Analysis of Vodafone Essar India

8/3/2019 Analysis of Vodafone Essar India

http://slidepdf.com/reader/full/analysis-of-vodafone-essar-india 1/34

S U B M I T T E D B Y :

G R O U P N O - 3

A J A Y K U M A R V A T S ( 0 8 E M - 0 0 6 )

M A N D E E P N A I N ( 0 8 E M - 0 2 0 )

S A N J E E V A G A R W A L ( 0 8 E M - 0 3 7 )

S H O B H I T YA D AV ( 0 8 E M - 0 4 1 )

Analysis of Vodafone- Essar India

http://en.wikipedia.org/wiki/File:Vodafone.png

http://en.wikipedia.org/wiki/File:Vodafone.png



Overview

Introduction

Vodafone Acquired Hutch Essar

Strategy Formulation

Mission & Vision Business Analysis : Internal & External

Competitive Analysis

Corporate & Business Level Strategy

Industry Attractiveness v/s Business Position matrix Recommendations/Conclusion



VISION

VISION IS TO BE THE WORLD'S MOBILECOMMUNICATION L EADER - ENRI CHING

CUSTOMERS’ LIVES, HELPING INDI VIDUALS,BUSINESSES AND COMMUNITIES BE MORE

CONNECTED IN A MOBILE WORLD.

MISSION

DRIVING IN A WIRELESS WORLD.



About Vodafone

Vodafone is the world’s leading international mobile communications group withoperations in 25 countries across five continents and over 200 million proportionatecustomers by the end of January 2007, as well as 36 partner networks. Cuurent 31country,41country partner network,427 million customers as of 2009.

About Essar

Essar is one of India’s large corporate houses with 20,000 staff and business interestsspanning high growth infrastructure sectors of steel, oil & gas, power,telecommunications, shipping & logistics and construction. The group has built aportfolio of assets with expected revenues of US$10 billion in the year to March 2008.

Type Limited

Founded 1994 as Hutchison EssarHeadquarters Mumbai,Maharastra

Industry Mobile Telecom(GSM)

Owners Vodafone-67%,Essar-33%

Employees 10,000 March 31st 2009



Acquisition of acontrollinginterest in HutchEssar

• Acquisition of companies that control a 67% interest in Hutch Essar • Transaction consideration: US$11.1 billion (£5.7 billion)• Implied enterprise value: US$18.8 billion (£9.6 billion)

Infrastructuresharing MOU with Bharti

A signed MOU between Vodafone and Bharti relating to a comprehensive range of infrastructure sharing options expected to:– materially reduce the total cost of delivering telecommunication services– bring mobile communications to rural areas– expand network coverage more quickly

Local partners • Vodafone will make an offer to buy Essar’s stake at the equivalent price per share it hasagreed with HTIL.• Arrangements with other existing minority partners will result in a shareholderstructure that meets the requirements of India’s foreign ownership rules.

10% economicinterest in Bharti

Granted a Bharti group company an option to buy 5.6% listed interest in Bharti forUS$1.6 billion (£0.8 billion) subject to completion of Hutch Essar transaction



Hutch Essar and Vodafone Synergy

Controlling interest in a major fast growing market

Meets financial investment criteria.

Vodafone and Hutch Essar will drive greater value together

Vodafone is one of the international experienced company



Why Vodafone Chooses India(2007) ?Country analysis

Imperatives: Entry into India

Country Evaluation:Government Role: Foreign Investment welcome Firm’s Strategy, Structure & Rivalry:

Infrastructure sharing. Hutch has Nation wide presence. Airtel,Reliance,BSNL,MTNL,TATA are competitive rivalary. Hutch has experienced and highly respected team .

Demand Conditions World’s IInd fastest growing economy.

Rural mobile Penteration is low. Related & Supporting Industries

Support industry not developed i.e.Fleet Tracking etc. Factor Conditions:

Mobile Penteration is still low than other country.

Entry Mode: M&A of Hutchison group 67% share



External Analysis

PEST Analysis

Mobile Industry Analysis

Opportunities &Threats

Competitive advantage



PEST Analysis

MobileIndustry

Technology

Social

Environmental

Regulation

Economical

Political



(i)-Political/regulatory environment

(i)Political/R egulatory Status

Regulatory institutions well-developed among emerging market peers: TRAI1(regulator) features

– Dynamic – recent consultations on 3G licensing, roaming andinfrastructure sharing,MNP• Clear Government targets for tele-density driving high-level policy initiatives– 500m telecoms connections by 2010 (implies significant rural coverage)– 20m broadband subscribers by 2010• High levels of fees and taxes have been reduced to promote affordability and

increase tele-density • Sharing of passive infrastructure (sites, towers) permitted and encouraged by government. TRAI is evaluating active network infrastructure sharing tounderpin Tele-density targets.• Termination rate reduced. Regulation-National Telecom Policy since 2004 2004 (Oct) Announcement of Broadband Policy to provide high

speed always on internet service.2005 (Nov) FDI limit increased from 49% to 74% in Telecom Sector.2005 (Dec) ILD & NLD Annual License fees reduced from 15% to 6%.2007 (Oct) Dual technology allowed.2008 (Aug) Issue of 3G guidelines for spectrum allocation through

auction. Foreign players allowed to bid.2008 (Aug) Guidelines for Mobile Number Portability Service

License issued



(ii)Economic Environment

Gradual economic reform has delivered major cumulative change since 1991

Reducing bureaucracy and state influence over business decisions

Promoting competition by privatization and de-licensing key sectors

Encouraging foreign investment into more sectors of economy

World’s 2nd fastest growing economy

Increasing Disposable Income

High Per capita income-GDP Growth

Economic Environment is opportunity.



(iii) Social

The number of inhabitants in each of India (1103 million) and China (1316 million)

was over a billion persons, and together these two countries represented more than

one third (37.4%) of the world's population.

Demographic changes that will have a major impact on many areas of society such associal systems, consumption patterns, education, and job markets in the comingdecades. People are living much longer and in better health.

Social Factor is opportunity for Mobile operators are favorable



Technological

Pros:Convergence of Fixed Phone is opportunity for Mobile Phone industry.

Mobile phone industry was growing and fixed-line customers all had the potentialto switch to mobile operators because the same services were available (More onIndividual Less on official i.e.call center inbound,outbound).

Cons:

VoIP through ILL. WiFi/WiMAX .DSL high speed broadband.IPTV on PSTN .

ILL and PRI on Copper pair & OFC.IN services popular on PSTN Lines.Some uncertainty existed in picking a type of mobile phone standard compatibilityi.e.2G,2.5G,3G.

Based on above Pros and Cons Technological Factors is a opportunity.



Porters Fives Forces Model

Competitive Rivalry Numerous or Equally Balanced Competitors – High i.e. Airtel,Reliance, BSNL/ MTNL, Idea. Competitors are approximately of the samesize . Market Share % between these competitor is not higher.

Fixed costs due to spectrum licensing and the establishment of wireless

network points of access is High due to it mobile phone companies try tomaximize their existing infrastructure, which leads to excess capacity andintense rivalry.

Pricing and service leads to attractive offerings from the customers pointbecause Switching costs for mobile phone consumers are also low.

Specialized assets such as spectrum licenses maintain a high resale

value and its lead to Low exit Barrier i.e. Unitech-Swan Licensing in India.

Intensity of Rivalry among Competitors - High



GSM Operaters current Market Share



Power of Suppliers

Switch providers are Limited i.e. Nokia ,Ericsson, ZTE etc.

Tower Providers are also very Limited.

Mobile Handset Providers Dependency, Nokia, Samsung, Motorola,Sony,LG etc.

Power of Suppliers: high.



Power of Buyers

Buyers Demand is More features, minutes and texts, for less money.

Buyers are becoming increasingly sophisticated and make use of the wider

range of services that mobile operators have to offer including broadband,

data Availability, MMS and 3G compatible services.

Mobile Phone Industry Products are undifferentiated and standardized.

Switching to another operator is not costly or Switching cost Low, Churning

rate is High.

Power of Buyer is High.



Threats of Substitutes

Voice Call on Mobile Substitute is Internet calling services through

VOIP, Walky Phones, Fixed Lines.

SMS-IM Messaging, Email Internet-Broadband on PSTN,EVDO Wireless

Broadband, USB Broadband

Switching costs are low but the advantage goes to the mobile phoneindustry because there is a greater chance of switching to mobile phonesfrom fixed-line phones. Reason behind this substitute product’s price isnot lower, and its quality and performance capabilities are negligiblecompared to mobile phone products.

Threat of Substitute is Low.



Threat of New Entrants

Threat of New Entrants

Pushing TV through their IP pipes

Retailers are entering the business in the form of the virtual operator

network concept.

New operators are in the process of Licensing from TRAI.

Threat of New entrant is Low. Because the mobile phone operatorsmust compete for spectrum licenses, hence existing operator can easilyidentify their competitors in the individual markets.



Porters Five Forces

INTENSITY Competitive

Rivalry-HIGH

Threat of

New Entrant

HIGH Buyer

Threat of Substitute

HighSupplier



Opportunities Threats

Emerging markets (Demographic)and expansion abroad

Innovation

Product and services expansion

Growing data business and 3Gauctioning

VAS as a means to increase ARPU

Growing Enterprise solution market(10.2% in 2009 anticipated)

Tower sharing business with IndusTowers

Lower cost competitors or imports Price wars Falling ARPUs from 247-

222(September 2009 ) Hyper competition



Experienced Firm.

Leverage global competencies.

Creating synergies around the globe.

Strong R&D leads through Innovation in Technology.



Internal Analysis

Strengths

Weaknesses

Financials

Critical Success Factors



Internal Analysis

Strengths Experience and knowledge in the mobile phone business.

Strong ability to manage change and acquisition.

Global brand strength

High geographical reach

Weaknesses

• Centralized control – low flexibility

• High customer churn rates



Profitability Ratios: operating margin was 1.2 percent higher than thecompetitor average in 2000

Liquidity Ratios: Vodafone has traditionally operated with low liquidity and lessinventory than its competitors, and has maintained above average profitability.

Leverage Ratios: debt ratios were above industry averages.

Vodafone was in a superior financial position compared to its competitors, withsubstantial assets and high operational efficiency.

Financials



Core Competencies

Value: Created value for their customers by being the best and mostfocused

Vodafone's ability to develop innovative technology and successfullymerge are rare capabilities.

Develop Synergies Through Technology sharing.

Dominance at point of purchase / consumption through Visibility.

Costly to Imitate



Vodafone pursued a global international corporate-level strategy.

Vodafone is heavily focused on acquisitions,

including Hutchison, to open cost advantagesthrough economies of scale.

Corporate Level Strategy



Vodafone is pursuing a focused cost leadership business-level strategy through their exclusive focus on the mobiletelephony industry. Because Vodafone did not have thedistractions that faced their competitors (such as fixed-line

telephony) they are able to save money and pass thesavings to their customers or maintain a profit even whentheir closest competitor is only achieving average returns.

Vodafone maintained a broad competitive scope and

focused on cost for their competitive advantage.

Business Level Strategy



GE – Matrix Parameters

• Market Attractiveness • Competitive strength

- Market size- Relative brand strength

(marketing)

- Market growth rate - Market share- Market profitability - Market share growth

- Pricing trends - Customer loyalty

- Competitive intensity / rivalry- Distribution strength and

production capacity

- Overall risk of returns in theindustry

- Record of technological or otherinnovation

- Entry barriers - Quality



GE Matrix Analysis

Mobile

Market Attractiveness

- Market size +

- Market growth rate +

- Market profitability Medium

- Pricing trends Low

- Competitive intensity / rivalry Low

- Overall risk of returns in the industry Low

- Entry barriers Medium

Over all Market attractiveness Medium

Industry Strengths

- Relative brand strength (marketing) Medium

- Market share Medium

- Market share growth +

- Customer loyalty Low

- Production capacity +

- Technological or other innovation +

- Quality +

Over all Industry Strengths Medium



Industry Attractiveness v/s Business Position

High Medium Low

H

i g h

Invest SelectiveGrowth

Up or Out

M

e d i u m Selective

Growth Up or Out Harvest

L o w

Up or Out Harvest Divest

B u s i n e s s P o s i t i o

n

Industry Attractiveness

Mobile Industry



The new realities of the mobile industry

• Competition is intensifying from existing and new players

• Significant price erosion

• Customers have far greater choice in communications

• Growing demand for broadband

• Emerging markets delivering significant growth

• Continued significant regulatory pressure

• Mobile business model is changing



Organization to deliver new strategic objectives

• Cost reduction

• Revenue stimulation

• Deliver strong growth in emerging markets

• Maximize shareholder returns from affiliates

• Capture new sources of revenue

• Innovative total communications solutions

R d ti



Recommendation:

In India the focus should be on cost reduction and revenuestimulation

• Reduce cost structure

• Leverage regional scale

• Outsourcing

• Shared services

• Overhead reduction

• Stimulate voice usage

• Substitute fixed minutes

• Enhance customer value

• Innovative bundling

• Vodafone At Home

• Vodafone At Office

• HSDPA enabled services

CostReduction

• Reducecost

structure

• Leverageregional

scale

•

Outsourcing

• Sharedservices

• Overheadreduction

Objectives Approach

Revenue

Stimulation

• Penetrate voice usage

customer

• Substitutefixed minutes

• Enhance

customer value

• Innovative bundling

• HSDPA enabledservices

Analysis of Vodafone Essar India

Documents

Transcript of Analysis of Vodafone Essar India