Turk Telekom Case Answer Final-1 PDF

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Sustaining competitive advantage: Turk Telekom Where are we now?

1. Conduct a PEST analysis (Figure 1) for market scanning

Figure 1. PEST Analysis Definition

Political: Telecommunication sector had been regulated the Ministry of Transportation until year 2000. Since year 2000, the Turkish Telecommunications Authority’s (TA) assumed the responsibility of regulating the telecom sector. However, basic regulations related with infrastructure, competition, market definitions, and quality of service standards are still being developed. TA Board members are proposed Ministry of Transportation, and assigned by the Cabinet of Turkish Government. Ministry of Transportation remained in power of exercising approval rights over Turkish Telecommunications Authority’s (TA) propositions of changes in license fees. Economic: Turkish economy grew by 5.1% on average between years 2003 and 2012. GDP growth rate in 2013 was 4.4%. With careful monetary policies the inflation rate was reduced to single digits from double digits in ten years. The inflation rate in 2003 was 18.4% and in 2013 the rate fell to 7.4%. A high percentage of young population has been considered as an important indicator of Turkey’s potential employees. However, this young population was also interpreted as a significant reason for the high unemployment rates as well.

Reports listed Turkey as the 17th largest economy in the world and the 6th largest economy in Europe. GDP of Turkey was approximately USD 786 billion in 2012. Social Factors: Year 2013 national population census results indicate population of Turkey as 76.5 million. While half of the population is under 30 years of age, the median age of the male and female population was 29.8 and 31, respectively. Young population potential of Turkey constitutes an important source of labor force, which reached to 27 million. Turkey is the 4th largest labor force among EU countries with this work force capacity. The educational level of the population has been on an improvement trend with more than 3.8 million students in enrolled in tertiary education, and some 600.000 students graduating from universities every year. The average annual disposable income per Turkish household is 26.577 TL. 16.3% of total population is at-risk-of-poverty according to poverty threshold calculated by 50% of household disposable median income. While this rate is 13.8% for urban areas, it is 16.3% for rural areas by using poverty thresholds calculated separately for urban and rural areas. Turkish sociocultural context had been characterized by close interpersonal relationships. People hold a network of close affiliation with their family members, relatives, and neighbors. Closeness and loyalty to parents and friends are perceived as an important factor in the Turkish culture. For example, Turkish customary norms involved calling parents and elderly relatives on special days including holidays and New Year’s Eve. Technological: Proliferation of smart phones boosted the Internet usage. This increase is attributed to the rise in social media engagement, the widespread practices of using maps, dictionaries and Wikipedia in online mobile information search, and expansion in watching Youtube, Vimeo and Turkish national TV channels via apps on mobile devices. Not only large data transfers were eminent, but also high speed mobile Internet had also became a necessity. Hence, high-capacity fiber connection became a crucial service offer, as it facilitates infrastructure need for heavy Internet usage and information sharing via cloud technologies.

2. Apply Porter’s five forces (Figure 2) model to the case for market scanning.

Figure 2. Porter's Five Forces

Threat of New Entrants Turk Telekom is considered the monopolistic leader of the telecommunication sector. The mobile telecommunications industry experienced one of the heaviest entry barriers compared to various other industries. Operators are required to obtain license prior to launching any business. Besides, fixed costs that need to be incurred also provide additional barriers. A high quality infrastructure, a big budget for launching marketing activities, provision of high quality customer service and high customer switching costs present major challenges. As a result, new entrants are not very likely to enter the market, which is highly protected and regulated by the Turkish authorities.

Threat of Substitute Products Turk Telekom is a voice operator. However, with penetration of mobile devices, emerging apps like Wirofon (owned by Turk Telekom), Viber, Tango, WhatsApp, Skype, and Lynch, data transfer services present substitute for voice calls. Smart phones including these new applications that facilitate an exchange of short messages, voice over internet and audio-visual over internet, present alternatives for fulfilling communication needs. In addition, competitive rates of data transfer that these new apps are subject to motivate large numbers of customers to quit the old traditional voice communication. Widespread penetration of smart phones and tablets enable consumers to take advantage of good quality data transmission that facilitate these new apps also known as by Voice over IP (VoIP) technology. Therefore, there’s a high threat of substitutes. Turk Telekom is indeed also contributing to emerging threats by its Wirofon service that executes similar advantages by conducting VoIP technology. Rivalry among Existing Competitors Turk Telekom operates in a monopolistic market. It is the single service provider for land-line phone services. However, the emerging mobile phone market presents a different competition to Turk Telekom. There are three main mobile network operators Turkcell, Vodafone and Avea, in order of respective market shares. Avea is a subsidiary of Turk Telekom. Turkcell, the first mobile operator in Turkish market, benefited from first mover advantage and maintained its dominance. Mobile phone operators present a creatively destructive effect over land-line phone services, since both sectors compete for the same communication need. Bargaining Power of Suppliers Turk Telekom being a monopolistic player in the land-line phone operations presents very strong bargaining power against its suppliers. Bargaining Power of Customers Customers who would like to use land-line phones have no alternative but to subscribe for Turk Telekom. However, an emerging penetration of mobile phones and widespread use of smart phone apps present attractive alternatives to land-line phones. Mobile

operators compete on tariffs to decrease subscriber churn rates, and attract many landline phone subscribers. Many consumers owning a mobile phone will eventually refrain from using land-line phones and migrate to using mobile phones for all their voice communication needs. Hence, customers do not hold any bargaining power if only landline phone service sector is analyzed. However, this analysis would incomplete, because it would lack the creative destructive effects of the emerging mobile phone service sector.

3. Define strengths and weaknesses of Turk Telekom (internal analysis). Strengths: 

Being a monopolistic leader of the Turkish telecommunication sector creates brand awareness, both for parent company and its subsidiaries.

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Execution of pricing without compe titor’s reaction in fixed-line phone operators, resulting in lack of consumer price-sensitivity and high profitability.

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Widespread availability shops and corners of both Turk Telekom, and its subsidiaries AVEA and TTNET.

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Turk Telekom’s subsidiaries, particular AVEA, and TTNET, provide opportunities of cross-sell, and customer retention.

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Strong revenue and strong cash flow capacity enabling investment in promising segments and continuous growth of the firm.

Weaknesses: 

Since, fixed-line subscribers continue to decline, Turk Telekom will have to focus on the growth in other areas.

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Convergence from fixed-line to mobile will decrease fixed revenues.

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Intense Competition in mobile market causes pricing pressures against AVEA.

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Investment demand of keeping up with rapid technological advancements requiring fast decision making, which is not possible due to ownership structure.

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Weak promotional strategies that lack consumer insight.

4. Define market opportunities and threats (external analysis) Opportunities: 

Growth in Telecommunications Services which is believed to have great potential.

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Value added services, including mobile education, mobile banking, and mobile trade present important opportunities for telecommunication sector.

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Young population of Turkey, who is mobile phone literate provide an opportunity for novel services.

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High penetration of smart mobile devices present opportunities for enabling new services that can facilitate Apps (Wirofon, WhatsApp, Viber, Tango, Youtube etc)

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Growing demand for quality and fast mobile broadband provides opportunities to firms who invest in latest infrastructure and technology.

Threats: 

Aggressive competition in the mobile phone market.

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Sophisticated customer demands make difficult to gain a competitive edge in the market.

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Heavily regulated sector.

5. Analyze the strategic fit between the market opportunities and Turk Telekom’s strengths and weaknesses. Turkey’s population holds a large portion of youth. Almost ¾ of youth in between ages 25-34 had been reported to use smart phones in year 2013. This high penetration of smart phones, which also provide alternative service fulfilment approaches to telecommunication needs, is eminent. AVEA, as Turk Telekom subsidary, is indeed important to capture an opportunity in the creative destructive effect of mobile phone sector over land-line phone sector. Besides, Wirofon app also aims to attract consumers

inclined to use WhatsApp, Viber, Tango, and etc. over their smart phones to make VoIP calls. Being a monopolistic player for years, Turk Telekom did not create a substantial knowhow on marketing. However, this weakness presents a major issue with current trends in telecommunications sector. Even if Turk Telekom can realize new business opportunities in the mobile phone sector, develop a different service/product, introduce a competitive tariff, lack of well-designed and targeted marketing efforts will limit its success....