Background Information
TSI Ireland was formed over a year ago in February 1999 as a Private Limited Company. Financial backing came from the two partners within the company, Mr. Martin Hamill and Mr. Eric Carson (Business Manager for Orange, Northern Ireland). Staff comprised of 6 full time workers split into the following areas: two Administration personnel, a telecoms engineer, sales director, account manager and the managing director. The company also undertakes contract work from additional 6 workers who are primarily involved with sales.
The principle trading activities within TSI Ireland are mainly involved within the indirect telecommunications market for Ireland and the UK. This involves services of alternative telecom networks such as Worldcom and Rocom as an alternative to the direct BT service. The reason this type of service is called “Indirect” is because it involves the use of an alternative telecoms network through traditional BT telephone wires in order to access the service.
TSI Ireland is involved as a constancy to advise businesses which carrier is best for their needs and earn revenue commission for each company’s calls made on that network. They are also involved with other areas of telecommunications, including the sale of mobile telephones.
Major Macro-environment influences on TSI Ireland
Political and Legal Changes Effecting TSI Ireland
When investigating the current political / legal changes within the macro-environment, the most noticeable impact in the short term will be the NCNC (National Code Number Change) through Oftel, the UK’s telecoms regulator. As of the current time, telephone code number changes have already been implemented parallel to the old number codes, but as of the 22nd April, a full changeover will occur. As expected, this change will effect many companies within the UK and coincidentally cost businesses lots of money. TSI Ireland is no exception to this, in fact they have been hit quite hard because of this change. TSI Ireland offer an indirect telecommunications solution to its customers, therefore their calls have to be routed to a different network across BT lines. This is made possible through [1]Alternative Network Routing Equipment, which has number codes stored for national and long distant calls as well as stored PINs to access the network. Because of the code number changes, TSI Ireland are obliged to update all the smart-boxes for the many businesses that use their services, free of charge. This has ended up costing the company a lot of money in sending out engineers to different sites in order to rectify the problem.
New Legislation is due to come out on March 1st of this year which prohibits[2] “agreements (whether written or not) which prevent, restrict or distort competition and which may affect trade within the United Kingdom.” BT currently hold a monopoly over telephone systems as they are the sole trader and therefore when organizations wish to purchase indirect services from TSI Ireland they are forced to pay BT up to £100 per hour for re-programming of their telephone system. Systems are currently password protected so no other company can gain access to carry out work on a telephone system unless it is through BT. When interviewing Mr. Hamill, he stated that it caused a lock in effect, as companies were not willing to spend that amount of money to change to an alternative network even though the costs would be met in the long run. He plans to put forward an appeal against BT once the legislation is passed. This will have a significant effect on the amount of potential business the company will be able to bring in.
Employment Law has forced the minimum wage up and therefore smaller companies like TSI Ireland have felt an impact on their overall costs which has inevitably effected their overall profit margin. They have had to raise wages of their administration staff costing the company additional expense.
Finally the Peace Process could have a great impact on all small business within Northern Ireland as there are many inward investors taking business within this country a lot more seriously. If the peace process should fail, these businesses including TSI Ireland could loose a lot of future potential opportunities.
SocioCultural Factors Effecting TSI Ireland
When looking at the mobile phone industry it is highly noticeable that this area of telecommunications has had a major impact on society over the last two years. According to Orange NI Business Manager, “Over the last 16 months, market penetration has moved from 8% to 25%.” This change has been felt due to the dramatic changes in tariff plans and Orange’s introduction into Northern Ireland with its aggressive advertising campaign and low price structure. People now use mobile phones to make calls across the country instead of fixed line phones because of the often competitive pricing plans. This has seen an overall effect throughout society of people using mobile phones in their everyday lifestyle, rather than the traditional business only use. This effect on society has meant TSI Ireland’s diversification into the mobile phone industry has been a profitable one.
Consumerism has changed a lot in organizations within the last decade. Business’s are now more aware of the alternative telecommunications paths they can now take rather then the traditional BT one. They have come to realize the cost saving potential resulting in a dramatic reduction of expenses to the organization through the use of a different telecoms company. It is now a lot easier to see BT dominant and often uncompetitive position, as their pricing structure, even with all discounts offered is still not as competitive as many alternatives within the UK and Ireland.
Due to the £ not joining the European Community, exporting has become much more expensive so therefore local manufacturers have been keen to reduce their costs which has in turn stimulated small businesses who are customers of these suppliers. A lot more international calls are being made in our society everyday now as the world has become a virtually smaller place due to reduction of costs in the telecommunications industry.
One of the most noticeable SocioCultural factors within the communications industry has been the increased awareness and use of the Internet which is now being felt by both business and private use alike. This new trend has led to many more people using the Internet as their main form of communication on an international basis obviously because of the cost benefits. A major impact in this area, which is currently in development, is the Voice over Internet Protocol or Voice over IP, which allows the use of phone calls over the Internet. Instead of paying large amounts of money to telecoms carriers, the cost of a local call is only required and connection to the Internet.
Due to these major changes in the way our society is starting to use communication media, it is vital that small companies that offer carrier services like ITS Ireland, must be able to strategically move with the times and concentrate more on the data aspect as well as the voice.
Economical Factors Effecting TSI Ireland
When reviewing the economic factors of TSI Ireland, it is vital to take into consideration what effects this will have on their customers. TSI Irelands service initially costs their customers little or nothing to implement, simply because they are providing the business with an alternative carrier which they will in turn earn commission from as the customer uses the line.
One of the major current economical factors within Northern Ireland that has indirectly effected TSI Ireland has been through the shift in manufacturing of textiles and the labour intensive industry. The main reason for this shift has occurred through the fact that these local companies can no longer compete in the world market due to the rising of labour costs. The few companies remaining within the province have survived due to diversification with high value / high margin goods. Many customers of TSI Ireland including the Northern Ireland Spinners group and Bairdware have ceased using their services and as such have reduced inward revenue to TSI.
Mr. Hamill stated, “Most economic changes within Northern Ireland tend to effect our customers first, which in turn has a dramatic effect on our business.” However economic changes also effect the company directly, especially whereby disposable income has increased leading to a higher purchase of luxury goods, such as Internet services and Mobile phones which can also be attributed to the overall reduction of cost in the telecommunications industry as a whole.
As costs have reduced within the market, an increased use of switched carrier services has resulted in favour of traditional least lines as in comparison, they have become more expensive for businesses. This has especially become more noticeable within companies that operate large computer networks across different sites with an increased use of services such as ISDN and ISDN Highway (high-speed digital data transmission). As a result, TSI Ireland have had to diversify into these newer emerging technologies in order to facilitate the growing needs of their customers and future business potential over the next few years.
** Low Interest Rates in Northern Ireland **
Technological Impact within the Market
The technological forces within the telecommunications industry has had an enormous effect over the last few years and will continue to change the way telecoms business will operate in the next few years to stay within the market. Because of advances in technology within the computing and mobile phone industry, these two industries have started to become even closer than they ever where before. A prime example, which is hitting the industry now, has been the introduction of WAP (Wireless Application Protocol). This technology is currently being implemented and concentrated on the mobile phone sector whereby cellular phones will be able to gain access to a number of information services including the Internet and accessibility to email.
TSI Ireland has to be aware of all the new emerging technologies as a vital part of their strategy in order to predict where the market needs will be focused over the next few years. As E-Commerce becomes a more important part of the new business in Northern Ireland, there are possibilities that this could provide TSI with an invaluable portal for possible future services. It is becoming more and more obvious that carrier services are involved with the transmission of data and in some cases moving away from voice altogether using alternatives such as email, and possibly the future voice over IP.
Another major technological change that will effect TSI Ireland in the near future will be the introduction of “Carrier Pre-Selection.” This is a process of directing telecoms traffic along an network carrier without the need for alternative network routing equipment. This could have a serious impact on TSI’s marketing strategy because the costs for installing smart-boxes would be eliminated, the potential of moving into the residential market would be huge as there would be no outlay costs and the customers would benefit from lower call tariffs. The reason TSI have not pursued the residential market in the past is because of the prime cost, which would now be a thing of the past.
When considering some of the more obvious technological advances within the industry, it is clear to see how both speed and quality take the front seat in business importance. Nortel are currently developing the ADSL, which will allow for 2Mbit transmission over a standard copper telephone cable. This would mean concepts such as full broadcast television quality over the Internet and Video on Demand would become a reality to the residential market. The possibilities are endless, but TSI must keep a sharp focus on the near future, as the consequences could be huge if the market is ignored.
Structural Analysis of the Telecommunications Sector
Threat of New Entrants into the Market
Established Connections
Although TSI Ireland is a relatively new company within the telecommunications market, it has been no easy task to enter into the industry. However, a lot of its short-term success has been attributed to the past backgrounds of both the partners within the industry. Through past connections and expertise, this barrier to entry has been successfully overcome. For other businesses trying to enter, it would be much more difficult unless they came from a telecoms background and were known by some of the larger players.
Capital Investment
Another major barrier to entry as with many other industries is of course the initial capital for costs of starting up the business. Any company wishing to enter this market would need to carefully plan their initial capital expenditure as this would have to allow for expensive billing systems to track customers calls and smart equipment retailing at £500 per box.
It is a lot more common for larger competitors to enter this market because of their financial backing giving them a lot more power to compete highly with stronger sales and advertising forces. Recent entrants into the Northern Ireland Telecommunications market have included NAVAD and Telecom Ireland (Eircom). Navada is a new company, which is part of Veridian (NIE) and Eircom are part of the Southern Ireland Telecoms industry moving into Northern Ireland. The common reason for larger companies moving into the telecoms industry is usually to spread their profits.
With larger organisations entering the market, it poses a great threat to the smaller local companies. TSI Ireland has managed to survive and reap the benefits within this market by remaining as a consultancy service offering many different options for its customers.
Distribution Channels
Access to distribution channels is another major challenge faced by any newcomers lowering the threat of new entrants within the market. The main reason for this is that large carriers such as Worldcom and Cable and Wireless often require established contacts and sometimes an insurance bond which can range up to £50,000.
Threat of Substitute Services
The threat of substitute services within the telecommunications market can hold a serious threat on individual competing customers. There are mainly two reasons why a company would go to the bother of changing their telecoms carrier. The first of these is price, which has benefited companies like TSI Ireland who have been able to offer cheaper costing telecommunications solutions than larger well know industry giants like British Telecom. Because TSI Ireland incur all the initial costs of smart equipment and setting up the service, there is no cost to the customer so many see it as advantageous when they realise the large cost savings.
However, in the last few years the competition between telecommunications companies has increased at an astounding rate.
This has allowed the competition fo
- Quality – slow call setup, crackly line, etc. Might pay more for better quality or return to BT or NTL.
- Competitors promise often misleading info on prices, etc.
- Voice over IP – High future risk – substitute use of Internet rather than long distant telecoms carriers!
- Substitute services found from other telecoms companies – C&W, NTL, Uphony, BT, etc.
Bargaining Power of Buyers
- Moving into government sector mean higher returns but lower margin – reduced tariffs due to high volume traffic.
- Lockin effect – switching to different service may involve smartbox installation putting potential customers off.
- If not much difference in service and costs – customer wont want to switch.
Industry Competitors
- Cabling voice & data to differentiate against competitors – two services merging
- Fixed Line & Mobile – also beginning to merge – need to examine these areas
- Compete more with quality & service – prices very similar now, services such as Internet billing, billing options and information availability, quality of service and speed of transmission.
- Key Differentiator is Quality!
- Carrier Pre Selection – market may move from direct sales to telesales – verbal contracts – leading to dominant players with power behind advertising, sales, etc.
- Account management need to strengthen
- Cross sell other products (currently in mobile phone market) – possibility of expanding to VISP – interact more to achieve higher customer loyalty & therefore lockin!
SWOT Analysis for TSI Ireland
Analysis of TSI Ireland’s Strengths
- Small – mobility, fast response times
- Flexibility
- Lower costs – greater competitive advantage
- Local company based outside Belfast
- High level of experience – both partners come from over 20 years of telecoms experience
- Established contacts and distribution chain within the telecoms industry
Analysis of TSI Ireland’s Weaknesses
- Not known as well as larger telecommunications companies
- Lower capital expenditure – cannot penetrate as much with advertising and promotion
- Lack of strengths in other areas – data: need to concentrate on a main weakness!
- Much competition – especially from large telecoms and computing companies – acquisitions, etc.
- New emerging technologies don’t always train – costly as mainly on mainland where new smart equipment is produced.
- Physical constraint of business population within Northern Ireland – need to concentrate on other geographical market segments.
- Small company – limited staff resources, especially relevent to limited number of skilled engineers.
Analysis of TSI Ireland’s Opportunities
- Cross selling in order to differentiate within the market – data comms, mobile phone ind, etc.
- VISP – Virtual Internet Service Provider – Sister Company?
- Website design – other Internet Services
- Increase profitability – through mass purchasing of suppliers – lower costs – higher margins.
- Possible expansion into the International Market
Analysis of TSI Ireland’s Threats
- Government Legislation – explain.
- Internet taking over – Free local calls
- Voice over IP
- Uncompetitive carriers – raising price – loosing customers
- Carriers quality drops – leaving customers with potential to switch – loosing revenue
- Faulty equipment / supplies – customers put off easily if too much hassle and will want to switch back to previous telecoms company.
- Financial backing – inconsistency of contracted engineering work
- Threat of increased number of multinationals moving into the market wiping out the smaller companies
- Lack of skilled contractors – capital rationing
Recommended Future Strategy for TSI Ireland
- Recognition – additional funding to increase company profile on local and national level.
- Merging of telecoms and Internet – generate work for eachother making better acquision
- Diversification – Disciplines – Structured cabling – cat5/6, computer network configuration, new router configurations to facilitate newer technologies – Voice over IP – and newer internet technologies
- WAP – Moving more into the mobile – info services sector
- Form more connections with mainland companies – newer ones emerging all the time – ensure continued business ability to offer more choice for greater and growing customer needs.
References
Exploring Corporate Strategy Fifth Edition, Johnson & Scholes – 1999
Office of Fair Trading: The Major Provisions – The Competition Act, 1998
Philips Pocket Book of telecommunications, Andy Crowie, 1996
Twelve Steps to the Big Number, Oftel 1999
OFTEL Web Site, http://www.oftel.org.uk
Rainbow Telecom Web Site, http://www.rainbowtelecom.co.uk
[1] Twelve Steps to the Big Number
[2] Office of Fair Trading – The Major Provisions “The Competition Act, 1998”
