【正确答案】Introduction 2Tel is one of the largest network operators in the world. It is aware that licences for providing mobile networks in TheFederated States (TFS), a densely populated country with 70 million people, are due for renewal in three years’ time. Itis currently evaluating whether it wishes to bid for one of these licences, either in its own right, or through the prioracquisition of one of the current licensees. It has commissioned this briefing paper into the business environment which the current licensees operate in. Thisbriefing paper begins with an analysis of the wider macro-environment of the industry, using a PESTEL analysis. Thepaper then considers the competitive forces within the industry using aspects of Porter’s five forces framework. The briefing paper concludes with, as requested, a summary of the opportunities and threats which 2Tel should considerbefore it decides to enter this market. Political perspective Licences are granted by the government for eight years and so it may, at first sight, appear that licence allocation is animportant political factor in the mobile network industry. However, the previous government effectively de-politicised theawarding of licences by defining selection rules based on certain minimum criteria (for example, financial andenvironmental criteria) and the size of the bid. The licences are awarded to the four highest bidders who fulfil theminimum criteria. So, the current performance of licensees is not currently taken into account in the bidding process.This has implications for 2Tel. From a political perspective, there is no particular benefit to be gained by bidding as acurrent licensee. The praise of Ofnet and the gratitude of the government for the network operators’ phone and messageinformation used to convict offenders in the recent riots count for nothing in the selection process. At present, under thecurrent rules, 2Tel has as much chance of winning a licence in its own right. Indeed, this is reflected in Professor Tan’sresearch and his suggested bid success probabilities. However, it has to be recognised that the selection criteria are politically decided and so there is a possibility that thecurrent government will change the selection rules before the licences come up for renewal. Issues with the currentscheme have already been recognised and it has been agreed that companies who fail to retain their licence will be paidan exit fee of $100m. This will mean, for example, if 2Tel wins one of the licences in its own right then it will have tocompensate the company which has lost the licence. Thus there will be a $100m fee for new entrants, which isadditional to the bid for the licence. Furthermore, a possible change in selection rules raises at least two issues. Firstly,the government could change the rules so that incumbent licensees were favoured (as long as they have performedeffectively) and so there would be a benefit to be gained from acquiring a current licensee. Again, this has beenrecognised in Professor Tan’s research and his allocation of bid success probabilities. There appears to be some supportfor this change of rules within the government. One government minister has suggested that ‘the help provided to us (bythe network operators) during the recent riots, should be acknowledged in some way’. Secondly, in an attempt to raisemore money to address the national debt, the government could decide that more than four companies should belicensed in the future, increasing competition in the sector and raising more income for the government. This might affectthe profitability of the existing licensees. A very significant political issue is the presence of a regulator (Ofnet) in the sector, who particularly focuses on pricing,service availability and service transfer. The prices of all the four licensees are negotiated with the Ofnet regulator and,consequently, the prices of all four networks are very similar. Ofnet also requires the four licensees to have arrangementsin place which allow customers to easily transfer from one network to another. Ofnet has generally praised theperformance of all four licensees, except in this last area. It has suggested that it is still too difficult for customers tomove network provider, and it intends to bring in regulations which make it easier. Fines will be imposed on networkswhich do not follow these regulations. The powerful role of the regulator is of particular significance to 2Tel. 2Tel hastraditionally operated in countries where there is little or no government regulation of network operators. In these marketsprices can be largely determined by the company itself, free from external influence. Technology of mobile networks Two aspects of technology are important to licensees operating in TFS. Firstly, innovations in mobile telephonetechnology are very important to the network licensee because, as well as encouraging the use of the network, newproducts also tend to make greater demands on those networks, in terms of speed and bandwidth. Thus there is needfor continual investment in the network. Secondly, this investment includes a need to continually review the technologyand configurations available for constructing and supporting the network itself. There is a need to invest in newtechnologies and technical configurations which offer greater speed, reliability and, if possible, lower costs. However, ithas to be recognised that both of these technology factors are not unique to TFS, and are likely to be even moresignificant in markets which 2Tel is already competing in. Sociocultural and economic considerations The possession of a state-of-the-art mobile device remains an important status symbol in TFS. Having the latest featuresand applications is important to people and so devices are regularly upgraded, hence having features which placesignificant demands on the network, as discussed in the previous section of this report. The role of the mobile phone network in assisting organised crime and civil disobedience has posed dilemmas for thenetwork operators. On the one hand, they have been praised for their good citizenship in passing relevant information to the police. However, on the other hand, they have been criticised by civil liberties bodies for making this informationavailable. An influential newspaper, whilst recognising the contribution of the networks to apprehending offenders, alsocriticised them for not withdrawing the networks at the height of the riots. ‘Instead of helping catch offenders, thenetworks, by making their services unavailable, might have prevented the offences in the first place.’ 2Tel has to beaware that TFS is an increasingly socially fragmented country with vocal minority groups representing a wide range ofpressure groups and communities. One of the licensees is currently subject to legal action where people are suing the company for releasing information tothe government. The company, and the information it holds, is subject to the Data Protection Act, which exemptsinformation held to prevent or aid the detection of crime, but lawyers for both the company and the offenders areconfident of success when the case comes to court. The election of the current government was prompted by a belief that its policies would address the five years ofeconomic decline presided over by the previous government. In general, the population is suffering from highunemployment, static incomes and, more recently, increased taxes and removal of benefits (this measure provoked theriots already discussed) imposed by the austerity government. However, these economic problems do not appear to haveany discernible effect on the use of mobile devices. During this five-year period of decline, the use of the mobile networkshas increased significantly. This may, of course, be partly as a result of the regulator, who can reasonably be assumedto exerting a pressure to keep prices low. However, it must also be some reflection of the importance which thepopulation as a whole places on mobile phones and being able to make mobile calls. It is seen as a necessity, ratherthan a luxury. Legal and environmental issues Reference has already been made to the Data Protection Act (sociocultural) and regulation from Ofnet (political). TFShas many laws which are enacted within a complex and expensive legal system. Employees are expensive to employand are difficult to dismiss. Furthermore, legal outcomes are difficult to forecast due to the unpredictable conduct ofjudges. Like all companies operating in TFS, the network operators are expected to comply with environmental regulations.However, environmental issues are more an issue for the mobile phone manufacturers and the environmentally-friendlydisposal of these mobile phones is an ongoing problem for the manufacturers, but this is not a problem for the networkoperators.

【正确答案】Importantly, from a Porter’s five forces perspective, there is no threat of new entrants into the industry during the licenceperiod. However, at the end of the licence period, anyone who meets the bidding criteria can potentially be allocated alicence and enter the market place. So, the licences are an effective barrier to entry during the licence period. At biddingtime, it is access to capital which forms the largest barrier to entry, as the success of the bid (at present) is largelydetermined by the size of the bid. This access to capital is particularly significant to potential new entrants as they willpotentially be required to pay a $100m entry premium. Again, from a five forces perspective, the policy of Ofnet to make network transfer relatively easy theoretically increasesthe bargaining power of customers, and this should exert a downward pressure on prices. Customers are tied into annualcontracts, but it should become increasingly easy for them to transfer supplier with no switching costs. At present,evidence suggests that few customers do actually change operators. This may be because of the difficulty of switching(which is the view of the regulator) or it may be because no great price advantage can be gained by switching provider.Evidence suggests that most move due to poor service or poor reception in their geographical area. The fact that mobilecharges are so similar between the four rival companies (mainly due to the regulator) means that there is little incentiveto move on price grounds Porter’s five forces framework has competitive rivalry at its centre. When considering competitive rivalry within theindustry, there are certain factors which should contribute to vigorous competition; for example, low switching costs andundifferentiated products. However, competition is limited to four similar size companies competing in a growing marketplace which is subject to price regulation. Competition on price grounds is very difficult because of the activities of theregulator, who is keen to satisfy the government’s wish for no supplier to dominate the market. Thus competitive rivalryis restrained and, to some extent, controlled and competition is based largely on coverage, service, and brand image. Itis likely that if one supplier did begin to dominate the market, then the regulator would impose rules to re-balancecompetition. At present, it is difficult to envisage any threat of substitute products to the mobile networks. Even the threat of ‘doingwithout’ seems unlikely, given people’s increased dependence on the mobile phone.

【正确答案】The conclusion of this briefing paper is, as requested, a summary of the opportunities and threats associated with this market. Opportunities The relatively imminent re-licensing of mobile networks provides a significant business opportunity. This business is thenlargely protected (within constraints imposed by the regulator) for eight years. The licences provide an effective barrierto entry. Despite the economic decline of the country, sociocultural trends suggest a buoyant demand for network services. Asmobile products become more sophisticated, it seems reasonable that this demand will continue to increase for the foreseeable future. There appears to be very little threat of substitutes to the mobile network and people are reluctant to‘do without’. The current licensees acknowledge that technology has to be continually updated. 2Tel is an acknowledged technologyleader with expertise in markets which are, at least, as demanding. Threats There is a concern that the government will change the licensing bidding criteria, to favour incumbent licensees, beforethe next granting of licences. This would be a threat to 2Tel’s chance of entering the market in its own right. The market is highly regulated and pricing has to be agreed with a regulator. 2Tel is inexperienced in working in suchan environment and it may be seen as a threat to 2Tel’s independence and also to its long-term profitability. The legal framework in TFS is burdensome and legal outcomes are, to some extent, unpredictable. Threats of legal actionand the effects of social disruption may lead to 2Tel to conclude that TFS is not a particularly attractive market to enter.There are threats associated with political interference, public criticism, legal action and legal compensation.

【正确答案】Scenarios Developing scenarios is particularly appropriate where there is a high level of uncertainty and so it is impossible to build asingle view of how environmental influences might affect an organisation’s strategy. The case study scenario is dominated bytwo very significant environmental factors. The first is the bidding rules for the mobile technology licences. These rules aredecided by government and current rules do not favour the current licensees. However, there is evidence that the governmentis moving its position on this and it has already introduced one measure which will help current licences, the payment of a$100m exit fee to licensees who fail to get their licence renewed, to be funded by an extra entry fee by the successfullicensees. The other factor is the price which competing companies are willing to pay for the licences. 2Tel wishes to evaluate the two options of bidding for a licence. The first option is to acquire T-Me, one of the currentlicensees. The second option is to bid directly for a licence. It wishes to consider four scenarios. (1)Acquire T-Me and then failing to gain a licence. (2)Acquire T-Me and then gaining a licence. (3)Bidding directly for a licence as 2Tel and failing to gain a licence. (4) Bidding directly for a licence as 2Tel and gaining a licence. Buying T-Me Buying T-Me offers a number of advantages: (1)If bidding rules are changed to favour current licensees, then 2Tel (through T-Me) has a better chance of being granted a license. Research by Professor Tan shows that in countries where current licensees are favoured, then a currentlicencee has a 0·6 probability of being granted a licence, compared with probability of 0·2 for new bidders. (2)T-Me has experience of the bidding process in TFS. It has been suggested that the cost of putting the bid together (bid cost), will be half that of a new inexperienced bidder. (3)T-Me is experienced in working in the TFS culture and with the people of TFS. It is a country which is heavily regulated and T-Me has worked effectively with the industry’s regulator (Ofnet) over the period of this licence. 2Tel does not haveexperience of operating in a heavily regulated environment. Its main networks are in countries where regulation is weakor non-existent. (4)There are short-term opportunities for improving the financial performance of T-Me. 2Tel has suggested that it can raise net profit to $100m per year in the final two years of the contract. This appears to be a very reasonable target. Thefigures in Table One suggest that T-Me’s net profit margin is currently 11·42%, the lowest of the four competingcompanies. A net profit of $100m (on current revenue) would bring the net profit margin up to 14·29%, still below theaverage industry performance of 14·7%. 2Tel has been informed that they may be able to acquire T-Me for $400m. Their research (conducted by Professor Tan)suggests that the next eight-year contract can be won for $550m and that a net profit of $120m can be driven out of thecompany for the next eight years. Here is an analysis for the two scenarios which require the purchase of T-Me. All figuresare in $million. (Note 1) Assumes exit at the end of the licence period and that this exit income is still at current levels. Bidding directly for a licence Bidding directly for a licence has a number of advantages: (1)If bidding rules are not changed, then 2Tel has the same probability of successfully gaining a licence as T-Me. (2)One of T-Me’s competitors is currently in a legal dispute concerning the disclosure of information to the government. If they lose this court case (and many anti-government judgements are being made at present), then successful claimsmay be made against the other network operators. Bidding directly for a licence avoids any potential legal costsassociated with contesting claims and compensating potential claimants. (3)It avoids the cost of purchasing T-Me. There are likely to be significant costs associated with performing due diligence on T-Me and negotiating and finalising the acquisition. (4)It avoids having to impose organisational change at T-Me in an attempt to drive out short-term improvements in net profit. 2Tel has estimated that it can increase net profit to $100m per annum. It does appear to have a successfulacquisition record, but it also has to be recognised that there is significant evidence to suggest that planned performanceimprovements in acquired companies are often not realised, particularly in the short term. Here is an analysis of the direct bidding scenarios. (Note 1) Assumes exit at the end of the licence period and that this exit income is still at current levels. Analysis From the perspective of risk aversion, the bidding directly for licences appears the best option. Potential losses are minimised($20m, compared to $110m) and potential returns maximised ($390m compared to $300m). If expected values are usedwhich represent the current bidding rules, then this conclusion remains valid. The buying option has a net expected gain of $54, compared to a net expected gain for the bid option of $144m. However, if the bidding rules are changed to favour the incumbent, then the buy option has a greater expected return ($136m compared to $62m).