Mnitel Pronto Italia: Syndicate A4

Omnitel Pronto
Italia
Syndicate A4
MARKET AND COMPETITORS MARKET 1990-95 2
US Market vs EU market growth:

MARKET 1996 ITALY
10.68% points gained vs 4.17% points gained.
Cellular penetration at 7.5% end of Q1, 1996
Italy’s cellular penetration lower than EU average:
Expected increase to 22.8% by end of 2000
Italy: 0.46% to 6.5% , Norway: 4.81% to 25.14%
OMNITEL TELECOM ITALIA MEDIA
Ownership Private License fee Lit 750 Bn State owned monopoly till 1994. No license fees.
Market Share
4% of 7.5% penetration (180K subscribers) 96% of 7.5% penetration
(1996)
Positioning Customer service Category entrant, first mover
Comparatively weaker distribution network Strong distribution network (20 owned shops, 150
Distribution
(2000 non-specialized stores) Telecom Italia stores, 1500 exclusive dealers)
Segment Premium Premium
Marketing cost Needed to market their product Monopolist, did not spend money on marketing
OMNITEL’S COMPETITIVE ADVANTAGE - CUSTOMER 3
SERVICE
LOW CHURN RATE
The company Omnitel was built around

customer satisfaction and thus obsessed 1
about churn. They endeavoured to POLITE AND PERSONALIZED ONE
maintain a low churn rate of 10-15% STOP CALLS
compared to churn of 30% in US
Omnitel tried to offer one-stop
3 calling and trained their service
employees on resolving all kinds of
REDUCED CALL WAITING TIME queries. The aim was to keep the
communication personal and also
Omnitel consistently emphasized on
avoid the transfer of call to another
minimizing the customer waiting time.
85% of time, the call was connected within
2 operator.
first 20 seconds. The company aimed at

bringing the waiting time to 0.
WHY DID THE LAUNCH NOT PERFORM TO THE EXPECTATIONS? 4
LACK OF FAILURE TO ONBOARD

DIFFERENTIATION MASSES
Mass customers seemed to have a
Omnitel offered plans similar to TIM’s. psychological barrier against cell
Could not afford getting into a price war STRONG COMPETITION phones because of the pricing barriers
with TIM as well and prestige image TIM had created.
TIM had a monopoly in the market
TIM had a strong distributor network- 20

owned shops, 150 Telecom Italia stores,
and 1,500 exclusive dealers
TIM had a strong incentive structure - 30

million of its shares to distribute to
dealers as a sales reward
TIM had an aspirational value attached to EXPECTATIONS VS

HIGH ENTRY COSTS
it - a status symbol, an item of indulgence REALITY
Omnitel, had to purchase a GSM license , “you have a cellular phone, and you are Omnitel had hoped its superior customer
paying Lit. 750 billion ($469 million) while somebody” care would be its competitive advantage. On
TIM did not have to pay for a license. the other hand, customers attached higher
This reduced Omnitel’s ability to enter the priority on not having to pay a monthly fee
market with predatory pricing and onboarding fees.
Economics of Libero 5
Average Revenue per user per month Average Revenue per user per month
(Lit.) (Lit.)
EuroFamily Plan = 103,412 FreeTime = 103,412
Prepaid card = 111,328 Libero = 100,835
PRICE-PARITY
TIM LIBERO
● On average, Libero will generate marginally less revenue per user per month compared to their other plan. Assuming all FreeTime
consumers move to Libero plan, Omnitel will need to acquire 4600 additional customers ( or 3% growth) to break even.
● Libero can target price sensitive customers in Personal users, Rejectors and Prospects market segments to easily increase their
market share
Reasons for High Churn Rate in European Countries 6
Tariff war in Norway

Liberalization killed monopoly
To increase traffic, both operators reduced
Early liberalization in European countries during
their tariffs giving rise to a churn rate of 22% in
late 80s and Early 90s allowed customers to have
early 1996
multiple choices
Attractive offerings by competing

Dealers as influencers
operators in UK
Dealers got commission from operators
and had the influential power to convince Offerings such as Subsidized handset, bundled
customer to choose one operator over minutes, free minutes of airtime to poach from
another competitors
High price elasticity in low end

Competition on service quality customers
Operators, specially in Finland competed heavily
low-end customers were much more sensitive to
on service quality. Customer had the option to
changes in prices and often chose and changed
switch to operator with better service subscriptions
Customers felt duped with additional charges in
subsidized offerings
Customers felt duped on seeing the additional charges in the bill such as
connection fee, the activation fee, and the monthly fee
Impact of Libero on Churn Rate in Italian Market 7
Churn rate in Italian telecom market is expected to increase after the launch of Libero,
primarily because of new customers moving from TIM to Omnitel
1.Customers were unhappy with fixed charges and are likely to move to LIBERO’s
innovative pricing scheme
2.LIBERO aimed at further segmenting the market, in terms of needs, attitudes, pattern
of usage etc. whereas TIM offered only 2 plans
3.Strong Brand positioning - LIBERO means freedom and emphasized “free of taxes
and monthly fees” messaging will attract new customers
Learning from consumer research and results of conjoint analysis
8
Consumer Research Learnings:

1.Customers were happy with Omnitel’s customer
service
2.Majority resisted paying the monthly fee

(comparing it to tax) and didn’t want to pay when
not using the service
3.TIM with their positioning created a perception

that Cell phones were for rich and elite.
4.Customers liked to talk on their fixed-line

phones during peak period of cellular phones
Arguments against Price War 9
Marginal difference in Price Parity

Libero offers marginal price advantage of ~5% to average mobile
users. For heavy users, Libero is in fact more expensive than TIM’s
plan
Similarly priced competitor product

For low end users, TIM is already coming up with a different product-
‘Ready to go’ prepaid card. Hence Libero will not be competing
against TIM’s main product for low end users
Untapped market potential

Market penetration is barely 7%, hence there is sufficient leverage
for both companies to price their product similarly to avoid price
wars
Competition amongst unequals
TIM holds 96% of the market share, hence it is highly unlikely that
they will feel strongly intimidated by Omnitel to warrant an
immediate reduction in price
Recommendations for Libero 10
1.Hedging their risk

a. Design a lucrative yearly contract without additional monthly charges to ensure business
continuity
b. Alternatively, bundle free call minutes and cheaper per minute cost with small monthly fees to
lure low usage customers
2.Marketing
a. Aggressively market Libero product to create a ‘accessible’ image
3.Promotional campaigns
a. Run promotional campaigns that reward customers who consume more minutes with
additional talktime
b. Incentivise customers with discounts through referral schemes on onboarding friends and
family

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Omnitel Pronto

US Market vs EU market growth:

OMNITEL TELECOM ITALIA MEDIA

Positioning Customer service Category entrant, first mover

Segment Premium Premium

LOW CHURN RATE

The company Omnitel was built around

first 20 seconds. The company aimed at

LACK OF FAILURE TO ONBOARD

TIM had a strong distributor network- 20

TIM had a strong incentive structure - 30

TIM had an aspirational value attached to EXPECTATIONS VS

Tariff war in Norway

Attractive offerings by competing

High price elasticity in low end

Consumer Research Learnings:

2.Majority resisted paying the monthly fee

3.TIM with their positioning created a perception

4.Customers liked to talk on their fixed-line

Marginal difference in Price Parity

Similarly priced competitor product

Untapped market potential

1.Hedging their risk

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