T-Mobile

T-Mobile USA, Inc. Executive Summary T-Mobile USA, Inc. (T-Mobile) is a national wireless provider that strives to provide more services and value for your money so you can enjoy the benefits of your mobile communications services in your day-to-day activities. T-Mobile’s business strategy to increase revenue and target audience is by competing on prices and features. T-Mobile has the viability to succeed in providing wireless service and much “More” considering the demand cost, market settings and economic conditions. Background T-Mobile is a national provider of wireless voice, messaging, and data services based in Bellevue, Washington. It is the US operating entity of T-Mobile International AG & Co., the mobile communications subsidiary of the largest telecommunications carriers in the world, Deutsche Telekom AG & Co. (http://www.tmobile.com). T-Mobile was previously known as VoiceStream Wireless. VoiceStream was acquired by Deutsche Telekom and changed nationally to the T-Mobile name in September 2002. “T-Mobile is currently the fourth-largest wireless carrier in the U.S. market with 22.7 million customers (as of Q1 2006)” (http://en.wikipedia.org/wiki/T-Mobile). Its major competitors include Cingular, Verizon Wireless, Sprint Nextel, Alltel and U.S. Cellular. Product Pricing Component Utility of Service As a national wireless provider, T-Mobile is committed to providing customers with more services and value so they can enjoy the benefits of mobile communications throughout their daily activities. They also work closely with T-Mobile International to incorporate the latest technologies for high-quality, consistent connection to voice calls, data, e-mail, and more. T-Mobile markets to the young and trendy audience and therefore competes on price, and on features such as "CallerTunes" (ringback tones) and "HiFi Ringers" (ringtones which are clips of an actual song). Their corporate slogan is "Get More", recently changed from "Get More From Life" in order to allow an additional word to be added after "Get More" such as "Get More Minutes", or “Get More Features” (http://en.wikipedia.org/wiki/T-Mobile). T-Mobile offers an array of cool phones and plan packages to choose from. To cater to each consumer’s needs and wants, their plan packages selection ranges from individuals, family, Internet and e-mail, prepaid and businesses. Within each plan type, T-Mobile offers an assortment of packages to fit each consumers calling style. T-Mobile also prides themselves in providing the highest quality of customer service. “So far in 2006, T-Mobile has captured a total of 11 J.D. Power Awards in the areas of customer care, call quality, and overall customer satisfaction. In particular, it has dominated the wireless industry in the area of customer care, winning all customer care awards for all 6 surveyed regions for three years in a row” (http://www.t-mobile.com). Complementary Products After selecting a phone and plan, you can add services or accessories. T-Mobile offers a variety of services to help the consumer “Get More” from their wireless such as voicemail or equipment protection. T-Mobile provides a full complement of messaging services such as text messaging, instant messaging, and picture/video messaging so customers can communicate with friends, family, and colleagues whenever and however they want. Other services available are personalized communications such as My T-Mobile, where customers can change services and plans online as often as they want, as well as T-zones, where customers can access the latest ringtones, wallpapers, games, web and applications and enhanced messaging. T-Mobile also offers high-speed wireless broadband Internet called T-Mobile HotSpot at 6,000 locations including many Starbucks coffeehouses, Borders Books & Music stores, FedEx Kinko’s, Hyatt Hotels, Red Roof Inns, airports, and the airline clubs of American, Delta, United, and US Airways. If you have a Wi-Fi enabled device, such as a laptop, the T-Mobile MDA or SDA handheld, and a HotSpot account you access the Internet (http://www.tmobile.com). In addition, unlike “T-Mobile's other international markets, customers do not automatically have access to international roaming. Contract customers require a credit check before the service is enabled, and prepaid customers do not have international roaming at all. The service, called ‘WorldClass’ must be added before traveling overseas” (http://en.wikipedia.org/wiki/T-Mobile). Price Elasticity of Demand The demand for T-Mobile service is relatively price elastic. Since T-Mobile target market audience are the youthful and trendy consumers, as T-Mobile changes the price of their phones and plan packages the consumers respond through purchases. These young consumers want to have the trendy phones and features, but want flexible spending plan with added value such as unlimited weekend minutes. Issues that Affect Consumer Demand Although T-Mobile has the smallest network out of all the national U.S. carriers, it has roaming arrangements with major competitor Cingular as well as with a number of regional carriers, such as Centennial Wireless, Dobson, Unicel and SunCom. However, currently T-Mobile To Go prepaid customers have roaming on only some of those carriers. T-Mobile exclusively uses the Global System for Mobile Communication (GSM) 1900 MHz frequency to build out its network. However, affiliate carriers using GSM 850 or 1900 MHz frequency provide most roaming coverage. T-Mobile also launched an EDGE (Enhanced Data Rates for GSM Evolution) network in 75% of its GSM footprint in September 2005, and they plan to spend more time improving coverage and filling gaps in suburban areas, as their network is already well built out in urban areas (http://en.wikipedia.org/wiki/T-Mobile). Cost Component A company’s annual operating expenses that the tax laws count as total cost are explicit costs. These costs include the company’s factors of production including the wages and salaries of the firm’s employees, rental payments on rented capital, interest payments on borrowed funds, transportation services, and payments for resources such as materials. In addition, a company may use certain resource the firm itself owns. The cost of such self-owned resources is implicit costs. To the company, those implicit costs are the money payments the self-employed resources could have earned in their best alternative employments (McConnell, 2005). A company’s costs of producing goods and services will depend not only on resource materials, but also technology – “the quantity if resources it takes to produce that on output. It’s the technological aspect of cost, which is considered. In the short run a firm can change its output by adding variable resources to a fixed plant.” If a more efficient technology were used, then the productivity of all resources would increase and the average cost would be lower (McConnell, 2005). Usually, the entry of new companies offers up resource prices and therefore raises unit cost for individual businesses in the industry. When an industry is using a significant portion of some resource whose total supply is not readily increased, the entry of new businesses will increase resource demand in relation to supply and increase resource prices. This is so supply is not readily increased. Higher resource prices will result in higher long-run average total costs for firms in the industry (McConnell, 2005). Market Structure The classification of market structure for T-Mobile is pure competition. Pure competition involves a very large number of companies producing a standardized product and new businesses can enter or exit the industry very easily (McConnell, 2005). In pure competition, cost reduction and not price or quantity, is the focus area for decision-making. In this market model, the target market audience determines the price. Cost-cutting measures do result in profit levels above that off the competition, but only in the short term. The maturity of the market in terms of its requirements and process means that all manufacturers offer similar products. Any imperfection in the market by the way of costs savings will be in the market price and zero economic profits all the firms (Economics for Managerial). Perfectly competitive product markets respond to consumer’s demands. An increase in consumer demand is driven by changes in prices and profits. Prices rise in the when output is fixed, and businesses earn profits. Companies increase production in the short run in reaction to the higher prices and profits. Production increases even more in the long run as firms lower their production costs by adjusting fixed factors and new companies enter the industry. Supply continues to increase until price is driven down to minimum and all firms are breaking even once again. The reverse applies to a decrease in demand, which leads to price decrease, losses in the short run, and exit from the industry in the long run (McConnell, 2005). In the pure competition stage, the major strategy here is more to cut cost than to increase revenue or profits. The market shares for each competitor is for the most part established and stabilized. The company focuses more on ways to cut production cost or ways to optimize the productions of the goods, which will have the end results of maximizing profits. This is a more difficult stage to increase profits for the product because the return on investments is greatly diminished. It is important that the company increases sensitivity to the market and to what the competition is doing in terms of pricing and innovation. Every effort should be made to maintain image, create product distinction, optimize production, and be competitively priced all with the budget structure of the company (Economics for Managerial). Understanding the competitor reaction to your prices and adjusting your pricing strategy to get the optimum profits is the key. Excessive price-cutting would lead very high prices and low overall demand for optical notebook. Also, excessive price-cutting may devalue the product in the market’s eyes. Therefore, differentiating the product in addition to developing new products that can be profitable in the market (Economics for Managerial). Organizations seek more opportunities for product and service differentiation. One strategy for differentiation is to recognize that even products that seem all the same inevitably have services attached to them (Economics for Managerial). Economic Forecast Several factors in the economy that will impact the demand for T-Mobile’s products and services include domestic output, employment and price levels. The economic indicators that reflect these factors include unemployment rate, consumer pricing index, and retail sales. Unemployment Rate “Unemployment rate is the percentage of the total labor force that is unemployed at any one time” (McConnell, 2005). Unemployment results from insufficient effective demand for goods and service in the economy. Therefore, due to the lack of demand there are fewer jobs to produce the product and/or service as well as future reductions in output. Unemployment rates have been steady this year. The previous three months have experienced unemployment rates of 4.6, 4.7 or 4.8 percent. Those rates are below those of 2005 when the average rate was 5.0 percent and significantly below the average rate of 5.5 percent in 2004. The future projections of unemployment rates are to continue to steadily decrease from 4.6 to 4.5 (Consumer Price Index Overview). Consumer Pricing Index “Consumer Price Index (CPI) is the main measure of inflation” (McConnell, 2005). The government uses this index to report inflation rates periodically as well as adjust Social Security benefits and income tax brackets for inflation. The CPI reports the price of a market basket of consumer goods and service and is based on spending patterns of consumers in a specific period (McConnell, 2005). As an economic indicator, it points out of the effectiveness of government policy and is used as a guide in making economic decisions. The CPI reports have also been steady this year. In the last few months have trends of the average rate of 3.74 compared to 2005 rate of 3.67. The future projections of CPI rates are to continue steady at an average of 3.71 (Consumer Price Index Overview). Retail Sales Retail Sales are a measure of the total revenue of retail stores. Monthly percentage changes reflect the rate of change of sales and are used as an indicator of consumer spending (Working with Statistics). Retail sales are an important economic indicator because consumer spending drives much of our economy. When consumers are spending, the economy tends to move forward. However, if consumers feel unsure about their financial future and decide to hold off spending, the economy slows down. This is why politicians have used tax breaks to give the economy a boost. If consumers have disposable income at hand, they can spend their way out of a recession (Why Retail Sales). “Retail Sales are measured in nominal terms and therefore include the effects of inflation. Rising retail sales are often associated with a strong economy and therefore an expectation of higher short-term interest rates that are often supportive to a currency at least in the short term” (Working with Statistics). Monthly, the Census Bureau releases the Retail Sales Index, which is a measure of retail sales from the previous month as determined by a sampling of stores both large and small across the country. According to its latest report, consumer spending has increased modestly within the months of March through May of 8%. The past and present trends in retail sales as well as future projections exhibit modest increases (U.S. Retail Forecasts). The implications of this economic forecast and the income elasticity of demand for the pricing strategy is that if there’s a small change in price it will be lead by a large change in quantity demand. Conclusion In order for T-Mobile to enhance their revenue and continue growing as a wireless provider, they must spend time improving their national coverage by putting up more towers in their network. Also with phones being used increasingly for entertainment such as games and Internet services, T-Mobile must continue to integrate the latest and best technologies for high-quality products and services to capture the imagination of the young mobile users. As a former Verzion Wireless customer, I made the switch to T-Mobile because of their wide selection of price packages and features available to personalize my mobile communications needs so I can “get more out of my life”. References Consumer Price Index Overview. U.S. Bureau of Labor Statistics. Retrieved July 6,2006 from www.bls.gov. Economics for Managerial Decision Making: Cost and Revenue Curves Simulation. Retrieved June 24, 2006 https://mycampus.phoenix.edu/secure/resource/vendors/tata/sims/economics/economics_simulation2.html McConnell & Brue. (2005). Economics—Principles, problems, and policies (16th ed.). New York: McGraw-Hill. T-Mobile USA, Inc. Retrieved June 15, 2006, from http://www.tmobile.com T-Mobile USA, Inc. Retrieved June 16, 2006, from http://en.wikipedia.org/wiki/T-Mobile U.S. Retail Forecast. Retrieved July 8, 2006 from http://www.forecasts.org/sales.htm Why Retails Sales are Important. Retrieved July 7, 2006 from http://stocks.about.com/od/marketnews/a/stocksretailsal.htm Working with Statistics. Retrieved July 7, 2006 from http://www.forextrading.com/articles/statistics.aspx