Nextel: Looking to the Future

Nextel: Looking to the Future

Introductory Text

EXTERNAL ANALYSIS: The external analysis will utilize the Porter’s Five Forces Model (Figure 1) and will also include a discussion of the opportunities and threats facing Nextel.

Porters Five Forces: The Porter’s Five Forces Model provides an excellent framework for evaluating the external conditions under which Nextel and other telecommunication network providers are competing. The first force to be examined is Threat of New Entrants. Wireless providers require infrastructure including a network of cellular towers. The massive capital outlay required to put the required infrastructure in place poses a significant barrier to entry to potential new entrants. Acquiring the telecom license required to operate is also difficult. To obtain this license, operators must apply to and be approved by the FCC, and this process can be time consuming and costly. Another significant barrier to entry is the fact that there is a finite amount of suitable radio spectrum available, and this spectrum is highly regulated and is the subject of fierce competition among current industry players. Consequently, Threat of New Entrants is LOW. The second force is Bargaining Power of Suppliers. Primary suppliers to the network operators are telecom equipment suppliers and the government agencies that effectively provide the bandwidth via regulation. The job of transmitting voice and data from place to place requires telecom equipment suppliers to provide network infrastructure (fiber optic cable networks, broadband switching equipment, etc.) and consumer electronic devices (mobile phones, PDAs, etc.). Typically, the technology provided by suppliers must be configured to match that used by the network operators. Although there are several suppliers to choose from, the need for customization forces network operators to deal with a limited number of suppliers and thus drives up switching costs. The radio spectrum used by the telecommunication industry is subject to extensive regulatory control, primarily administered by the FCC. The FCC is responsible for allocating bandwidth and for managing competition among wireless operators. As such, operators are beholden to the whims of the government regulation. Failure to understand, comply with, or anticipate changes in government regulation could restrict bandwidth which would be a catastrophic blow to a network operator. For these reasons, Bargaining Power of Suppliers is HIGH. A third force is Bargaining Power of Buyers. In this case, buyers represent the end users of telecommunication services. For major network operators, customers are numbered in the millions. Consequently, aside from the fact that switching costs are relatively low, an individual customer has very