Question

I am trying to get good information on Porter's 5 Forces for AT&T. More specifically the bargaining power for buyers by analyzing each industry with references.

Answer 1

Porter analysis

· The rivalry among AT&T and its competitors is easily some of the most cut throats of any industry. The telecommunications industry is saturated, virtually every American has a cell phone all the way down to 6 and 7-year-olds; the only customers these companies are attracting are customers who are with a different carrier. There have already been a few mergers and acquisitions of carriers, AT&T was once Cingular back in 2004, Sprint acquired Nextel in 2005, Verizon acquired Alltel in 2009 and AT&T's failed attempt to acquire T-Mobile in 2011. The rivalry between existing firms is extremely intense. Porter’s Five Forces- Degree of Rivalry

§ AT&T supplies its own data and builds out its own networks. It does require some cooperation from the phone companies to sell its phones but AT&T has the upper hand in these business negotiations due to its extensive customer base. But to carry the iPhone, AT&T does pay Apple a generous percentage of its revenue from iPhone customers data plans. The bargaining power of suppliers for AT&T is extremely low. Porter’s Five Forces- The Bargaining Power of Suppliers

§, On one hand, you have customers that do sign two-year contracts and if they decide to break that contract there are going to be exorbitant fees per phone for the cancellation. But on the other hand, when customers are out of the contract they can demand free phones, lower and special rates, free minutes all for signing another two-year contract with AT&T. As you can see it really depends on what part of the spectrum the buyer is on at that moment in time to determine the bargaining power they have. The bargaining power of buyers for AT&T is moderate. Porter’s Five Forces- The Bargaining Power of Buyers

· § This threat is extremely low because high capital requirements, government regulations, building up a brand name, patents, geographical location, technology and building relationships with phone handset manufacturers and customers; this list can go on and on. AT&T does not need to worry about new firms entering this market. The threat of new entrants for AT&T is extremely low. Porter’s Five Forces- Threat of New Entrants

. §, For the most part, all four competitors offer the same fundamental services, which are talking, texting and web surfing. What does help limit this force is the somewhat high switching cost of breaking a contract, activation fee, limited number of competitors, and that two of the three competitors have inferior service compared to AT&T and its network. This is one of the most important forces AT&T needs to keep a watchful eye on to maintain its competitive advantage. The threat of substitute products and services is fairly high for AT&T. Porter’s Five Forces- Threat of Substitutes