What Was Omnitel’s Competitive Advantage When the Service Was Launched in December 1995?

1. What was Omnitel’s competitive advantage when the service was launched in December 1995?

Omnitel believed that their competitive advantage was their customer service focus. Their sole competitor, Telecom Italia Mobile (TIM), offered impersonal service, long waiting time and often sent customers to several operators for problem resolution. Omnitel positioned itself as the customer-friendly alternative, offering American-style, personal service, including polite operators, short wait times, and one-stop calling. A market study conducted six months after Omnitel’s launch confirmed that customers were dissatisfied with TIM’s service and extremely satisfied with Omnitel’s service. One respondent summed it up by stating that “…I like the way Omnitel has positioned itself because I have never heard a polite word from TIM’s customer service…”

Secondly, Omnitel expected to maintain a lower than average churn rate of 10%-15%. Churn rate is a major cost driver for telecoms. Decreasing the churn rate will decrease Omnitel’s operating costs and therefore represents an Operational Efficiency that will translate into another competitive advantage for Omnitel. Omnitel can re-direct the cost savings to financing future growth (expansion, advertising, subsidies, etc).

Lastly, as an upstart against a possibly complacent and cumbersome former monopoly, Omnitel should have the advantage of being a more agile and market-sensitive company.

2. Why did the launch not perform to expectations?

By May 1996, Omnitel had only attracted 180,000 customers and a disappointing market share of only 4%. Although customers viewed Omnitel’s customer service very favorably, there was no commensurate increase in market share. Market research conducted later revealed that service ranked only 6 of 8 and 6 of 7 in relative importance with Users and Prospects (exhibits 6 & 7). Activation charges, monthly fees, call tariffs and special tariffs all ranked much higher in importance and customers considered the monthly fees to be a tax. Yet Omnitel did not differentiate itself from TIM in its pricing structure. It simply copied TIM’s structure and used the same distribution network, but with less coverage area than TIM.

Omnitel’s vision statement announced that Omnitel wanted the cell phone to become as ubiquitous as the wristwatch (in contrast to TIM’s ‘Status Symbol’ strategy) - to change the rules; yet Omnitel simply copied TIM’s model, effectively marketing to the same market segment as TIM. It’s not clear how Omnitel expected to take market share away from TIM by copying TIM in the areas most important to customers. Although customers lauded Omnitel’s service, it seems more likely that good