UPC Broadband to Launch Wireless Service in Austria

Case Type: market entry; business competition/competitive response; pricing
Consulting Firm: PricewaterhouseCoopers (PwC) final round job interview.
Industry Coverage: telecommunications & network.

Case Interview Question #00345: It’s 2:30 a.m. in the morning and you are finalizing some last details to launch a new wireless telecommunication service in the smallest market of seven in Austria. For the client, UPC Broadband, it will be their first launch of seven potential launches in Austria and they want it to be a flawless and successful in order to raise capital.

Your team has just finalized the pricing strategy and ordered 100,000 pieces of promotional material when you get a call from the CEO of UPC Broadband. The CEO says he was just at conference in Singapore with the president of the incumbent wireless provider, Telekom Austria, who says that they will beat the price of any new entrant in Austria by 10%. The CEO of UPC wants to know how they should respond to this news. What would you tell the CEO?

Additional Information: (to be given to you only if asked)

1. Company/Competitor

• UPC (originally as United Philips Cable) is a Pan-European Telecommunications company owned by international broadband providers Liberty Global and is active in several European countries providing bundled cable television, internet and telephone services.
• Telekom Austria is a provider of a range of fixed line, mobile, data, cable television, and Internet communications services. The company is currently the largest telecommunications company in Austria and is successfully positioned on international markets too.

2. Current Industry Structure/Marketshare

• Telekom Austria currently controls 100% of the entire Austrian market for mobile and landlines and 30% of the cable television market and operates extremely profitably with all these products.
• Two other mobile providers will enter the market 6 months after UPC Broadband.
• The Austria mobile market is growing at 20% per annum.

3. Competitive Information

• Telekom Austria is known to have thorough coverage of Austria, but is known for busy lines, dropped calls, and haphazard service.
• Telekom Austria’s rates are a flat €10 per month plus €0.40 per minute, or flat €30 per month and €0.20 per minute, flat €60 per month and €0.10 per minute.
• Your team has spent the last three months developing a highly flexible pricing model. The model suggests that the optimum rates ex-ante would be 15% less than Telekom Austria and use the same three-level prices.
• Telekom Austria’s price cut would be for the entire Austria market, not just this region.

4. Costs

• Mobile telecommunications is a high-fixed cost, zero marginal-cost business.
• The cost structure of all wireless providers is essentially the same (start-up costs, operating costs, licensing, etc). Incumbent providers (such as Telekom Austria) generally have a customer acquisition costs that are 25% lower than new entrants do (acquisitions cost average €100 in other launch markets outside Austria).

5. Products

• UPC will launch with the latest 4G broadband technology that transmits data 2x faster than Telekom Austria’s network.

6. Other Information

• The managing partner on this project is on vacation and can’t be reached for three days. However, your teammates can be reached immediately.
• The CEO of UPC Broadband is on route from Singapore to Austria and will arrive at his office at 9 a.m.

Possible Solution:

The key thing to recognize is that Telekom Austria (the incumbent) is signaling that they will defend the market at any cost (they are dropping rates in the entire country, not just this market). This makes price-based competition less appealing and differentiation is more important.

Most importantly, the interviewee should establish a clear program for communicating to the CEO and with his/her staff. It is important for the interviewee to address what the CEO must be thinking and keep the CEO comfortable. One suggestion is to keep the CEO busy addressing the issues most important to him/her, whilst you and your team address the pricing issue. As the team manager, how do you motivate your team to re-examine the pricing issue? What do you communicate to the managing partner?

Summary/Recommendation (Paraphrase based on elevator test):

This is startling news and affects a lot of people! I think something that we need to do is divide this up so that we can have an outline of a solution and communications plan by the time you (the CEO of UPC Broadband) arrive. What I would suggest is that I will convene my team right now and work out some alternative pricing strategies and their overall impact. Are there people that you think need to be at the meeting? Who would you like to have make contact with those people?