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FACTOR ANALYSIS

BY:

Table of Contents

Introduction ............................................................................................................................................................................ 2 Telecom Industry and 3G service .................................................................................................................................... 2 Problem Statement ............................................................................................................................................................. 2 Method ............................................................................................................................................................................... 2 Factor Analysis ........................................................................................................................................................................ 4 Principal Component Analysis (PCA) ................................................................................................................................... 4 Correlation Matrix-Iteration 1 ............................................................................................................................................ 4 Anti-Image Correlation Matrix-Iteration 1 .......................................................................................................................... 5 Evaluation of Communalities-Iteration 1 ............................................................................................................................ 6 Correlation Matrix-Iteration 2 ............................................................................................................................................ 7 KMO and Bartlett's Test-Iteration 2 .................................................................................................................................... 7 Anti-Image Correlation Matrix-Iteration 2 .......................................................................................................................... 8 Evaluation of Communalities-Iteration 2 ............................................................................................................................ 9 Number of Factors to extract using Percentage of Variance criterion ............................................................................... 9 Scree Plot .......................................................................................................................................................................... 10 Factor Matrix Table ........................................................................................................................................................... 11 Rotated Factor Matrix ....................................................................................................................................................... 11 Factor Transformation Matrix........................................................................................................................................... 12 Interpreting the principal components............................................................................................................................. 12 Summary ........................................................................................................................................................................... 13

Introduction

Telecom Industry and 3G service Indian telecom industry has gone through a high pace of market liberalization and growth since 1990s and now has become the world's most competitive and one of the fastest growing telecom markets. The Industry has grown over twenty times in just ten years, from under 37 million subscribers in the year 2001 to over 846 million subscribers in the year 2011. India has the world's second-largest mobile phone user base with over 929.37 million users as of May 2012. 3G technology 3G, short for 3rd Generation, is a term used to represent the 3rd generation of mobile telecommunications technology. Telecom companies market wireless mobile Internet services as 3G, indicating that the advertised service is provided over a 3G wireless network. In 2010, the 3G spectrum were auctioned in a highly competitive bidding. The winners were awarded spectrum in September, and Tata Docomo was the first private operator to launch 3G services in India. The government has earned 67,719 crore (US$12.26 billion) from the 3G spectrum auction. Telecom companies invested a lot of money into 3G. Current 3G Market Scenario India has developed an enormous appetite for consuming data services on the go and hence there is a need to provide high quality mobile broadband services to satisfy users. 2G has been relatively successful in driving mobile broadband use in India, but we are now witnessing 3G pushing the mobile broadband use to unprecedented levels. Data traffic generated by 3G services has increased by 78 per cent while that of 2G services has increased by 47 per cent during the 2011 to 2012. Despite its inherent advantages, 3G services offered by Indian Operators are plagued by high cost, poor network, low penetration, quality, and low customization. 2G users across the country are still consuming three-quarters of the total mobile data traffic, though on an average, 3G users consume four times more data than 2G users. 2G will continue to play a pivotal role in providing basic mobile internet in India unless service providers aim to meet customers demands.

Problem Statement

The objective of the project is to find the factors that are vital to a consumer for deciding a 3G service so that a service provider can fine tune their offerings and attract more users.

Method

The approach which we have used can be illustrated in the following diagram:

Performed on the 10 Parameters. Reduces the trait variables into smaller set of factors that are correlated to each other.

Parameters on which customers were asked about judging 3G service: 1. Price- Price of the 3G plan. Normally expressed in rupees per MB. 3G plans are currently quite costly in India, forcing customers to shy away and use the cheaper 2G.It is the most important factor which impacts customer decision. 2. Speed- Speed of the 3G service offered by various Service providers differs widely and area wise. People go for 3G because of the speed advantages. If a service provider touting a good 3G service doesnt give that, customers wont be hesitant to switch network. 3. Ease oF Use- Ease of use in Setting up accompanied services like MobileTv. 4. Network- Network of Service providers vary widely, sometimes within a single circle too.Network issues plague many customers and is one of the main reasons customers switch networks. 5. Service Services such as VAS and customer care affect peoples decision. 6. Usefulness- People gauge the usefulness of 3G and whether it is really worth the price. 7. Impact of Ads Marketing campaigns and ads have noticeable impact on customers decision. 8. Previous Experience Previous experience with the company including 2G experience influences a customers decision. 9. 3G availability while roaming -- Some customers esp. the business class want 3G service on the go. 10. Flexible Plans/offerings -- Customers also look for flexible plans which suits their needs in terms of price and data usage.

Price

Flexible Plans

Speed

3G availabili ty

Ease oF Use

Factors

Previous Experien ce Network

Service

The data we used was from secondary source. (Nokia-siemens pan india interview of nearly 2500 people)

Factor Analysis

Principal Component Analysis (PCA)

PCA is a technique for forming a set of new variables that are linear combinations of the original set of variables and are uncorrelated. The new variables are called principal components. These variables are few in number as compared to the original variables, but they extract most of the information provided by the original variables.

Correlation Matrix-Iteration 1

The Correlation matrix explains the correlation between the variables. This table is used to know how two variables are correlated. The common Factor Analysis can be carried out if the correlation matrix for the variables contains at least two correlations of .30 or greater. The diagonal element of this matrix is 1 and this is a symmetric matrix, since correlation between two variables x and y is same as between y and x. In the table given below we see that the many correlations are greater than .3 . So Common factor analysis can be

carried out.

The encircled correlation values are greater than 3.So common factor analysis can be carried out.

KMO and Bartlett's Test-Iteration 1 KMO measure of sampling adequacy is an index used to test appropriateness of the Factor Analysis. The minimum required KMO is .5. The below table shows that the index for this data is .892 and the Chi- square statistics is significant (0.000<0.05). This means the Principal Component Analysis is appropriate for this data.

KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Bartlett's Test of Sphericity Approx. Chi-Square df Sig. .892 9905.601 45 .000

The anti-image correlation matrix contains the negatives of the partial correlation coefficients, and The anti-image covariance matrix contains the negatives of the partial covariances. Most of the off diagonal elements should be small in a good factor model.

Evaluation of Communalities-Iteration 1

Initial Communalities are the Proportion of Variance accounted for in each variable by the rest of the variables. Small communalities for a variable indicate that the proportion of variance that this variable shares with other variables is too small. Thus this variable does not fit the factor solution. In the table below, most of the initial communalities are high indicating that all variables share a good amount of variance with each other, an ideal solution for Factor Analysis. Extraction communalities are estimates of the variance in each variable accounted for by factors in the factor solution. The communalities in this table are all high. It indicates that the extracted factors represent the variables well.

Communalities Initial Price Speed Ease oFUse Network Service Usefulness Impact of Ads Previous Experience 3G availablity while roaming Flexible Plans/offerings .395 .447 .473 .508 .379 .439 .364 .474 .481 .351 Extraction .390 .493 .660 .618 .410 .490 .425 .565 .583 .354

The extracted value of communality should be greater than .400.As the value is less than .400, we will do PCA one more after removing this variable.

Correlation Matrix-Iteration 2

Below we see that the many correlations are greater than .3 . So Common factor analysis can be carried out.

The below table shows that the index for this data is .881 and the Chi- square statistics is significant (0.000<0.05). This means the Principal Component Analysis is appropriate for this data.

KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Bartlett's Test of Sphericity Approx. Chi-Square df Sig. .881 8799.054 36 .000

Evaluation of Communalities-Iteration 2

All values are close to .400.so it can be accepted.

Communalities Initial Price Speed Ease oFUse Network Service Usefulness Impact of Ads Previous Experience 3G availablity while roaming .390 .410 .472 .506 .359 .439 .356 .472 .475 Extraction .423 .467 .660 .619 .388 .505 .419 .564 .591

In the table factor solution for each of the variable explains more than half the original variables variance.

This table gives the total variance contributed by each component. We note that the percentage of total variance contributed by first component is 50.100, by the second component is 17.042 and by the third component is 9.657. It may be noted that the percentage of total variances is highest for first factor and it

The cumulative proportion of variance criteria can be met with 2 components to decreases thereafter. It is clear from this table that there are 2 distinct factors for given set of variables. satisfy the criterion of explaining 60% or more of the total variance. A 2 components

Using the output from iteration, there are 2 eigenvalues greater than 1.0.

explain 61.566%

Scree Plot

The scree plot gives the number of factors against the eigenvalues, and helps to determine the optimal number of factors. The factors having steep slope indicate that larger percentage of total variance is explained by that factor. The shallow slope indicates that the contribution to total variance is less. In the above plot, first two factors have steep slope; and later on the slope is shallow. It may be noted from the below plot that the number of factors for Eigen value greater than 1 are two. Hence the ideal number of factors is four.

This table gives the factor loadings.

This table is the most important table for interpretation. The maximum in each row (ignoring sign) indicates that the respective variable belongs to the respective factor. For example, in the first row the maximum is .798 which is for factor 2, this indicates that the (Ease of use) contributes to the 2nd factor. In the second row maximum is .641; for factor 1, indicating that speed contributes to Factor 1 and so on.

This is the matrix by which you multiply the unrotated factor matrix to get the rotated factor matrix

We can infer from the results obtained after doing the PCA on the given data that the Customer Satisfaction has a significant positive relationship with the variables included in Component Factor 1 Price Speed Service Usefulness Impact of ads Availability during roams

These factors form the core offering of a 3G Service provider and can be named as factor 1. Factor 2 The other 3 variables Network Ease of Use Previous Experience

have positive impact too and form factor 2.They however arent that significant and are secondary in nature.

Summary

FACTORS

Factor 1 Core offerings

Variables

Price Speed Service Usefulness Impact of ads Availability during roams Network Ease of Use Previous Experience

The factor 1 comprises of all the vital prime factors which impact a consumers decision to go for a 3G service. Telecom service providers should focus on these factors to attract more consumers.

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