Business / Sprint Strategy

Sprint Strategy

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Autor:  anton  12 November 2010
Tags:  Sprint,  Strategy
Words: 2866   |   Pages: 12
Views: 489

Competition and Analysis

The Strategy Analysis of Sprint:

Looking Into Its Future

A Look at Sprint

Sprint is an integrated global communications company that is focused in the US market. In 2003 Sprint earned 26 Billion in revenues with 26 million customers in 100 countries. Sprint is recognized as developing, engineering, and deploying cutting edge network technologies such as the US’s first all digital, fiber optic network. Sprint currently has three main divisions: the long distance division which offers phone and data services throughout the world, the PCS division that provides wireless phone and data services to customers in the US and Puerto Rico, and the Local Distance Division (LDD) that offers local telephone service to clients in 39 states. Sprint is generally ranked third in the communications industry behind AT&T (who holds significant market share) and MCI. Sprint is the fourth largest wireless phone service provider.

Industry Analysis

Sprint currently operates in two different industries: the traditional telecommunications industry and the newer wireless phone industry. The telecommunications industry provides traditional voice services (local and long distance), data networking services (technologies that provide private networks - Private Line, Frame Relay, and VPN), and Internet. The wireless industry is comprised of companies that offer wireless phone services with other value added features such as Internet, Voice Mail, Walkie Talkie, music, etc… It is important to make the distinction between the two industries now because the conditions of each are different. The first tool I will use when looking at the telecommunications and wireless industries is Porter’s five forces model with the addition of analyzing complements.

Suppliers

The suppliers of networking and phone equipment now have little bargaining power. The main reason for this is that the technologies are based on open standards, commonly known in the industry as protocols. This means that most types of equipment can easily be replaced and/or connected to different types of equipment. In regards to data networking equipment, Cisco has long been the market leader. Their position is being challenged by Juniper Networks. Margins on network equipment of any type have been razor thin since 2000. The net effect is that the suppliers of networking and phone equipment have low bargaining power. Other suppliers of telecommunications are companies that have a monopoly of a certain market. This means that a certain company is the generally the only company to have a complete infrastructure built in an area. Mostly these companies are the traditional bell companies (aka RBC’s – Regional Bell Companies) that supply the ‘last mile’ of service from a common meeting point in the city to the customer’s doorstep. Qwest (US West), Bell South, and SBC (Pacific Bell) are examples of Regional Bell Companies. These companies are the only significant players in those markets and are regulated by the government to control prices. They have bargaining power in those markets and will continue to have that power until other companies build infrastructure in those areas or deploy new technologies to by pass the traditional ‘last mile’. Suppliers of mobile phone services have a little more bargaining power than the suppliers of communications components, listed above. Some suppliers differentiate themselves with different types of features such as “Push to Talk” with Motorola and integrated Palm devices deployed by Palm and Qualcomm. Most of the standards are still open thus limiting the bargaining power of the suppliers to the mobile phone service providers.

Potential Entrants

There is little threat of new entrants into the telecommunications industry. The cost to build a network requires are large amount of capital investment. These networks are very complex because not only do they have to cover long distances in the U.S., but also connect intricate metropolitan areas where roads and buildings make it impossible to lay fiber optics. A company can bypass this step by negotiating an agreement with the local service provider, generally a traditional RBC’s, but the local providers generally have a lot of bargaining power and are highly bureaucratic. These factors produce a large barrier to entry into the traditional telecommunications market which, at its basic form, is more of a commodity. The margins for telecommunications companies have dropped since 2000 as well. Potential entrants face the same high barriers to entry in the wireless industry. Cell phone networks must be established over large areas requiring thousands of cell phone towers and connectivity to each tower. The amount of capital and declining margins keep new entrants from coming into the market. Even though many new wireless providers entered the young market in the 90’s, a trend of consolidation has occurred since.

Buyers

The bargaining power of buyers of telecommunications services is very high. The primary reason is that the traditional services have become a commodity. This seems blasphemous for me to say because a year ago I was designing customized networks to business customers, trying to justify the value of unique solutions to my customers. These products are becoming commoditized though. Each of the major players sell the same services: Local and Long Distance, private network solutions (Frame Relay, ATM, Private Lines) that connect a business’s local computer networks together, Internet services, some form of IP (Internet Protocol) based VPN (Virtual Private Network), and Voice over IP services. Buyers can pick and choose between the best deals at that time since all of these services provided by the telecommunications carrier have roughly the same services and features. Some buyers even pit the communications companies against each other, which I have seen first hand.

Substitutes

The products that are sold by service providers are very substitutable. The products in each portfolio can be substituted with each other. Voice over IP is replacing traditional voice networks in many situations. Old Frame Relay networks are being replaced new innovations of the IP networks (the Internet). These innovations also allow for different locations to be substituted. This means that, where traditionally all locations in a network had to be provided by one carrier, now each location can have service from different carriers. For example the headquarters of a company could have Internet service from AT&T, have a virtual PRIVATE connection (VPN) over the Internet to a regional office with service from MCI. The carriers can also be replaced by Satellite companies and wireless optical networking gear. The services that wireless companies provide are readily substitutable between each other as well. There are some features that differentiate companies such as Nextel’s “push to talk” feature, coverage in a certain area, and newly developed data and internet services.

Complements

One advantage that telecommunication companies enjoy is that just about every business needs to communicate. In fact, the one marketing drive by Sprint’s data communications division, my division, was “Business Runs on Data, and Data Runs on Sprint”. Why is this important to the topic of complements? It is because there are many, many complements to the services that the carriers provide. Examples of complements are: Internet hosting services with Internet Service, Application Service Providers (ASPs) and electronic storage providers with data networking services, call center outsourcing services with voice and data services, and even adult chat companies with voice and data services. Complements to the wireless industry are growing and will be just as numerous. These include wireless application providers, music ring tones, camera phones, and Palm organizers that are integrated with the mobile phone.

Key Success Factors

Telecommunications

• Network Infrastructure

• Price competitive

• Quality

• Service

• Innovation

• Convergence

o Combining Voice and Data services

o Combining wire-line and wireless services

• Government licenses

• Adhere to government regulations

• Relationship with RBC(if a long distance carrier, opposite for RBCs)

• 911 and emergency services

Wireless

• Coverage

• Quality

• Innovation

• Service

• Infrastructure

• Network capacity

• Government licenses

• Agreements with mobile phone manufactures

• Price competitive

• Relationship with telecommunications company

• Adhere to government regulations

• 911 and emergency services

Value Chain

Sprint’s Telecommunications services

The value chain for telecommunication and wireless services are detailed below. The activities that Sprint participates in are bolded and in red text.

Networking Equipment, Cable (Electric or Optical), Installation of backbone network, Local and Long Distance service, data services (including Internet), marketing/sales channels, network design, network implementation, consulting services, after purchase support

Sprint’s Wireless services

Customer equipment manufacturer, transmitter/receiver/repeater provider, cell tower provider, value added features provider (voicemail, ring tones), cell phone service provider, marketing channel, distribution channel, after purchase support

Competitive Advantages

1. Engineering centric – Sprint is known is an engineering centric company and has a very strong Global IP Network and Wireless CDMA voice and data network. These products are designed better than other companies and well tested before they hit the market. This allows Sprint to offer the highest levels of quality in the industry

2. Growth through well planned, innovative strategies – Sprint was the first company to install a nation wide, all digital, fiber optic network. Sprint was also the first company to implement a global homogenous IP network (Internet). Other companies have grown through mergers and use different types of equipment and administration systems which can cause interoperability issues. Sprint was the first company to implement a fully CDMA wireless network allowing them to enhance the whole network at one time when implementing improvements. One key enhancement being the addition of 3G, which enabled them to offer network wide Internet and data services. All other companies have had to make these upgrades one area at a time. This competitive advantage allows Sprint to be a highly innovative company.

3. Personal service - Sprint has large sales teams that connect with clients and potential clients at multiple levels (VP, Director, Manager) to leverage Sprint’s products and develop long lasting relationships. This philosophy is also used on the retail customer side of the business by staffing sufficient service representatives and outsourcing for service levels that can’t be attained internally.

4. Convergence- Last year Sprint began a company wide initiative towards convergence. Convergence means multiple things in this case. For one, it means the consolidation of duplicate and overlapping business units and groups within the organization. It also means combining separate products and repackaging them. One example is combining phone service and data service. Phone service is remarkably cheaper when it is provisioned over a data network. Another example is the combination of the traditionally separate wire-line and wireless products. The details of this solution is complicated but the result is a repackaged product where the consumer has a mobile phone, Internet access, organizer, and access to a company’s applications, all in one solution. This also increases the value add and helps move the business away from a commodity. It also distances the consumer from the knowledge of networking components and prices of those components. This keeps the customer ignorant of what’s behind the curtain and returns some of the buying power to Sprint.

The Future

In my opinion, Sprint is a strong company and has a successful strategy in place to grow and improve its position in the new communications industry. In December of 2004, Sprint announced a merger with Nextel. At first I was unsure if this was going to be a good thing for my old company; a company that I had invested a lot of blood, sweat and tears in. Then I went through the steps of analyzing the industry, the company, and its strategy. I believe the merger and the strategy for the new company, Sprint Nextel, will lay the ground work for success as mentioned above. Sprint’s strategy is to be “America’s premier communications company -- a leading wireless carrier augmented by a global IP network that will offer consumer, business and government customers compelling new broadband wireless and integrated communications services”.(http://sprintnextel.mergerannouncement.com/?refurl=uhp_globalnav_merger, www.sprint.com, 2005) The claims I have made are supported by the evidence that follows. I structured this evidence by using the framework in chapter 17 of Grant’s book Contemporary Strategic Analysis: Fifth Edition. Sprint will successful achieve its goals because it is returning back to the basics of business, it is a dynamic organization, it has reorganized itself to become more adaptable, and it has organized inter-firm and inter-company relationship networks.

After the period where companies focused primarlily on shareholder value and the inflation of stock prices, Sprint has refocused its strategy on its sources of profitability and new sources of competitive advantages. Sprint has eliminated the redundancies between the traditional wire-line and wireless portions of the company. Some redundancies that were eliminated were within the sales force, the customer support groups, the implementation groups, and in management. Sprint has refocused on its capabilities and strengths: Global IP services and Wireless services. Its legacy Frame Relay and ATM will be deemphasized and maintained for special customers (government). The Sprint datacenters (for web hosting and co-location) have been sold to Hewlett Packard. When the merger is complete, the local telephone division will be sold.

Sprint has constructed itself as a dynamic organization that is able to adapt to rapidly changing environments. Sprint has done this by converging the traditional, wire-line long distance division with the newer wireless division thus opening opportunities to sell new types of products. With the increase in bandwidth available using wireless technologies, Sprint could eliminate the need to use RBC’s ‘last mile’ when selling communications. This would change the competitive landscape of the whole industry and give it a competitive advantage. A complete, strong wireless network combined with a global voice and data network is unique in the industry. Since AT&T and MCI have sold their wireless companies, Sprint and Verizon stand alone as the only two companies with these assets. Both companies achieved this through merger however the merger with Sprint and Nextel is a better complement because the wireless side of the business can replace the ‘last mile’, which was one of Sprint’s weaknesses before. Verizon has a substantial local (‘last mile’) presence in the US, especially in the east. Their weakness is that they do not have a strong global voice and data network. This weakness has not been addressed yet.

Sprint has also employed new techniques of building personal networks and relationships. Sprint staffs each business sales office with different specialists in order to establish inter-company relationships with its business customers. This helps to leverage Sprint’s products within that client. For example, I worked one day a week at one of my largest customer’s headquarters. During that day I was part of their team, strengthening the relationship, and sharing in the problems and successes.

Conclusion

I must admit that I really enjoyed my six years at Sprint. It was the first company that I worked for after college and it has given me a strong base in which to build my career on. Even though it may seem that I am biased, I believe Sprint is a strong company and has a successful strategy in place to grow and improve its position in the new communications industry. This belief was strengthened when I looked at the different forces that are impacting the industry and thought about how the company is responding. The key success factors were then identified. The value chain was broken down to better understand the different components of the services and to help me look at the appropriability of each object. The core competencies helped illustrate how Sprint is competing and transitioning to a new plan for the future. Now this plan is laid out and the evidence is on the table that supports its success.

Appendix A - Pestle notes

PESTLE

Political-

Sprint has a solid relationship with the US government. It was awarded a significant portion of the FTS 2000 contract which enabled them to provide service to the US governmental agencies. Sprint also owns all the necessary licenses including the 1.9GHz/CDMA wireless frequency.

Economic- This industry has severely been affected by the .com bubble bursting. Sprint’s revenues have dropped our remained consistent since 2000 and have had severe employment reductions. Sprint is not the low price leader in the industry which makes it increasingly difficult to operate in the recessed economy.

Social-

People are continually relying on communication services to stay in tough with family and friends, using the internet, working remotely, becoming accustomed to the convenience of cell phones

Technology-

Technology is advance to provide more bandwidth, faster services using the same infrastructure. Technology is really affecting the wireless business with new products and services such as Internet to Mobile phone, Wireless Applications for businesses, and the ability to fit more conversations in a fixed amount of frequency spectrum.

Legal-

Sprint attempted to merge with MCI in 1999. This was blocked by the SEC. Sprint is now merging with Nextel and will most definitely have legal issues to work through. One being the fact that they will have to sell the Local Distance Division (LDD).

Environmental-

Sprint’s network is build under rail road tracks across the US. This generally has little impact on the Environment. There are studies that are concerned about Mobile phones causing brain damage. There is no solid evidence to support this yet.



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