources

|Threshold resources |
|Management team |Protocols (VoIP) and experienced management team and training regimes. |
|Software engineering |Networks (GSM, 3G) and software engineering to ensure system integrity, control of accessibility, |
| |response and performance. |
|Development |Products (broadband products and devices, software) and sustained development solutions in technology |
| |and infrastructure, security, mobile systems. |
|Business consultancy |Services (phone services, webmail) and business solutions to improve risk management, to minimize |
| |impact of rivals, establish focused marketing campaigns. |

Business processes are defined as the collection of activities arising from the development, supply and management of products and services supplied to Eircom's customers. The seven business processes (Table 2.1.4) are (www.eircom.ie):

Table 2.1.4 – Eircom’s Business processes

|Business processes |
|1. Innovation, Product |Activities involved in developing and delivering a fully managed set of products and services to customers. |
|development and Management | |
|2. Marketing and Sales |This involves the sales and marketing and account management of all Eircom products and group companies’ |
| |products and services, where appropriate. |
|3. Provisioning |This covers all aspects of the supply of Eircom products and services to the customer; |
|4. Billing |This covers all aspects of call measurement, customer billing, cash collection and credit management. |
|5. Repair |This covers the resolution of service difficulties reported by the customer and covers the full range of |
| |products of the group. |
|6. Operator services |This provides operator assisted services to customers. |
|7. Manage the Network |This covers all activities involved in managing the Core and Local Access Networks. |

Also, should note that ‘technology organisations’ across the Eircom group will be combined into a single unit. This will be led by B. Lynch, the chief operating officer of Meteor, who becomes managing director of group technology.

2.2. Eircom’s cost efficiency

Cost efficiency is a measure of the level of resources needed to create a given level of value. Customers can benefit from cost efficiency in terms of lower prices or more product features for the same price. All sorts of big organisations now see themselves fighting head-to-head for customers where it would have been inconceivable only few years ago. Eircom is on the receiving end of this long-running wave of convergence that’s affected so many markets. New competitor Vodafone claims to be the second biggest landline operator in Ireland, so Eircom needs to find ways to enhance its own offerings to customers in order to prevent simply becoming a back-end infrastructure player for all other companies.

The current economic crisis implies a replace in demand for products and services, putting pressure on company’s revenue growth. Existing cost management programs may not be sufficient to survive and thrive in a downturn. In order to face this replace, cost structures are bound to be made more flexible. Furthermore, a fresh look at company’s tax position, real estate and operating locations and how the current industry and economic trends affect business is more than worthwhile. “Eircom reported a 9% decline in its revenues in the first quarter of its financial year – July 1st to the end of September – while profits fell by 1%.” (Irish Times, 2009).

Deleveraging Eircom’s balance sheet will be a key component of any successful takeover or Ireland’s biggest fixed-line operator. The company has debts of close to €4 billion. Eircom has indicated that its debt is too high and it could default on loans of action is not taken. It recently agreed a deal with its trade unions aimed at saving €130 million a year. The company’s restructuring plan involves 1,200 voluntary job losses and pay cuts of up to 10% (www.eicom.ie/press).

2.3. Eircom’s sustainable competitive advantage

Competitive advantage subsists when an organization is capable of sustaining returns that exceed the average of the industry. The goal of Eircom and many organizations business strategy is to achieve a sustainable competitive advantage (Figure 2.3.1).

Figure 2.3.1 - SCA

Top management will constantly strive to gain competitive advantage over competitors to better understand their industry context in which the organization operates. Managers can assess the industry through the PESTEL and 5 Forces Model by Michael Porter. The model above illustrates how an organization such as Eircom can sustain its organization within the telecoms industry.

Sustaining innovations of products and services allows Eircom to direct the organization around a central mass of constant product improvement. Through the strategic mapping done earlier, Eircom is seen to have a competitive advantage over its competitors. Eircom can become more sustainable if the company decides to undertake innovation.

There is another market that Eircom can exploit amongst its customers, that is the non-customers of Eircom. Eircom can identify a new brand or product that will be the next big thing.’ When targeting these customers Eircom can provide a product or service that is targeted for this target audience that is not their customers. Porter, however, does not focus on the scenario, especially not to the ground-breaking stage. This target market of non-consumers allow Eircom to develop a new segment of sustainable business that is long term and successful.

2.4. Usage drivers: New Product Innovation

The capacity to innovate is a fundamental source of competitive advantage. Innovation is core competence in telecommunication industry to survive. If communications, electronics and high tech companies are to meet today's new-product development challenges, they must improve the speed and rigor by which they manage innovation.

With growth slowing and many markets in the maturity phase of development new product innovations, which could be additional services and products that either to exploit existing infrastructure or open up new market environments, are required. In Figure 2.4.1 we flag where we believe different products and services currently are in the Product Lifecycle. [Appendix 10] (www.eircom.ie).

Figure 2.4.1 – Telecom’s Product Lifecycle

Mobile Mobile SMS Voice ATM, Leased lines Broadband

Instant Messaging

VoIP

Mobile Data Mobile TV, IPTV, Video Telephony

To have efficient innovation process, an organization requires several resources and capabilities (Figure 2.4.2):

1. Company must have high levels of creative capabilities, such as Research and Development. Effective R&D is key to promoting innovation (Khan & Katzenbach, 2009: 32);
2. Investment at innovation is expensive in telecoms industry, therefore, company must have financial resources;
3. It requires high qualified staff, expertise. Internal talents are critical;
4. Technology - to generate and implement new ideas;
5. Strategic alignment – need to establish liaison through the company. For example, engage frontlines employees: the technicians and clerks who work directly with customers and who most visibly represent the company; use different market segments databases. Also, company must have high levels of production capabilities, such as operational execution. It includes take risks (in relation to the total value of resources involved, the length of time during which resources are committed, absorb the costs of innovation failure).

Figure 2.4.2 – Components of Efficient Innovation Process

R & D

Human Technology Resources Innovation

Strategic Financial Alignment Resources

Furthermore, focusing on those services most likely to meet customer needs is a key to profitable new-product/service development. One emerging best practice is to involve customers in the R&D process. This not only gives companies a better understanding of their customers, but it also helps customers to build stronger and more personal relationship with the company.

Knowing when and what to disinvest can be as important to effective innovation portfolio management as creating new products. Many companies carry too many products, services, parts and variants. Not only it is costly but also it hinders growth and the ability to execute.

Eircom Labs showcases new and emerging innovations, technologies and services funded by Eircom's web innovation fund. The fund is worth approximately €100,000 and applicants can enter and win the Web Innovation competition hosted by Eircom. It is a good idea to encourage people, generate new ideas and a chance to gain a competitive advantage, especially at tough times (www.eircom.ie).

2.5. Importance of Knowledge Management

Knowledge is awareness, consciousness or familiarity gained by experience or learning. Without a solid knowledge base, being first, being big, being well known, and being well organized are no guarantees of survival in the telecommunications marketplace.

Knowledge and information have become the medium in which business problems occur. As a result, managing knowledge represents the primary opportunity for achieving substantial savings, significant improvements in human performance, and competitive advantage. Eircom faces “numerous challenges” including legacy infrastructure, a high debt burden and competition, so it will need the support of the Government, Comreg, Eircom’s employee share ownership trust (ESOT), and Eircom management to transform the Irish firm into “an efficient operator that can contribute to the further development of Ireland’s telecommunications industry”, STT (Singapore Technologies Telemedia) said. (Irish Independent, 2009). The concept of knowledge relates to (Table 2.5.1):

Table 2.5.1 – The Concept of Knowledge

|Knowledge |Eircom |
|Value of customers |Answering 85% of the 6000 calls it receives weekly. |
| |Universal service obligation report [Appendix 7]. (http://www.eircom.ie). |
|Resources |High quality staff; new technology. |
|Unique resources |Speech recognition solution adapted to the Irish dialect; |
| |New social media application – location-based service (‘Locle’); |
| |New phone for hospitality service. |
|Competences |Best innovative use of technology; |
| |Demonstration of vision and skills in new technology. |

A culture of knowledge assimilation and dissemination for common good will go a long way in the growth of the organisation and will give the organisation a much needed competitive edge in the new economy.

2.6. Benchmarking

With a strong growth of global economy up to the recent recession –the current slowdown – has increased the importance of benchmarking. This is an extremely valuable tool that can help Eircom validate renewal strategies, products and pricing targets to achieve a positive result in both developed and developing markets.

There are many types of benchmarking that Eircom undertakes within several different SBU’s (Strategic Business Units). This is because different SBU’s have different standards of benchmarking. The Figure 2.6.1 shows Eircom’s current performance over time, through benchmarking Eircom can identify which strategy to proceed and what is the best way to achieve this goal. Peer benchmarking looks into account and indicates how well the organisation is exploiting IT and its innovation. By slowly closing the gaps internally to the organization, Eircom will increase productivity in a more effective and efficient way. This allows Eircom to have a competitive advantage against its competitors. Closely monitoring the major players within the telecoms industry and constantly exceeding from competitors, Eircom will maintain its position in the telecoms industry.

[pic]

2.7 Advertising Campaigns of Eircom

Promotion is about “action”, it is about stimulating customers to buy a product. Due to promotion company communicates customers and tries to attract new buyers. Therefore, the information you communicate is crucial. There have been several complaints in respect of advertisements from Eircom and Meteor which have been upheld by the Advertising Standards Authority for Ireland for breaching codes of practice (Cassidy, 2009). For example, a leaflet inserted in an Eircom telephone bill stated free unlimited calls to Meteor mobiles with an Eircom bundle. However, the free calls are only available on a specific type of bundle package and no reference had been made to this in the advertisement. The authority found the advert misleading, and said it must not run in its original format again. Also, current Eircom ads on TV people find ‘funny’ (Hegarty, 2009). Moreover, some information pops up at the bottom of the screen for a short time, informing viewers of the length of contract and where to find the terms and conditions. In today's very competitive marketplace a strategy that insures a consistent approach to offering your product or service in a way that will outsell the competition is critical.

[pic]
2.8 Appraising Eircom’s Resources and Capabilities

Having identified resources and capabilities that are important and where organization is strong relative to competitors, the key task is to formulate strategy to ensure that these resources are deployed to the greatest effect (Table 2.8.1).

Table 2.8.1 – Eircom Resources and Capabilities

| | |Importance |Eircom’s relative |Comments |
| | | |strength* | |
| |Resources | | | |
|R1 |Finance |8 |5 |Positive cash flow for Meteor; Decrease in |
| | | | |revenue for the last quarter; €4 bn debts; |
|R2 |Technology |9 |5 |Low speed broadband; |
|R3 |Plant & Equipment |6 |8 |Estimated Economic Life (Years) of tangible & |
| | | | |intangible assets; |
|R4 |Location |4 |4 |Main headquarters in Dublin; |
|R5 |Brands |6 |6 |In the light of recession consumers are looking|
| | | | |for a cheaper service provider; |
|R6 |Staff |8 |7 |Constantly changing CEO’s; Paul Donovan’s vast |
| | | | |industry experience and specific knowledge of |
| | | | |the Irish market; |
| |Capabilities | | | |
|C1 |Innovation & Product |9 |7 |It requires high investments, however, Eircom |
| |development | | |cooperates with Microsoft (developing new |
| | | | |software); |
|C2 |Provisioning |7 |5 |Poor customer service; |
|C3 |Repair |7 |6 |Slow response to the problems; |
|C4 |Financial management |8 |5 |€4 bn debts; |
|C5 |Marketing & Sales |7 |6 |Main Internet service provider in the State; |
| | | | |however, poor advertising; |
|C6 |Government relations |5 |6 |Very important in emerging markets; |
|C7 |Strategic management |8 |8 |Company has recruited consultancy firm; |
| |
|* Both scales range from 1 to 10 (1 = very low, 10 = very high); |
|- Eircom’s resources & capabilities are compared against Smart Telecom, NTL, Vodafone; |
|- The ratings are base don the authors’ subjective judgment. |

Putting together the 2 criteria – importance and relative strength – allows us to highlight a company’s key strengths and weaknesses (Figure 2.8.2):

Figure 2.8.2 – Key strengths and weaknesses

[pic] 1 5 10 Strategic Importance

Part 3:
Key Internal and External Factors
|SWOT Analysis |
|Strengths |Company name and reputation; |
| |Strong position in Ireland; |
| |Eircom has gained market share in the mobile market; |
| |Sustained technological development; |
| |Largest telecommunication operator in Ireland; |
| |60% market share- main internet service provider; |
| |Meteor mobile broadband had won 9,000 new customers. |
|Weaknesses |Slowdown in the Irish economy; |
| |High gearing; |
| |No performance related annual bonus payments; |
| |General complaints about customer services provided by Eircom; |
| |Poor advertising. |
|Opportunities |Rationalisation potential; |
| |Good growth potential within mobile telephony; |
| |Reduced operation cost; |
| |Make better use of resources; |
| |Become a strategic asset for the business; |
| |Potential new customers not limited to current market; |
| |Research and development of new technologies; |
| |Plans to increase broadband speed; |
| |Views on expanding the mobile operation. |
|Threats |Regulated market; |
| |Migration from fixed-line to mobile services; |
| |Keener competition in future; |
| |Bank debt covenants; |
| |Revenue down 9%; |
| |Employee reduction by 1,200. |

Part 4:

Organisational Purposes

Eircom Group plc is currently the largest telecommunications operator in the Republic of Ireland and operates primarily on the island of Ireland, with a point of presence in the UK. It has 7 main subsidiaries [Appendix 8] with its own purposes which provide strategic directions (Table 4.1):

Table 4.1 – Eircom’s Subsidiaries

|Subsidiary |Mission Statement |Vision Statement |
|Meteor |We are committed to developing and maintaining |In line with our mission to develop and maintain |
| |excellent relationships with our customers, our|excellent relationships with our customers, Eircom |
| |colleagues, our host mobile telephony provider,|mobile have devised a Code of Practice that meets and |
| |Meteor Mobile Communications Limited, trading |exceeds the needs of our customers. |
| |as Meteor, and our community through ethical | |
| |behavior, fair dealing and creating an open | |
| |environment (www.meteor.ie). | |
|Eircom Wholesale |Our aim is simple: to ensure that everything we| |
| |do helps you execute your business strategy, | |
| |control your costs and deepen your relationship| |
| |with your customers | |
| |(http://www.eircomwholesale.ie/). | |
|Eircom Phone Watch |To provide Irish homes and businesses with the | |
| |best security and alarm monitoring service |- To be a world class provider. |
| |(http://www.phonewatch.ie/). |- To ensure that every product we bring to the market |
| | |is borne out of cutting edge technology. |
| | |- To ensure every business and household benefits from |
| | |our technology. |
| | |- To be recognized as the leading provider of our |
| | |services in the markets where we operate. |
|Eircom UK |We serve organisations that operate in |To be the leading communications |
| |both the UK and Ireland that require |provider for the UK and Ireland, offering |
| |a holistic unified approach to network |real business benefits via innovative |
| |services management (http://www.eircom.co.uk/).|solutions and excellence in customer |
| | |service. |

“Vision and Mission Statements are the inspiring words chosen by successful leaders to clearly and concisely convey the direction of the organization,” (http://www.mindtools.com). By crafting a clear mission and vision statements, organisation can powerfully communicate it intentions and motivate staff to realize an attractive and inspiring common vision of the future.

Also, the purpose of an organisation and its strategy might be communicated by Corporate Social Responsibility (CSR). However, Eircom’s last CSR report was updated in 2006 (http://www.eircom.ie); it provides guidelines what company has been trying to achieve and how it was done [Appendix 9].

Part 5: Portfolio Analysis and Strategic Choices The business portfolio is the collection of businesses and products that make up the company. The best business portfolio is one which fits the organisation’s strengths and helps to identify the most attractive opportunities (http://tutor2u.net). The organisation must analyze its current business portfolio and decide which businesses should receive more or less investment; and must develop growth strategies for adding new products and businesses to the portfolio, whilst at the same time deciding which products and businesses should no longer be retained.

The Boston Consulting Group (BCG) Matrix (Figure 5.1.1) is strategic tool for portfolio planning and analysis. BCG Matrix is used for current portfolio analysis, portfolio planning and development, and new strategy development - developing and positioning new businesses and repositioning your current businesses.

Figure 5.1.1 – The BCG Matrix

Question Mark/ Stars Problem Child

Cash Cow Dog [pic]

The BCG Matrix is based on the Product Life Cycle theory that can be used to determine what priorities should be given in the product portfolio of business units (Figure 5.1.2).

Figure 5.1.2 – BCG positioning throughout the PLC [pic]

Eircom has been sold 5 times and was used as a cash cow by owners who had little interest in service provision. At least new shareholder Singapore Technologies Telemedia is a telecoms operator that offers hope that a new regime will improve Eircom's creaking infrastructure.

Figure 5.1.3 - Fixed line and Mobile divisions at BCG Matrix

High Low

+ 6%

+ 2% 0 - 2%

4x 3x 2x 1.5x 1x .5x .4x .3x .2x .1x

|Divisions |Revenues |% Revenues |EBITDA |% EBITDA |% Market Share |% Growth Rate |
|2. Mobile |€ 496 m |25 |€ 124 m |18 |19,8 |+ 3,8 |
|Total Eircom Group |€ 1 997 m |100 |€ 692 m |100 |- |- |
|Plc | | | | | | |

Fixed line division remains in the cash cow area due to its high market share. Company has maintained strong position by offering varied product and services. However, at the moment division’s revenues are declining. There are two possible generic options: ➢ Retrenchment – involves costs and asset reduction; ➢ Divestiture – involves selling a division or a part of an organisation.

Meteor (mobile communications division) at the moment stands in the problem mark area because of its low relative market share. However, its revenues and number of customers are increasing. To strengthen the position, there are intensive strategies: ➢ Market penetration – through a greater marketing effort; ➢ Market development – new geographic area; ➢ Product development – improving present products/services or develop new ones.

Conclusion and Recommendations

Eircom is the leading provider of land-line telecommunications services in Ireland, with 68% market share, supplying a comprehensive range of advanced voice, data and internet services. It also has the most extensive land-line telecommunications network in the country. In addition, the company is the leading broadband service provider in Ireland, with 43% of the retail share. Their mobile division Meteor is the third largest mobile operator in Ireland. The firm had undergone few changes of ownership and experienced a number of changes in direction and structure.

Eircom has strong position in the market. However, competitive industry, declining revenues and recession requires a company to change strategy. Therefore, our recommendation to Eircom:

1. Market penetration. As market shares of mobile rivals are declining while total market sales are increasing, it can be a good option for Meteor.

2. Divestiture of less profitable division or products. Can help to reduce cost.

3. Remaining competitive. Over time, customers’ expectations of what they expect to get for a given price will change. Therefore, what is required to be on the threshold line increases – more benefits are needed at any given price. The organisation needs to be aware of what others are doing (Gillespie, 2009).

4. Learning from others. Improve own performance by benchmarking. There should be a responsible people for doing it from time to time.

5. Investing. Markets will change and customer needs will change. Managers need to keep themselves and businesses aware of these changes to ensure the benefits they offer maintain their appeal. This requires market research and research and development.

6. Focus on the strengths. Competing where the company can win.

7. Learning from employees. Making the best use of employees means making sure they are able to voice their opinions and are involved in the decision-making processes. It requires good HR department.

Ladder of Involvement and Participation

Control Co-determination Consultation Communication Information

8. Change marketing department. As company has inefficient advertising, it should either change staff or have new way of doing things; for example, alignment of all departments.

9. Improve customer service by employee training, quality management. Company should be more customer focus. Our advice – it should be Eircom’s goal number one (state it in vision statement).

10. Focus on ‘green tech’. Company should be environmentally friendly. It also can bring new customers because it is future trend.

11. Attract young professional. China, Russia and India became competitive countries because they have a lot of very qualified young professionals with the right work attitude – with wages up to 20 times lower than in Ireland (Boyle, 2009: 23). Therefore, our advice to the company is to be open-mind, visit career fairs, where it can find talented and creative employees. “Investment in talent provides more value than it costs, and this holds true whether a recession is occurring or not” (Garavan, 2009).

-----------------------

Legal

Environ- mental Technolo-gical

Social

Economic

Political

FORCES

• Technology –substitution; infrastructure; convergence; equipment vendors; • New players – competition; pressure on prices, costs, investments; • Social forces – changes in population, customers needs and expectations; • Recession – decrease in revenues; access to capital; • Regulation – retail market power; wholesale pricing; open network access.

Status Quo

Collapse

Industry Leader

Innovation Leader

Market Leader

Supplier Power
- Increased handset competition;
- High switching costs;
- Infrastructure providers (Fixed vs. Mobile);

Barriers to entry = High - Spectrum allocation is limited in mobile; - Capital intensive industry; - Government/Regulatory policy key;

Threat of Substitutes = High - Fixed vs. Mobile; - IP vs. Switched; - Media vs. Telecoms; - Low switching costs;

Buyer Power = Varied - Scale is a key; - Price elasticity in most markets; - Regulatory drive; - Substitute Products;

Competition

- Market specific;
- High exit costs;
- Capacity;

Internet

Mobile WEB IS Broadband

E-Commerce/ Cloud Computing

Mobile IS

Mobile Devices

Information Systems

Strategic gap 1

Low

Price

High

Variety

Basic

Product Line Mix

Eircom

BT

Vodafone

Colt Telecom

O2

3 Network

Strategic gap 2

NTL

Meteor

WiMAX

Clearwire

Smart Telecomm

Analyzing strategic capabilities

Cost Efficiency

Sustained Competitive Advantage

Innovation

Knowledge Management

Benchmarking

Resources & Competences

Management Team

Software Engineering

Business consultancy

Development

Sustainable Competitive Advantage

To Thrive

Strategy
Governance & Management

Focus Strategy

To Survive in the Telecoms Industry

Cost Based Leadership

Differentiation Value Added

Marketing & Communications

Partnerships & Stakeholder Engagement

Design & Product Innovation

Operations & Facilities

Figure 2.6.1 - Benchmarking – Closing the Gap

5

10

Superfluous Strengths Key Strengths

R3 C7 R6 C1

C6 R5 C3/5

C2 C4 R1 R2

R4

Zone of Irrelevance Key Weaknesses

Relative Strength

Market Growth Rate

Question Mark

Relative Market Share

Stars

2.

Dog

1

Cash Cow