Omnitel Pronto Italia

CASE OVERVIEW

Omnitel entered the Italian telecommunication market in February 1995. Till then the Italian

telecommunication market was dominated by Telecom Italia Mobile which had a monopoly in

this market.

The rst private company to enter the Italian telecommunication market was Omnitel. This

was facilitated by the decision taken by the European Commision (EC) in 1993 that all member

states should open their markets and guarantee competition in the telephony market by January

1998. Omnitel had to purchase a license for the GSM network for 760 million dollars.

Currently the biggest competition for Omnitel is Telecom Italia Mobile (TIM) which was formed

in July 1995 and was listed in the Italian stock exchange after splitting from its parent company

Telecom Italia. TIM had a customer base of over four million and held 97% of the market share.

STRATEGY TO OBTAIN MARKET SHARE

Omnitel is at a critical stage at this point unless penetration in the market is achieved prospects

for growth are limited. During the initial six months Omnitel oered plans similar to TIM and

focused mainly on high quality customer service. This was the only dierentiating factor between

Omnitel and TIM.

By means of a market survey conducted it was found that a large share of mobile phone users

were reluctant to change brands. Unless new revised plans and schemes by Omnitel were oered

the company would not appear attractive to prospective customers.

Two high level management executives of Omnitel were of diered viewpoints. Fabrizio Bona the

Marketing Director of Omnitel proposed the idea of LIBERO, which eliminated the monthly fee

completely and making payments for only the time duration of the calls made by the customer.

At the same time Francesco Caio, CEO of Omnitel was of the opinion of oering customers

handset subsidaries in exchange for signing a contract with the company. This would be done

as a substitute to eliminating the montly fee charged to its users. He was of the opinion that by

doing this he would be able to guarantee

a constant revenue scheme from the monthly fees. Such

schemes had worked elsewhere in Europe.

ALTERNATIVES AND THEIR SWOT ANALYSIS

Subsidized handsets with contracts

In this plan we provide the customers with a handset at lower than market rate (in addition to

the usual call plan).

* Strengths:

 Proven Strategy in the other European markets.

 Tested and proven in several other countries.

2

 A decrease in cost of handsets might entice customers- subsidies lead to a fall in the

price of the handset, thus decreasing the initial cost of acquiring a connection for a

customer.

 Constant Revenue stream for the period of the contract- this guarantees constant

monthly subscription fees irrespective of the usage thus ensuring a xed revenue from

every customer.

 Initial cost of acquisition is low hence this might be more attractive to the low income

groups thereby increasing our market penetration.

* Weaknesses:

 Not suitable for Italian market because Italians being very brand conscious might

consider a subsidized handset below their status.

 People are unhappy with xed charges and in this plan - here we have two xed

charges i.e. the connection charge and the monthly subscription charge.

 Customers seek a sense of exibility & freedom in any purchase, therefore being locked

in a contract might be a deterrent to their purchasing decision.

When I rst signed up for a cellular phone, I got the phone for free but I had to

sign a contract for a year, which seemed alright at that time. But I was shocked

to see my bill at the end of the rst month. It was so very high. It included the

connection fee, the activation fee and the monthly fee. I felt duped because of

all these other charges. I discontinued the service as soon as the contract was

up?- Previous cell phone customer.

 Increase in Customer Acquisition Cost - As company has to bear the cost of providing

subsidies on handsets for this plan, the overall cost of acquisition per customer rises

signicantly.

* Opportunities:

 First mover advantage might give us an upper hand in acquiring market share which

the competitor might struggle to cope with in the short run.

* Threats:

 Italians still consider mobile phones a status symbol viz. a viz. a utility.

The cellular phone was a possession that was both expensive and exclusive.

Something that only people of a certain stature had the right to own.

 Due to a shift in the business plan, the company