PESTEL Analysis of Telecom Company

27 March 2020,

Kathmandu, Nepal

Strategic Analysis is the process of identifying a businesses position in relation to its environment. It includes assessment of competitors, markets, regulations and discoveries to figure opportunities and threat.

There are different planning tools for environmental/external analysis such as PESTEL, Porter's 5 forces and Porter's Diamond. In this blog, we will be looking at telecom company using the PESTEL model.

So, firstly let's see what is PESTEL? Shall we?

The PESTEL model looks at the microenvironment using the following headings:

• Political:
  It includes taxation policy, government stability and foreign trade regulations. When assessing this we should answer the following:
  - Does the elected government have the majority to stay in power for next few years?
  - How is its approach to foreign trade? Is it liberal or conservative?
  - Is it a communist government or a democratic one?
  
• Economical:
  It includes interest rate, inflation, business cycles, unemployment, disposable income, energy availability and cost. The organisation should assess the general health of the economy that it is operating in and how will it affect the strategy.
  
• Social:
  It includes changes in tastes and lifestyles, changes in population demographics, social mobility, income distribution, level of education and consumerism. For example, in Japan the population is ageing quickly and the birth rate has fallen. This will impact the product or services sold by the firm or their plan to sell new products or services. The question that should be considered are:
  - What are the current and emerging trends in lifestyles and fashion?
  - What demographics trend will affect the size of the market or its sub-markets?
  - How are social mobility trends? Are the populations migrating to our markets?
  
• Technological:
  It includes government spending on research, new discoveries and development, government and industry focus of technological effort, speed of technology transfer and rate of obsolescence. Question to be considered are:
  - How will retailing methods or production methods change due to new technology?
  - How much R & D expenditure is done by entities?
  - What technological developments or trends are affecting or could affect the industry?
  - To what extent is existing technology maturing?
  
• Environmental:
  It is also known as ecology. It includes product stewardship which includes the impact of firm's goods and services on the environment. The questions to be considered are:
  - How is present goods and services affecting the environment?
  - Can a new material reduce this impact? Can alternative sources of energy be used in production? Any alternative component?
  - How will future environmental legislation impact the organisation?
  
• Legal:
  It covers influences such as employment laws, taxation law, monopoly legislation and environment protection laws. The questions to be considered are:
  - What changes in regulations are possible and to what extent will it affect the organisation?
  - Are the legislation focusing on open-market or monopoly?
  - What tax or other incentives are being developed that could affect strategy?
  

So, now we know what PESTEL is. Lets apply this to Telecom company:

• Political:
  Spectrum charges are substantial cost to any telecom company. So, if the government wants to make the country tech friendly they may charge less. Or, the taxation on capital expenditure is waived off to promote new technology such as 5G.
  
• Economical:
  State of economy - if the economy isn't performing well the telecom company may delay its equipment purchase to save costs. Disposable income - if the disposable income of the population has increased the consumption may increase as the internet has become a necessity nowadays. Cost - If the cost of newer technological capital equipment is high the company may delay their plans for the launch in the home market.
  
• Social:
  Demographics - the younger population may demand more data instead of cheaper call rates. Social mobility - influx of foreign migrants may demand cheaper call rates to their home country. Change in taste - people demand for faster internet. Level of education - people may switch to operators with better technology such as optical fibre or 5G.
  
• Technological:
  Processes - people may choose to pay their bills via the internet rather than having to wait in a queue. Technological Development - if a new technology is developed the company may want to jump to new technology to gain competitive advantage. And, if the obsolescence is high then it should be replaced faster.
  
• Environmental:
  Radiation - The radiation exposure rises along with frequency which could have negative consequences towards the environment. So, buyers may perceive it to be hazardous and choose alternative technology.
  
• Legal:
  The parliament could adopt liberalisation policy for telecom sector thus probability of new entrant will be high. The new environment laws may become an obstacle to adopting new technologies. Stringent employment laws could give rise to cost. Data protection bill may requires new changes to storage of data flowing through the network.

Overall, it seems the industry is going through a huge change. And, the rate of change is unprecedented. The industry is poised to grow but a careful planning of new product and service based on new technology is essential for competing with rivals.

Thanks for reading!

References:

- Diff. sources