Economics of Starting a New Cellular Business - Research Paper

Abstract

The industry of mobile connection, the most dynamic and rapidly developing one in the world, is also the most profitable industry nowadays that attracts solid investments for both its expansion and improvement. Thus, it is highly competitive industry but at the same time the one that brings considerable profits. The majority of mobile operators are solid companies with billions of investments and still more billions of profits, therefore entering this highly-competitive market requires elaboration of sound strategy able to make the company competitive and attractive for customers.

The current paper looks into the issue of economics of starting a new business, particularly installing a new company offering the services of cellular operator. The purpose of this paper is to research what is required to include into areas of concentration to develop a Road map to start a new Cellular Telephone Business in the USA. The results of the research will be summed up in the Business plan presented in the end of this paper. For the preparation of business plan, all necessary stages of researched will be adhered to and all the information necessary for the analysis will be gathered and presented.

Executive summary

The industry of mobile communications is by far the most dynamic industry in the world. There exist a number of mobile standards, such as GSM, CDMA, iDEN, D-AMPS and others. For the time being, GSM is the first and the only in the world genuinely global mobile standard. Today the services of GSM are offered by more than 500 operators around the world, with licenses in 170 countries of the world. In 1990 the number of mobile subscribers hardly reached 10 million, by middle 90s their number rose ten times, and by the end of 2001 it reached 1 milliard people, which accounts for the half of all telephone channels around the globe. This is unprecedented growth in the whole history of technology, surpassing electrical networks, radio, television and even Internet. For instance, in Taiwan, GSM penetration surpasses one telephone per person. On the other hand, in many developing countries mobile telephone, one for the all inhabitants of the village, can be the only means of connection in their surroundings. Mobile connection penetrates even into places inaccessible for traditional telephone network PSTN (Public Switched Telephone Network).

Therefore it is understood that the industry of mobile connection, the most dynamic and rapidly developing one in the world, is also the most profitable industry nowadays that attracts solid investments for both its expansion and improvement. Thus, it is highly competitive industry but at the same time the one that brings considerable profits. The majority of mobile operators are solid companies with billions of investments and still more billions of profits, therefore entering this highly-competitive market requires elaboration of sound strategy able to make the company competitive and attractive for customers.

This paper looks into the issue of economics of starting a new business, particularly installing a new company offering the services of cellular operator.

Purpose. The purpose of this paper is to research what is required to include into areas of concentration to develop a Road map to start a new Cellular Telephone Business in the USA. The results of the research will be summed up in the Business plan presented in the end of this paper. For the preparation of business plan, all necessary stages of researched will be adhered to and all the information necessary for the analysis will be gathered and presented.

Background. The current research will be done in regards to Colbert Communications Inc, a state of Maryland Corporation with offices in Clinton, Maryland, Paris, France, Kinshasa, DRC and Zurich, Switzerland. The company has a total of 106 full time employees and its business is to provide engineering and maintenance services in the cellular telephone industry to customers in the countries were we have offices. Current research will pertain to CCI since it is interested to install a new business entity which would be a spin off or subsidiary of CCI Corporate Headquarters in Clinton, Maryland, will be presented on American market and will be targeted at providing the services of mobile communication to American customers.

Benefits. The research will obtain benefits from the definition of the business, its concept and products or services it would provide; thorough analysis of the target market of the business, industry peculiarities and overview the of the competitors, elaboration of strategy for entering the market and winning customer’s attention and working out concrete aspects of policy.

Obstacle. The obstacle of the project can be contained in the fact that along with high benefits which business of that kind can bring to its owners, it requires solid investments on the stage of installation which count in millions of dollars, and since the market is highly competitive and in some counties even almost saturated and oligopolic, very thorough and smart strategy of entering the market is required for the investments to be justified.

Research and Theoretical Concepts

Workplace: CCI. The classical business plan targeted at introducing new concept or service on a definite market should include a number of indispensable elements composing a comprehensive business analysis of the issue:

Concept of the service: definition of the product or service which is to be introduced into the market, definition of its specifications, qualities, choosing the best variant of product and service from the list of possible solutions.

Industry overview. Insight into the industry offering such products and services, its nature, laws and specifications. This section also includes analysis of the target market, its volume, particularities, level of competition, level of difficulty of entering the market, number of substitutions, regulatory requirements pertaining to the service or product.

Competitors’ analysis. This section includes the overview of the competitors present on the target market, their specifications, areas of action, strengths and weaknesses, strategies and consumer base.

Competitive scenario of one’s target market. Based on the information on the target market and competitors’ analysis, a strategy of entering the market, competing the market and gaining profit should be elaborated. The section should include analysis on the specifications of product or service necessary to compete with the rivals, strengths and weaknesses of our product or service compared to the those of competitors, and what strategy – cost leadership or differentiation generic strategy – it will pertain to win the market.

Price strategies and Promotion strategies. Price strategies and Promotion strategies can be included in the section above but one can distinguish the to highlight the importance of these factors for developing competitive and successful product of the market.

The last section includes the calculation of investments necessary to launch the business and profits that the undertaking would bring.

Concept of service. So, the first thing to be considered is the concept of the service. The purpose of the paper is to explore the issue of introducing new business on American market, which would offer the services of mobile communication. For that, it is necessary to decide on the technological parameters of the network to be installed, which would suit the definite market in the best way.

Today, the majority of operators use the technologies of 2G or 2,5 G – the technologies of second generation, which include such standards as CDMA, PDC, D-AMPS, iDEN, GSM, GPRS, EDGE, Wi-Fi and others. These technologies are in active use nowadays. But they are being gradually substituted by the network based on third generation technologies – 3G, which differ from 2G and 2.5 G Systems by their ability to transmit, except mere voice connection, data at high speed, which allows to establish video connection and transmit other multimedia data (Tonelli, 2002). These network provide their users with a number of other, inaccessible before, opportunities. These networks are characterized by larger scope and higher quality of rendered services. Therefore, while regarding the issue of choosing the best type of network, following the differentiation generic strategy, the company should chose the most promising and perspective type of connection, which is today 3G networks. The market in the United States, which will be mentioned in analysis later, is close to saturation, and with the purpose of winning the customers and surviving the competition, the leading actors on telecommunication market will chose transition to the technologies of this generation. Therefore CCI, to enter the market with confidence, should be oriented from the very start at these novel technologies. The following arguments are cited to prove this stance.

Although the economic recession has somewhat restraining influence on the pace of development of 3G technologies, a long-term prospects of growth are out of question. In 2005, the aggregated global investments in this technology are to reach US$ 40 bn, two thirds of which come from Asia and Western Europe. The supplier revenues from the technologies are likely to make up US$170 bn in 2010, thus, life cycle spending of 3G networks will be 3 or 4 times faster and bigger than that of 2G.

Upon the launch of 3G networks by the Vodafone group in Japan in the end of June 2002 and in United Kingdom in October 2002, the competition in the industry begins to heat up. Moreover, NTT DoCoMo with the help of such foreign partners as KPN, Hutchison, AT&T Wireless, starts to implant its preferred 3G technology – WCDMA – abroad (White paper on UMTS 3G Market Forecasts,2002). Unlike I-mode or WAP, 3G is not just a kind of new service. It is completely mew technology, umbrella term which comprises new mobile infrastructure, system of interconnecting interfaces and hubs, which dramatically lowers the cost of data transmission by one order of magnitude. Thus, transition from networks of second generation, of all standards, be it GSM, TDMA, PDC or CDMA, to the this generation networks heavily resembles transition from circuit-switchers to IP-routers in the wireline domain (White House Council of Economic Advisors' Study).

When the networks of third generation, WCDMA or CDMA2000 are fully deployed in the timeframe between 2008 and 2010, the gains from efficiency produced through this transition will allow setting the price of sending “mobile photo” to be settled at the level of SMS price, that is about 10 cents in densely penetrated markets. The reduction of tariffs along with higher customer utility, combining effect from other areas of activity, such as entertainment and online search of information, are likely to trigger unprecedented rise in usage with traffic per subscriber multiplying ten times by the end of 2010. All the operators will definitely follow the example of the pioneers and switch to using new technologies. From the experience of early 1990s, when digital technologies, such as GSM, TDMA, CDMA, PDC, challenged analogue networks, such as NMT, AMPS and TACS, it is clear that operators who aggressively and swiftly exploited opportunities provided by new technologies have the highest chance of winning the global competition (Tonelli P, 2002).

While 3G technologies like WCDMA and CDMA200 offer only relatively restricted spectrum of economy from simple voice transmission – 2x, the advantages are more obvious in the domain of transmitting data services, such as emails, file transfers and internet browsing. Against these opportunities, which are likely to be introduced by hundreds of operators in next few years, operators which utilize old 2G or 2.5 G technologies must react through rapid modernization of their networks, like analogue operators in 1990s. It is calculated by the technology specialist that added value per user from transition from 2G to 3G services should amount to the least of US$100, of which advantages of unit costs should amount to about one half. Taking the typical network in the number of 10 million subscribers, the economic benefits of installation and usage of 3G, which might be shared with end-users depending on individual competitive circumstances on each market – would make up about US$10 billion per year (The CDMA2000 World Review, 2004).

3G is a concept of mobile operator services which are able to support a number of application at different speeds. G is also known as wideband radio and it can deliver mobile services at the speed of 2 Mb/s. The introduction of 3G networks is a long-term target that requires considerable investments but is able to bring enormous revenues. In a word, 3G technologies are so important for today because they represent a new radio interface which supports numerous services; an umbrella for different standards multitude, a new battleground for both operators and suppliers or equipment and finally a commercially attractive system superceding GSM, CDMA, TDMA, PDC, GPRS and other 2.5 G systems.

3G systems can have different architecture and therefore there is a variety of technologies functioning on 3G platform: WCDMA, favored by Europe, Japan and Asia and supported by such equipment suppliers as Ericsson, Nokia, Fudjitsu/Alcatel, NEC/Siemens; CDMA2000, popular in Americas and some Asian counties and supported by such suppliers as Lucent, Nortel, Motorola and Samsung, EDGE, used in Americas and Europe with Ericsson, Nortel, Nokia and Motorola equipment, and TD-(S)CDMA, popular in Europe and Chine and functioning on China Inc and Siemens hardware.

Since WCDMA and CDMA200 networks are composed to be ten times more efficient than their predecessors in trafficking mobile and multimedia data, none of the operator using 2 G technology that faces invading 3G competitors will be able to maintain its position without introducing such upgrades.

The shift from the 2G technologies to 3G network is illustrated below (White paper on mobile infrastructure, 2002):


Mobile system shifts into new generations
Mobile system shifts into new generations

Experience from the digital revolution of early 1990s provides vivid lessons that the most successful and competitive operators were those carriers, which invested most in the quality, functionality and capacity of their networks. This fact should be taken into consideration by the managers of CCI while taking the decision on structure, architecture and technology of their networks.

During the process of preparation the various sources on management, principles of microeconomics, mobile technologies and issues of mobile communication technologies development, peculiarities of American Mobile market, were consulted. First, the book “Microeconomics” by Robert S. Pindyck and Daniel L. Rubinfeld provided solid ground for understanding principles of economics. A number of informational resources on principles of marketing (Michael Porter. Competitive Strategy: Techniques for Analysing Industries and Competitors.), American economics and telecommunications market (CIA World Factbook, The CDMA2000 World Review by CDMA Development Group) mobile communications and cellular network systems, particularly 3G systems (White House Council of Economic Advisors' Study on the Economic Impact of Third-Generation Technology; White paper on mobile infrastructure; White Paper on Evolution to 3G/UMTS Services; White paper on UMTS 3G Market Forecasts, Mar 2002; article “The real digital divide” printed in Economist 20 March 2005, http://www.economist.com/opinion/PrinterFriendly.cfm?Story_ID=3742817), and a number of other sources.

Applied Research Project.

Overview

In this section, the research on all the aspects necessary for the preparation of the business plan will be done. Thus, the industry of mobile telecommunications will be analyzed, the target market and main competitors on these market will be discussed and on the basis of this information Competitive strategy for this market will be elaborated so that the company could successfully enter the market and receive revenues from its activities. The results of the work will be presented in business plan outlining the strategy of implementing new business.

Methodology

This subsection contains the overview of the methods used for this research. For the purpose of the current research, the following methods were applied: data collection, research and analysis, which pertain to the general philosophic family of methods, along with logical and dialectical. Also, the research used such general scientific methods, as documents study, modeling and systemic approach. Part of the paper requires combination of approaches which rely on theory, which gives the opportunity of studying the essence, particular features and basic concepts of managerial science in connection to marketing aspect, and praxeology, which comprises the analysis of the process of preparation, adoption and bringing into life definite managerial decisions, in particular bringing to life the project founding new company in the sphere of mobile communications and introducing it into American market. Particular importance is attached to the systemic research method, which consists of complex analysis of the most important mechanisms of functioning of definite phenomena in the issue under consideration. The systematic method is based on the assumption that any object is viewed as a complex, relatively independent system characterized by the unity of plurality of its elements: structural, functional, genetic, objective and subjective. Together with that, the method of rational choice, which is generally contrasted to the systematic method, will be applied. According to this method, the conclusions on the research subject will be made on the basis of exploring and analyzing the factors influencing the choice of particular business entity. According to this approach, a decision which is to be made concerning founding by the Colbert Communications a new firm with primary activities directed at providing American customers with communicational services, should be supported by multiple facts and factors. The science of management may be explored on three fundamental levels: the level of grand theory, middle theory level and case study level. Since the paper touches upon the issues of management in its practical dimension, current research pertains to the case study level. Case study consists of practical application of theoretical knowledge acquired due to such methods as data collection and research, documents study and others, to the real-world situations on the basis of definite case. In this particular case, the research will be carried out and applied to the case of Colbert Communications Inc. This method enables to receive results of the practicable value and efficiency of the theoretical findings. Finally, the method of contrast and synthesis was employed, since the theoretical as well as practical aspect of the paper examines different approaches marketing, accounting, managerial and advertising tactics and techniques and how they can be combined to form a comprehensive unified synthetic knowledge.

Besides the abovementioned methods, which are common to almost all the works on management thematic, the current research will use the methodology of elaboration business and marketing plans, which pertains to different actions and stages of analysis, such as defining concept of the service or product, analysis of the industry, overview of the target market, its benefits and drawbacks, analysis of competitors on the market, elaboration of competitive scenario for current target market based on the findings, business growth evaluation, price strategies and promotion strategies, volumes of investments, cost of the business and calculated return on investments.

Research

Since the concept of the product was already discussed in previous section and it was decided that if the company targets to win considerable market share and successfully enter the industry, it should focus at applying new technologies of third generation to its mobile networks, this part of the paper will discuss all the other issues necessary to analyze for elaboration of the business plan. The first point of discussion is analysis of the industry.

The industry of mobile communications is by far the most dynamic industry in the world. There exist a number of mobile standards, such as GSM, CDMA, iDEN, D-AMPS and others. For the time being GSM is the first and the only in the world genuinely global mobile standard. Today the services of GSM are offered by more than 500 operators around the world, with licenses in 170 countries of the world. In 1990 the number of mobile subscribers hardly reached 10 million, by middle 90s their number rose ten times, and by the end of 2001 it reached 1 milliard people, which accounts for the half of all telephone channels around the globe.

This is unprecedented growth in the whole history of technology, surpassing electrical networks, radio, television and even Internet. For instance, in Taiwan, GSM penetration surpasses one telephone per person. On the other hand, in many developing countries mobile telephone, one for the whole inhabitants of the village, can be the only means of connection in their surroundings. Mobile connection penetrates even into places inaccessible for traditional telephone network PSTN (Public Switched Telephone Network). Today the world’s largest mobile companies are China Mobile (158.6 million of subscribers), Vodafone (151.8 million (but 350 million if the subscribers to companies where Vodaphone has minority stake were included)), China Unicom (100.1 million), T-Mobile Int (65 million, but 109 million including the companies where T-Mobile has minority stake), Cingular (49.1 million) Orange (49 million), NTT DoCoMo (45.9 million), Verizon Wireless (42.1 million); Mobile TeleSystems – MTS (34.22 million), Vivo (26 million), Sprint PCS (22.2 million), mmO2 (21.3 million).

Today, mobile networks 2G and 2.5 G are superseded with networks based on entirely new technologies – 3G, these networks have the standard of either WCDMA or CDMA2000 (The real digital divide, 2005). It should be noted that these networks are highly dynamic and are evolving at enormous pace. If in the end of 2002 the number of operators around the globe who used 3G technology was 37, of which 10 were American companies (Monet Mobile, Leap Wireless, Verizon Wireless, Metro PCS, Sprint PCS, Cellular South, US Cellular, Kiwi PCS, and Alltel), by the end of 2004 the number of operators using WCDMA or CDMA2000 standard surpassed 100 operators working in 50 countries on 6 continents and having already 127,300,000 subscribers worldwide. Therefore it is understood that the industry of mobile connection, the most dynamic and rapidly developing one in the world, is also the most profitable industry nowadays that attracts solid investments for both its expansion and improvement. Thus, it is highly competitive industry but at the same time the one that brings considerable profits. The majority of mobile operators are solid companies with billions of investments and still more billions of profits, therefore entering this highly-competitive market requires elaboration of sound strategy able to make the company competitive and attractive for customers.

In 2001 only, mobile infrastructure market was evaluated in 54,000 million US dollars, mobile handset market amounted to 47,000 million dollars, and mobile communications market cost 101,000 million. Then, there was 970 million subscribers and each of them brought revenues of 370 US$, and the operator revenues made up 347,800 million dollars (White paper on mobile infrastructure, 2002).

The target market for the Colbert communications’ undertaking is American mobile communications market. To understand the specificity of the market, it is necessary to cite some numbers on natural demographical and economical indexes of the country. The total surface of the United States is 9,631,418 sq km, the population reaches 293,027,571. In the country, there are 181,599,900 telephones of main line in use (data of 2003) and 158.722 million mobile telephones. The communicational system of the USA is large, multipurpose and technologically advanced (CIA World Factbook, 2005).

There are technologies and infrastructure present in the United States and there is a wealthy population able and willing to pay for high-quality mobile connection. Only in New York City there are more than 50 mobile operators.

In this market, two aspects of developments can be observed. From the one hand, the mobile market in USA is almost saturated with mobile operators using 2 G or 2.5 G standard. The most powerful American operators are Cingular (owning SBC and BellSouth with a number of subscribers of 49.1 million); Verizon Wireless( 42,1 million of subscribers); Sprint PCS (22.2 million); T-Mobile (16.3 million), Nextel (15.3 million) Alltel (8 million) US Cellular (4.8 million) Dobson Communications (1.6 million) Cricket Communications (1.5 million) Western Wireless (1.2 million)Centennial Wireless(0.5 million). It should be also noted that a number of these operators have switched from 2.5 G to 3 G technologies, but still there is a number of operators functioning on either GSM (Cingular, T-Mobile, Dobson Communications, Western Wireless or Centennial Wireless) or CDMA standard (Air Touch, Cellular One, GTF Wireless, Bell Atlantic Mobile, Ameritech, Frontier Cellular and US Cellular). Though GSM is considered to be global universal standard accounting for 80% of global 2G networks, operators working on CDMA technologies are more numerous. It should be noted that the level of market saturation in the USA is lower than in Western Europe. This fact may be explained by universality and low cost of traditional landline telephone networks. Notwithstanding the fact, the companies of 2G level experience high competition, restricted opportunities for attracting new subscribers and have quite closed market, that is the one with considerable difficulties for entry.

On the other hand, the market of 3G operators is in its infancy, the operators are not numerous (White paper on UMTS 3G Market Forecasts, 2002) – today these are such companies as Monet Mobile, Leap Wireless, Verizon Wireless, Metro PCS, Sprint PCS, Cellular South, US Cellular, Kiwi PCS, and Alltel –but they are very powerful, rapidly developing and expanding. This market is open for entry for the firms with the similar operational standards.

After analyzing the target markets and the industry conditions, it is worth to pay attention to the technical side of becoming operator. Becoming an operator of mobile network in the first place involves technical issues of installation all necessary physical components of the network.

The components of the process of installing network are as follows:

  • Mobile network consulting (expertise, consulting, supervision and design services, and logistics), engineering (network planning, design, and site design), and implementation (turnkey project management, procurement of equipment, construction of infrastructures, training and maintenance)
  • Wireless communication infrastructures: network deployment (search and negotiation for acquisition of site, design technical files, equipment supply:; execution (towers and masts mounting, connection to electrical networks, installation of radio equipment); maintenance (preventive - inspection and updating of sites; corrective – appropriate logistics for interventions any time a week); optimization (site safety and modification, equipment replacement and upgrade); technical buildings (engineering and building of Master Switching Center, hydraulic cooling systems for transmitters); alternative energy (systems of emergency power generation and switching) (White paper on mobile infrastructure, 2002).

These are works and services which need to be done to install mobile communication network and infrastructure for its proper functioning. In regard of hardware to be installed on the process of launching the network, the following components must be purchased and brought into work: antennas, base station technologies and Signal Distribution; Billing, Mediation and OSS; Cables, wires and connectors; Electronic components; GSM gateways (in case of installation GSM technology), Fixed Cellular terminals and Least cost routers; Last mile access and Free space optics; Power supply and batteries and other components. Besides the hardware, the following services should be hired with the respective companies: installation, integration, optimization, maintenance, site selection and site survey.

Lessons learned

The material presented above, to have some practical value, should be integrated into the system of actions that should be taken to introduce new company offering telecommunication services on American market.

For that, all above gathered information should be summed up and presented in the form of business marketing plan outlining the issue, the peculiarity of the service to be launched and requirements as to the marketing and advertising policy in regards of this service. For this purpose, a detailed marketing plan is presented below (Pindyck, Rubinfeld, 2005).

Concept of the service

Concept of the service is mobile communications operator. If the operator was to be installed on the market of the developing countries, 2G technologies for the mobile network would be sufficient to provide the customers with the basic needs of communication. But since the customers of the United States are more demanding in terms of required services, definitely the new operator should be oriented at working on basis of 3G technology, either WCDMA or CDMA2000. Both technologies are promising and highly effective, but since the American market favors CDMA2000, the most probable variant is implementing this technology. Thanks to the techniques and equipment of the third generation, the operator, particularly CCI-owned company, will be able to not only offer its customers wide array of multimedia services at high speed and with high quality, but also save the costs for the construction and maintenance from 2 to 10 times.

Industry overview

The industry of mobile communications is by far the most dynamic industry in the world. There exist a number of mobile standards, such as GSM, CDMA, iDEN, D-AMPS and others. For the time being, GSM is the first and the only in the world genuinely global mobile standard. Today the services of GSM are offered by more than 500 operators around the world, with licenses in 170 countries of the world. In 1990 the number of mobile subscribers hardly reached 10 million, by middle 90s their number rose ten times, and by the end of 2001 it reached 1 milliard people, which accounts for the half of all telephone channels around the globe. This is unprecedented growth in the whole history of technology, surpassing electrical networks, radio, television and even Internet. For instance, in Taiwan, GSM penetration surpasses one telephone per person. On the other hand, in many developing countries mobile telephone, one for the whole inhabitants of the village, can be the only means of connection in their surroundings. Mobile connection penetrates even into places inaccessible for traditional telephone network PSTN (Public Switched Telephone Network). Not only it is highly competitive sector, but one of the most profitable business as well. Therefore, if the company succeeds in winning some part of the market, it can enjoy considerable profits.

Target Market

The target market of Colbert Communications is mobile communications sector of United States of America. This market is rather competitive, but, in contrast to European or Asian markets, is not fully saturated. There are some opportunities for the new companies to enter the market, but if the new companies operate on old technologies they are likely to lose the competition in the long-term perspective. Therefore the most chances have those companies who acquire new 3G technologies. 3G mobile market offers some definite advantages for the mobile services newcomers.

Competitors’ analysis

In the USA, there is a great number of firms that offer the services of mobile communication. In New York City for instance, the number of mobile communications companies surpasses 50. The most powerful American mobile companies have subscriber basis on the level of 40-50 million. Cingular, Verizon Wireless, Sprint PCS and T-Mobile are today’s leaders in the industry. There is also more than 10 companies in the USA which use most novel 3G technologies for their services. The mobile market in the USA is far from pure competition, but far from Oligopoly as well.

Competitive scenario of CCI Target Market

As it is seen from the analysis, though the solid competition on the market does exist, it is possible to enter it. To win considerable sector of the market, according to Michael Porter (2000), the firm should apply either of the following strategies: cost leadership or differentiation generic strategy. The first strategy is grounded on the idea that to win the customer’s support and enter the market, a company should apply most attractive price policy for the consumers. For example, a company can arrange a discounts or announce the level of prices lower than its competitors. Another, differentiation generic strategy, stands for offering a unique product which none of the competitors can offer. In telecommunication services this option is connected to the opportunities of 3G networks, since they are able to offer services which systems like CDMA or GSM were unable to provide. With this option, though it is not desirable, according to Porter, to mix these two strategies, the cost leadership can be combined with differentiation generic strategy, since the unique services provided by 3G systems are cheaper than traditional services.

Price strategies and Promotion Strategy

These two elements are heavily interlinked since they constitute the single strategy of the company’s policy (Pindyck, Rubinfeld, 2005): thus, marketing strategy of the firm can heavily rely on its price policy, if the company chooses to follow cost leadership strategy. In this particular case, the company should start with differentiation generic strategy and develop its network on CDMA2000 or WCDMA standards, and the benefits of these networks will include also decreased price for maintenance and offering the services. The issues of price and promotion strategy are dealt with by marketing and advertisement department of the company.

Stages of implementing the project

To launch the business of mobile connection operator, the company should, first of all, buy a license for transmitting on certain frequencies from government; then in should hire the services of the firm specializing at installing mobile communications network and infrastructure, purchase the site, engineer and construct the network and relevant infrastructure. The firm may either build its own infrastructure, such as base stations, antennas, or hire it from the other operator, in that case, it will be called a virtual operator”. After completion of physical stage of launching the project, the stage of advertisement the new company should be launched. An advertisement campaign should be carried out in such a manner to attract the largest possible scope of customers (Pindyck, Rubinfeld, 2005). On this stage, the process of preparation can be considered complete.

Project cost

It is hard to precisely calculate the cost of the project since the majority of mobile operators chose to keep the cost of their equipment in mystery.

Though, the author managed to find a reliable source of information - a White paper on mobile infrastructure http://www.3gnewsroom.com/html/whitepapers/index.shtml - which gives a detailed info on the cost of construction of 3G site and all necessary maintenance. It gives an example of the AMENA contract in Spain, which reveals the actual price of WCDMA radio equipment from the world’s first suppliers such as Siemens/NEC and Ericsson. The investment costs per subscriber make up about 400 euro, provided that the usage of the network triples and factors of the efficiency stay unchanged. According to the white paper, “typical learning curve effects and benefits of economies of scale should bring costs down to GSM levels (¤100) by 2004-2005”. Therefore, the cost of construction WCDMA network looks in the following way (White paper on mobile infrastructure, p.92):

Factor Per user cost ($)
Radio network 450
Backbone 150
Civil engineering (costs vary) 320
Total cost 920

CDMA2000 networks are priced nearly the same. If the construction of the network costs 650 euros, or 880$ per user, the construction of the network for 50,000 subscribers would cost 48 million, that is nearly 50 million US dollars. It should be noted that the cost of license (which may equal several dozen million dollars), and maintenance of the network are excluded.

Conclusion

In the current paper, all aspects of installation of the mobile network and launching new business of mobile services were analyzed. It is seen from the analysis in the paper that the undertaking of that kind requires solid investments, but in the end they will be rewarded by revenues surpassing the initial investments up to ten times.

References

CIA World Factbook, 2005 < www.cia.gov/cia/publications/factbook/>

Pindyck, R.S., Rubinfeld, D.L. Microeconomics. 6th edition; Prentice Hall, 2005

Porter, M. Competitive Strategy: Techniques for Analysing Industries and Competitors. Princeton Hall, 2000

The CDMA2000 World Review by CDMA Development Group; CDMA Development Group Volume 2, Issue 3 November 2004, www www.cdg.org.

The real digital divide. Economist 20 March 2005, http://www.economist.com/opinion/PrinterFriendly.cfm?Story_ID=3742817

Tonelli P.White Paper on Evolution to 3G/UMTS Services. Nov 2002. UMTS Forum Operators Group. ;

White House Council of Economic Advisors' Study on the Economic Impact of Third-Generation Technology: http://www.wireless.co.il/whitePapers/3geconomic.pdf;

White paper on mobile infrastructure. Dresdner Kleinwort Wasserstein, 2002http://www.3gnewsroom.com/html/whitepapers/index.shtml,

White paper on UMTS 3G Market Forecasts, Rysavy Research Group., Mar 2002

http://www.3gnewsroom.com/html/whitepapers/2002/report18.zip

Sample subject:
Business
Sample type:
Research paper

Related samples

Everyday Use by Alice Walker

Literature Research paper

Colors by Kambon Obayani

Literature Research paper

The Seminoles Today - Research Paper

World Cultures Research paper