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Background
The Western Australia-based Internet Service Provider (ISP), iiNet, was first established in 1993 and listed on the Australian Stock Exchange in 1999. Since 1998, the company has acquired in excess of 30 ISPs. Major acquisitions include OzEmail in early 2005; and Westnet in mid-2008. This makes iiNet the third largest ISP in Australia. The company has engaged in the wired telecommunications market since the acquisition of AAPT, and subsequently PowerTel.iiNet has vision of leading the market with products that harness the potential of the Internet and then differentiate with award-winning customer service. The company is one of a handful of ISPs that have invested in their own digital subscriber line access multiplexers (DSLAMs), with about 300 housed in Telstra exchanges. This investment means iiNet customers residing close to an exchange get internet access at speeds of more than 20 megabits per second using ADSL2+ technology. Furthermore, iiNet was the first national provider of naked DSL, with ADSL2+ broadband being delivered without the need for a phone service. This means iiNet customers do not have to pay phone line rental.
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Residential Internet ADSL Broadband 1&2 Naked DSL Dial Up iiNet Fibre Optic Broadband Mobile Broadband Phone Landline Phone Rental VoIP- Netphone 1 & 2 Pay Television Fetch TV 1 & 2 Accessories Hardware- including; Bob, Modem/Voip Handset
Business Internet ADSL Broadband 1&2 Naked DSL Mobile Broadband iiNet Fibre Optic Broadband Broadband speed add-ons Phone Landline Phone Rental VoIP Calling- Single & Multiline Business Phone Solutions ISDN- Business Voice Solutions Sip Trunking Email Web Solutions Web Hosting Email Hosting Domain Name Register Website Shopping Carts Virtual Private Servers / Networks Support Computer Software & Hardware Support Accessories Hardware including: Bob, Modem/ VoIP handset, Routers Storage Online Vault Storage- Data
Mobile Phone Mobile Phone- Sim Only Storage Online Vault StorageData
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The porters five forces generally attempts to identify a business as pursuing either a broad (market wide) or a narrow (niche) scope, either a cost leadership or a product differentiation strategy. When viewed this way, a business can sustain a competitive advantage by either supplying a different or better product, which means the customers are willing to pay a premium or a similar product to a competitor at a cost advantage which either means the business makes money on either unit or can offer that unit to customers at a lower price. Buyer Power The customers of internet service providers are households and businesses, accounting for 84.6% and 15.4% respectively (Internet Service Providers in Australia 2009). There are several ISPs that provide packages and ranges to suit customer needs. This means that customers can easily change ISPs in order to get better value for money. On the other hand, corporate customers have different concerns other than value for money. They use the internet as tools for marketing and are more concerned with the quality of services provided by ISPs. They also do not change their providers due to minor differences in price. This weakens buyer power. On the whole, buyer power is moderate to high. iiNet has expanded and upgraded their network so as to allow customers in certain areas to have access to faster internet (ADSL 2+). This service is provided via Telstra and therefore iiNet has to pay a fee to Telstra (iiNets main supplier). Even though prices are regulated by the Australian Competition and Consumer Commission, Telstra has the right to propose a price. Telstra has the largest network and infrastructure in the country and can be seen as a monopoly. The introduction of NBN in the future will cause a decrease in the power that Telstra has as a supplier. This means that supplier power is high at the moment but may decrease with the introduction of NBN. (Internet Service Providers in Australia 2011) The ISP industry is growing quite rapidly. This means that the market is attractive to new entrants. Also, there is not much required in terms of physical infrastructure as a new entrant can purchase access to already existing infrastructure. This situation may not continue to stay this way as customers are demanding faster and increasing bandwidth. This means that technological innovation is desired for the future, increasing costs and the requirement for new and developed infrastructure. There is high price competition amongst already existing players, forcing new entrants to find a way to differentiate them from the rest. The industry has high fixed costs and is extremely capital intensive, this makes companies in this industry struggle to achieve economies of scale making the
Supplier Power
New entrants
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industry unattractive to new entrants. These factors weaken the threat of new entrants, making it moderate. (Internet Service Providers in Australia 2011) Substitutes The rapid development of the internet has enabled it to become a necessity in the day to day lives of households and businesses. It has replaced several traditional methods of research, reading, shopping, communication, and media. However, ISPs are facing the threat of substitution by mobile telecommunication providers with their 4G technological development which improve data access speeds. The ISP industry is currently relying on WiMax technology to offer a competitive position against the 4G mobile broadband internet threat. Although this threat is not a current one and will take time to materialise. This means that currently the threat of substitution is low to moderate. (Internet Service Providers in Australia 2011) The ISP industry is currently dominated by Telstra. Besides Telstra, the market has several other ISPs which mean that competition is high among them. Price is a major basis of competition. Price in this industry is shaped by two components, download speeds and the amount of download activity. The main driver for competition amongst high end internet service providers is faster and better service along with value for money. In this highly competitive market it is important for iiNet to keep innovating and developing their services in order to stay in the market. This large amount of development leads to high costs and can put a constraint on cash flows. (Internet Service Providers in Australia 2011)
Competitive Rivalry
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Strengths
Large scale customer base. Current customers- iiNet has over 1.3 million customers (iiNet 2010) A publically listed company Ability to leverage off their own infrastructure which is largely a fixed cost network - The Company is one of a handful of ISPs that have invested in their own DSLAMS, with about 300 housed in Telstra exchanges. Award winning customer service iiNet has won several awards over the years. Increased scale because of the acquisition of large companies (recently AAPT) with active customer base iiNet has acquired 30 internet service provides since 1998. Main focus SERVICE, BRAND, INNOVATION and SCALE. Infrastructure not owned by iiNet. Heavy reliance on Telstra's (TLS) last-mile copper network which mean that access costs to third party infrastructure still remain the predominant component of the cost to serve.
Weaknesses
Opportunities
Brands with outstanding service and products will continue to be rewarded with higher ARPUs (Average revenue per user) in the future. Increase in revenue through complementary products. (mobile voice and broadband products) iiNets investment in customer service will capitalise on the opportunities in the switching customer market- iiNets call centres are in Australia and Outsourcing isnt considered as a beneficial option because customer service is very important. Other competitors (Telstra, Optus, Primus, TPG) Low barriers to entry for new entrants after the installation of NBN (National broadband network)Australia wide
Threats
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Basis of Competition
Barriers to entry
Barriers to Entry in this industry are Medium and Steady Globalisation in this industry is Low and the trend is Steady
Industry globalisation
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Major competitors
There are four major players in ISP market which are identified in graph 2. With advantages in scale and scope, Telstra has been able to fend off attacks from a host of competitors. In 2008-09, the company accounted for about 46% of total telecommunications revenue. With iiNet rapidly acquiring new Naked DSL broadband and VoIP subscribers, IBIS World expects the company will reach a market share of 8.1%. In 2010-11, Optus is forecast to account for 8.0% of industry revenue, down from the high of 8.2% in 2004-05. This loss of share was despite an increase in its proportion of fixed internet subscribers. For others, The ISP space is hotly contested. Mergers and acquisitions are a frequent occurrence as emerging ISPs seek enough scale to take on the full service providers: Telstra and Optus.
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Strategies of iiNet
Business strategy describes how a particular business intends to succeed at its chosen market place against its competitors. It therefore represents the best attempt that the management can make at defining and securing the future of that business.
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leave with 35% of their customers leaving only because they were relocating, and many others returning to iiNet after having left to try services with iiNets competitors. Brand iiNet has a long history of investment in service, brand, and innovation and iiNet has the scale and credibility to continue to grow by acquisition and diversification. By being one of the front running companies in broadband, iiNets brand is being promoted among potential customers, as being a brand leader, which tells the consumer that they can buy with confidence.
Bibliography
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Hanson D, Dowling P, Hitt M, Ireland R, Hoskisson R 2008, Strategic Management: Competitiveness and globalisation, 3rd edn, Cengage Learning Australia, South Melbourne. Haynes, R 2008 'Optus lures custom with great deals', Daily Telegraph, The (Sydney), 17 July 2008, Australia/New Zealand Reference Centre, EBSCOhost, viewed 27/09/13. Internet Service Providers in Australia Industry Report (2009), 'IBISWorld Industry Report: Internet Service Providers in Australia.' IBISWorld Pty Ltd. iiNet 2011, iiNet in strong position for NBN roll-out [online], Australia, Available from: http://investor.iinet.net.au/irm/Company/ShowPage.aspx?CPID=1415&EID=11894948&PageName=iiNe t%20in%20strong%20position%20for%20NBN%20roll-out [Accessed: 27/09/13]
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