Prepaid Cell-Phone Industry Analysis
Introduction
Industry analysis is a tool used to facilitate a specific company’s knowledge and understanding of its position relative to other companies providing similar products or services. This understanding is of the essence in strategic planning since it enables small business owners to identify the opportunities and threats facing their businesses. This essay paper will give a detailed analysis of the prepaid cell-phone industry based on Porter’s five forces of competition
Discussion
Market Size
The cell phone industry is among the fastest growing industries other than the Internet. Prepaid cell phone market has expanded globally for instance since 1994, the cell phone industry in the United States has increased from 25 million to about 185 million users. The ever emerging technology and innovation in improving cell phones has made the cell phone market to rapidly increase (Hill and Jones, 2009).
Competitive Rivalry
The prepaid cell phone market is highly concentrated. Due to the fact that the start-up costs of a prepaid cell phone service provider are very high, the threat of new entrants is quite low. It is essential to invest a great amount of money in order to attain the economies of scale. Moreover, it is challenging to enter the market when the existing firms are operating on differentiation and cost strategies (Hill, 2009).
Power of Buyers
A report from the Florida PIRG Education Fund revealed that customers were greatly hurt by early termination of cell phone fees. Hence, it is evident that most of the prepaid cell phone users will switch carriers if only they did not have to pay contract termination penalties. Hence, consumers or buyers have little bargaining power in the prepaid cell phone industry (Saxena, 2005).
Power of Suppliers
Prepaid cell phone providers provide so much volume orders that suppliers have to be careful not to interfere with their relationship with the providers and hence end up being in a low bargaining position. There is increased pressure in the suppliers’ end due to demand for prepaid cell phone handsets with more features. A good example is the T-Mobile carrier, which staged an online bidding war which led to six suppliers bidding against one another for a contract to come up with cell phones for a specific handset segment (Saxena, 2005). Hence, this trend prevents building of trust between prepaid cell phone suppliers and the operators hence, preventing innovation from being valuable to the cell phone industry.
Threat of Substitutes
One of the key points that may present threat in terms of substitutes is the fact that some cell phones have GPS Positioning which may be coupled with accelerometer positioning in future. Hence, this technological advancement may substitute prepaid cell phones. Active research is underway and some operators are upgrading their networks to 4th generation services (Hill, 2009). It is therefore to consider these threats in course of starting the prepaid cell phone venture.
Threat to barriers
The main threats to entry of the prepaid cell phone products and services into the market is the merging of several cell phone companies in the U.S For instance, Nextel and Sprint communication merged to create a carrier augmented by a global IP network. This network provides businesses, consumers and government customers integrated communication services. Hence, this merges can pose a great threat to entry of a new prepaid cell phone provider (Saxena, 2005).
Conclusion
The cell phone industry including the prepaid cell phone industry is increasing rapidly with advanced technology. There is also increased market competition due to the fact that the same products and services are provided with different physical attributes and different costs. Hence, companies within the industry are striving to attract customers by lowering costs and improving products.
References
Hill, C., & Jones, G. (2009) Strategic Management Theory: An Integrated Approach
(9th Ed) Cengage Learning
Saxena, R. (2005) Marketing Management (3rd Ed) Tata McGraw-Hill.
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