Kelsey Andersen

Ryan Billdt
Eva Collins
Tyler McCurry
Colin Swanson
BUSA 449 - 03

Analysis of the Diversified Communication

Services Industry

Industry Life-Cycle

The Diversified Communication Services industry specializes in the

development of wireless communication technologies. Firms in Diversified
Communication Services industry have prolonged the life-cycle of their industry by
incorporating more and more technology into their products. This continuous
inclusion of new technology has lead to the advent of the Smartphone. Relatively
new entries into the cellular phone market such as Apple, Research in Motion, and
Google have specialized in this new technology. The ease of entry demonstrated
by new competitors is an indication that the Diversified Communication Services
industry has entered the Maturity stage. This is due to the fact that the maturity
stage is generally indicated by the appearance of new competitors with similar
products (QuickMBA, 2007). Another sign that the Diversified Communication
Services industry has reached the maturity stage is the fact that sales growth has
been slowing and is predicted to continue to decrease. According to an industry
analysis by Standard and Poor’s, the number of wireless hand-held communication
devices sold in 2008 had risen by 9% from the previous year. This number is
predicted to continue to decrease to 7% from 2008 through 2012 (Bensinger,
2009).

PEST Analysis

Political

In light of the recent election, a new tax plan has been created by the
Obama administration regarding corporate tax policy. Currently, the United States
has one of the highest corporate tax rates when compared to other industrialized
nations. The ‘statuary’ corporate tax rate (CTR) is 39.3%, compared to Irelands
CTR of 11% (Farley, 2008), and Britons CTR of 28%( Werdigier, 2008). In
developing nations the CTR is also relatively lower. China’s CTR is 25% for
domestic firms and 15% for foreign companies. The new administrations Tax plan
includes cutting corporate tax rates for companies that create jobs in America, and
giving tax credits for Research & Development expenditures. Obama will also
discontinue numerous tax loopholes for corporations. How will this impact the
mobile phone industry? Anytime a tax rate is reduced the cost savings from not
paying the decrease in the tax rate will put more money in the corporation’s hands.
They can use the savings to pay dividends to stock holders, buy securities, or
reinvest in growing the company. In addition, a more profitable a company is the
more appealing their stock is to an investor. However, this will depend on how
much the tax loopholes save corporations already. In regards the plans R&D tax
credit, giving tax credits to technology intensive industries like Diversified
Communication Services will incentivize them to do what they do a lot of already—
reinvest more into R&D.
However due to the recent economic crisis, the United States and Canada
government have increase their government spending to fix the crisis. This will
raise large budget deficits for both countries (Joining the Stimulating Party, 2009),
income and corporate tax rates will be increased in the future. Even though
increasing tax rates will lower their budget deficits, consumers and businesses will
suffer greatly. This will affect the industry because consumers demand for
communication devices like the blackberries and iphones will decrease and
businesses will have less money to reinvest in their company and their production.
Despite government efforts to encourage globalization and research and
development, with higher taxes, we could see economic growth suffer especially in
this industry.

Economic

The economic factors that affect the Communication Service Industry’s

economic growth in the United States and Canada are trade barriers, foreign tax
rates and interest rates.
With the emergence of globalization, the United States and Canada have
been striving to remove trade barriers with other nations, especially developing
nations, to help expand economic growth across the globe. These developing
nations have increased their foreign investments into Canada and the United
States (Wynant, 2); which have provided reinvestment opportunities for businesses
especially in the Communication Service Industry. Businesses like Apple and
Research in Motion are starting to introduce their products in these developing
markets which has helped expand their market to not just developed nations, but to
developing nations as well (Wynant, 3). Canada’s government also encourages
research and development in these businesses by offering tax credits (Information
and Communications, 2008). With the help from foreign investors and their
government; these businesses will have a comparative advantage and create
sustainable economic growth.
From the previous section, we mention that the United States and Canada
have one of the highest corporate tax rates in the world. With developing countries
like China and other Asian countries that have much lower tax rates, we could see
an economic growth of the communication industry in these countries. These
countries are already having a steady increased in their market share (Mobile
Phones in Asia 2008, 3-5) and as long as they encourage low taxes, economic
growth should accelerate once this economic crisis has been averted.
The last economic factor that will affect the Communication Service Industry
is monetary policy and interest rates. With our current global crisis, the majority of
the developed nation’s central banks have decreased their interest rates to help
stimulate the economy (Further Monetary Easing, 4). With these low interest rates,
the cost of borrowing and the saving rate will decrease, encouraging consumers to
buy more consumer goods rather then save their money. This will help the industry
because there will be increased consumer demand for goods such as Blackberries,
iPhones and other communication devices. As a result, companies like Research
in Motion and Apple will increase their supply to meet their consumer demand.
To accompany low tax rate, China’s monetary policy also keeps their
currency artificially low (China 2008, 19), so foreign companies will find their cheap
goods attractive. With the removing of trade barriers and globalization, many
foreign countries are looking for the to trade for cheapest goods. With China’s
weak value currency, they can create cheap goods in the Communication Industry
and spur economic growth in this sector along with their low corporate tax rates.
However due to China’s low value currency, Countries like the United States and
Canada are pressuring China to appreciate their currency, so we could see a trade
and currency war between developed and developing countries (China 2008, 19-
20).
Reducing trade barriers, foreign tax rates and lowering interest rates will
help create economic growth for the Communication Service Industry. However
with the high probability of increased tax rates could reduce the economic growth
that could have been produced by the other economic factors.

Sociological
The communication industry is entangled greatly with sociological factors.
Mobile devices have become a fashion statement as well as a primary way to
communicate. As a result, these industries must focus on finding out what
consumers are looking for regarding mobile devices and must find ways to
capitalize on some markets while looking for ways to get into those markets left
untapped.
One social aspect regarding this industry has to do with the health
consciousness of society. Many people have health concerns regarding mobile
devices. There are fears of getting conditions such as cancer circulating among
many people. There is debate in the medical community regarding whether
citizens should be concerned about a potential connection between mobile devices
and conditions such as brain tumors. According to an article in Business Week,
there has been no conclusive research linking mobile devices to these conditions.
However, a comparison is used in the article stating that “’it was 15, 20 years after
people began smoking that we saw concerns associated with it…down the road,
the same could happen with phones’” (Yarow, 2008, p. 11). Although there has yet
to be any concrete evidence linking usage to health conditions, this is still
something that needs to be kept in the minds of those in the industry. When one
considers the potential that these health concerns could turn out to be proved true
years down the road.
Another social aspect to be considered is population growth. Overall, the
population is increasing, which provides good news to this industry. A higher
population provides for more potential customers and a variety of different types of
markets. The variety of different markets throughout the population provide for
many different opportunities regarding this industry. One particularly large market
for communications products is the corporate world. The BlackBerry, for example,
is extremely popular among businesspeople. According to an article on the Fox
Business website, “’The BlackBerry is now a manifestation of self worth from a
professional standpoint…it makes people feel more important to be tapping on a
BlackBerry rather than talking to the lady next to them. There’s a feeling that if you
don’t appear connected than you’re not busy’” (Tuggle, 2008). Mobile devices have
been integrated largely in the world of business and have become practically a
necessity.
Technological
The corporations in the communications industry are in a constant race to
be the first to have the newest phones with the latest technology. As a result,
research and development play an imperative role in these companies because of
the fact that they all want to be known as the innovators. Corporations in the
mobile phone industry are constantly trying to outdo each other with having the
newest, trendiest, up-to-date technology. For example,” Verizon and RIM rushed
the device [BlackBerry Storm] to market, perhaps before it was really ready,
according to the Journal article. The newspaper notes that Jim Balsillie, RIM's co-
CEO said the companies reached the Black Friday deadline "by the skin of their
teeth," after they had missed a planned October debut” (Reardon, 2009). This
rush to the market made the BlackBerry lacking in fundamental Smartphone
qualities that the consumer was used to. Consumer’s claimed “the accelerometer
that senses and changes the view on the screen when it's turned on its side is
slow. And sometimes the "sure press" screen is difficult to use because it registers
the wrong character (Reardon, 2009). These problems may be due to the rate of
technologies change and the want to be the first out.

The rate of technological change in this industry is very fast as a result of

the need to be the first and the best when it comes to having the newest features.
“Mobile phones were as much a fashion statement as anything else” (Bancroft,
1997). One factor to be considered is the fact that what at one particular moment
might be considered the most up-to-date technology can, in a very short period of
time, be considered yesterday’s news. Certain mobile technologies even become
obsolete over what can be considered a relatively short period of time. For
example, having a mobile phone that could also act as a camera was, only a few
years ago, considered the latest technology. Today, cameras come standard with
most mobile phones. “Advanced features and services such as cameras, MP3
players, multimedia messaging, email and mobile TV are increasingly offered as
base capabilities on new phones rather than as extras” (Bancroft, 1997). We will
continuously see an increase in Smartphone abilities as well as structure.

Five Forces Analysis

Threat of New Entries

New entrants in the Diverse Communication Industry are not as strong as

they were before the iPhone entered the market. But there are still moderate
threats in this industry. Companies from different but similar fields are trying to
expand their market share in this industry (Global Mobile Phones, 2009). For
example most recently Google has entered this industry with their new Smartphone
the Android. Also, Dell and Microsoft have talked about entering the industry as
well with their versions of a Smartphone (Mortiz, 2009). However with these
companies following the successes of the Blackberry and the iPhone, they will
need to find new market niches to be able to compete with these existing products.

Power of Suppliers

Suppliers provide software and parts for the manufacturing of mobile

phones. Certain companies also rely on suppliers for marketing their products. The
bargaining power of suppliers is relatively moderate in the mobile phone industry.
There are numerous reasons for this. 1. There are a higher number of
manufacturers then suppliers. 2. Some types of technology such as integrated
circuits are specific to the manufacturer which increases their dependence upon
them. 3. In addition, suppliers serve a wide range of industries in the electronics
field, which makes the revenue generated from supplying components mobile
phones not very critical to the suppliers’ overall revenue. The same can be said for
suppliers that provide advertising and marketing functions (Datamonitor, 2008, p.
12-13). Raw Materials: One raw material needed in the production of smart
phones is Tantalum. There is uncertainty in the supply of this raw material because
it’s predominantly found in the Congo, which is currently undergoing a civil war.
The price for steel has also gone up. Both can adversely affect margins
(Datamonitor, 2008, p. 12-13).

Power of Buyers
 The buyers of the products developed by the firms in Diversified
Communication Services industry are wireless network service providers and
independent retailers. Because these retailers need to supply the newest and most
technologically advanced phones in order to attract customers, they have little
bargaining power over their suppliers. This is also true due to the fact that the cell
phone and Smartphone developers create products and applications specifically
designed for their retail customers, creating a higher switching cost for the retailers.
(Datamonitor, 2008, p 12)

Availability of Substitutes

Fixed line phones can be seen as a substitute to smart phones but because
of its traveling limitations, the time crunched schedules of today’s work
environment, and the importance of fashion accessories; the threat of substitution
is relatively low. Laptops can also be seen as a substitute. All laptops have many
of the options smart phones have such as Internet, TV, music…etc. In fact, many
people who own laptops also own a smart phone. Because mobiles have the ability
to synchronize with other devices like laptops, laptops can also be seen to be
complementary product to a smart phone instead of just a substitute. (Datamonitor,
2008, p. 13-14)

Competitive Rivalry

The Diversified Communication Services industry is comprised of 79 publicly

traded firms located around the World (Forbs, 2009). Just like other industries in
the technology sector, the Communication Services industry has been highly
competitive over the past few years due to new entries and rapid technological
development. Another factor contributing to the highly competitive nature of
Diversified Communication Services industry has been the rapid growth in
popularity of Smart Phones such as Research in Motion’s Blackberries, Apple’s
iPhone, Google’s Android, and others (Bensinger, 2009).
In 2008 Forward Concepts published a study regarding the Smartphone
market and the associated technological development. According to this study, in
2008, Nokia was the leader in the world-wide Smartphone market with 34% market
share. Research in Motion controlled the second largest portion of the market with
13%, followed by Apple with 9.6%, Sharp with 5.7%, Sony Ericsson with 5.3%,
HTC with 5%, Motorola with 4.6%, Samsung with 4%, and a variety of other firms
representing the last 18% of the market share (Reuters.com, 2009).
According to a Standard and Poor’s industry analysis, the number of
wireless hand-held communication devices sold in 2008 had risen by 9%, or 1.1
billion, from 2007. This number is predicted to continue to grow at an annual
compound growth rate of nearly 7% through 2012 (Bensinger, 2009). This
predicted growth, and opportunity for increased profits, will likely lead to continued
technological development and competition in the Diversified Communication
Services industry.

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