Internal and External Company Examination
Singapore Telecommunications Limited is a Singapore based communications company that provides integrated infocomms technology solutions to global customers (Yahoo, 2016). The company has three operating segments, which includes the Group Enterprise, Group Consumer, and Group Digital Life (Yahoo, 2016). The Group Enterprise segment offers services that cater to business consumers such as cyber security, cloud computing, fixed voice and data, mobile, managed services, and IT and professional consulting (Yahoo, 2016). On the other hand the Group Consumer segment offers end-consumer services such as pay TV, voice, fixed broadband, mobile and equipment sales (Yahoo, 2016). The Group Digital Life offers advanced analytics and intelligence, regional video, and digital marketing (Yahoo, 2016).
Of the three segments, the highest revenue generated is the Group Consumer at S$10,110 million but its EBITDA margin is only slightly higher at 32.2% over Group Enterprise with 30.6% (Singtel, 2016). This means that though the revenue value was significantly higher for the Group Consumer, the company is also concentrating on the strategies for the Group Enterprise (Singtel, 2016). The reason for this is that the services offered for end-consumers are also complementary to enterprise users. But the chairman’s message revealed that the main strategy implemented was a transformation to a data-centric digital world since consumers are now shifting from voice to data (Singtel, 2016). This is because traditional SMS and voice was being replaced with the mobile internet revolution (Singtel, 2016).
Singtel’s main operational strategy was to upgrade its mobile network equipment along with a modification of price plans for mobile internet services (Singtel, 2016). The reason for this is that a significant percentage of Singtel’s customers are transitioning to mobile internet from mobile telephony especially in Indonesia, Thailand, Africa, India and the Philippines (Singtel, 2016). Singtel revealed that this is due to the fact that smart phone devices are becoming more affordable especially to the middle class in their international operations (Singtel, 2016).
Industrial Organization (I/O) Model
The increasing number of individuals owning smart phone devices and shifting to mobile data services is considered to be the main reason for the modification of the implemented strategy by Singtel management (Singtel, 2016). This implies that the external environment is a significant factor in the modification of the operational strategy implemented by the company. This is perceived to be primarily based on the microeconomic theory of industrial organization (I/O) model since it examines the influence of the external or competitive environment (Huff et al., 2009) on the strategy development of companies (Becerra, 2009). Huff et al. (2009) further revealed that the main reason is that company profits can be reduced and its sustainability threatened when the industry has a higher number of competitors, substitutes, or complementary entrants.
Within the telecommunication industry the main consideration of companies is the number of aggregate customer base, which was seen to be on an increasing trend for Singtel from 2010 to 2011 (Singtel, 2012). This was also seen in 2014 where Optus/Singtel along with Vodafone acquired some of the market share of Telstra in the Australia market (Ramli, 2014). The reason for the decline in the market share by Singtel/Optus and Vodafone is that management concentrated on cutting costs and improving current networks resulting to stable prices while Telstra offered better prices to customers (Ramli, 2014). This was seen in the 16 million Telstra subscribers in 2014 when compared to Optus at 9.5 million and 5 million for Vodafone (Ramli, 2014).
The problem is that in 2015 Optus subscribers declined by 54,000 because of better competitive strategies implemented by Telstra and Vodafone (Ramli, 2015). A close examination of the subscriber segment revealed that the decline was primarily from the prepaid and mobile broadband customers (Ramli, 2015). However this was countered by the increase in post-paid customers by 38,000 and the 54,000 fixed-line broadband customers (Ramli, 2015). This means that the strategy developed by the telecomm companies may be the primary reason for the decline and increase in the customer base.
Resource-Based Model
The strategy of each telecomm company is dependent on their unique resources and capabilities, which is based on the resource-based model (Hitt, Ireland, and Hoskisson, 2012). This was seen in the increase and decline of the number of customers to the three Australian competitors during 2014 and 2015 (Ramli, 2015). Ramli (2014) revealed that the reason for the decline in the Singtel/Optus market share during 2012 to 2013 is due to stable prices while effective strategies by competitors was the reason for the 2015 decline (Ramli, 2015). This implies that the implemented strategies by Optus/Singtel management may be ineffective against prepaid and mobile broadband customers while successful for the fixed-line broadband and post-paid customers.
This further implies that Singtel/Optus resources and capabilities may not be considered to be unique when compared to its competitors (Hitt, Ireland, and Hoskisson, 2012). In order to counter this, Singtel/Optus increased its capital expenditure spending to S$1.9 billion in 2015 (Ramli, 2015) especially in Australia (Singtel, 2016). The reason for the company’s higher concentration in the Australian market is that a significant portion of Singtel’s 2016 operating revenue was from Optus Australia at A$9,115 million when compared to the Optus total revenue value of S$9,298 million (Singtel, 2016).
Despite the increased focus on the Australia market, Singtel considers the acquisition of Trustwave (Singtel, 2016) to be a core competency (Huff et al., 2009). This is because Trustwave is perceived to add value to Singtel’s operating segments since it is designed to defend against cyber attacks (Singtel, 2016). However, this core competence can be replicated by its competitors due to the number of existing complementary entrants (Huff et al., 2009). This was further worsened by the fact that this security solution is designed to be primarily applicable to the Enterprise segment and may require significant modifications to make it applicable to the consumer segment (Singtel, 2016). This perception was concurred by the fact that Singtel customers have the lowest average data consumption in the industry (Singapore, 2016).
Conclusion and Lessons Learned
Competition in the telecommunication industry is considered to be fierce especially in each of Singtel’s markets. This was seen in the Australia market wherein the market share is on a volatile movement each year especially with strategy modifications implemented by Vodafone and Telstra. This means that companies must adopt the industrial organization and resource-based model when developing their operational strategies. The reason for which is that the company’s core competencies may influence their external environment by increasing the customer base. On the other hand, the industrial organization through the changing preference of the customer base can affect the development of the company’s operating strategies by increasing their focus on improving core competencies. The success of the company’s operating strategy is therefore primarily based on the examination of both the internal and external environment since ignoring one environment can result in corporate sustainability failure.
References
Becerra, M. (2009). Theory of the Firm for Strategic Management: Economic Value Analysis. New York: Cambridge University Press.
Hitt, M., Ireland, R. D., and Hoskisson, R. E. (2012). Strategic Management: Competitiveness and Globalization, 10ed. Cornell University: South-Western College Publication.
Huff, A. S., Floyd, S. W., Sherman, H. D. and & Terjesen, S. (2009). Strategic management: Logic and action. United States: John Wiley & Sons, Inc.
Ramli, D. (2014). Optus, Vodafone to eat into Telstra’s mobile market share: Credit Suisse. [online] The Sydney Morning Herald. Available at: http://www.smh.com.au/business/optus-vodafone-to-eat-into-telstras-mobile-market-share-credit-suisse-20141127-11vr1q.html
Ramli, D. (2015). Optus mobile subscriber base falls as Telstra, Vodafone step up competition. [online] The Sydney Morning Herald. Available at: http://www.smh.com.au/business/optus-mobile-subscriber-base-falls-as-telstra-vodafone-step-up-competition-20150812-gixp0u.html
Singapore Business Review. (2016). Here’s why Singtel is banking on the Pokemon Go craze to catch up with competitors. [online] Yahoo Finance. Available on: https://sg.finance.yahoo.com/news/why-singtel-banking-pok-mon-021200024.html
Singtel Group. (2012). Singtel Group’s mobile customer base reaches 434 million. [online] Singtel Group. Available at: http://info.singtel.com/node/11221
Singtel Group. (2016). Annual Report 2016. [online] Singtel Group. Available at: http://info.singtel.com/about-us/investor-relations?dispatcher=302
Yahoo Finance. (2016). Singapore Telecommunications Limited (Z74.SI). [online] Yahoo Finance. Available at: https://sg.finance.yahoo.com/q?s=Z74.SI
Appendix A. Mobile customer base (Singtel, 2012)
