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Porter’s Five Forces of Centurylink

CenturyLink is an American telecommunications company headquartered in Monroe, Louisiana. The company is now known as Lumen Technologies. It was founded in 1967 as Central Telephone and Electronics, Inc.It offers communications, network services, security, cloud solutions, voice, and managed services. CenturyLink communications services include local and long-distance voice, broadband, Multi-Protocol Label Switching, private line, Ethernet, hosting, data integration, video, network, public access, Voice over Internet Protocol, information technology, and other ancillary services (Forbes, 2021).

Lumen provides its services globally, including the following regions: MENA, Latin America, and the Asia Pacific. Porter’s five forces analysis is a valuable tool to assess the business and financial risk Lumen is exposed to in the global telecommunication sector.

Competitive Rivalry in The Market

The competition in the industry depends on some key factors, such as the industry concentration and size of competitors. The scale of the company plays an integral part in its ability to pressure its rivals. Lumen had to compete with its local rival inducing Comcast Corporation, Verizon Communication and T-Mobile. These companies have diversified portfolios from wireless network services, cable network, landline services, broadband, and network solutions.

The revenue of Comcast, Verizon & T-Mobile is $103.56 Billion (Statista, 2021), $128.28 Billion (Macrotrends, 2021) and $68.4 Billion (Statista, 2021) respectively. Lumen generated revenue of $20.71 Billion in 2020 (Statista, 2021). It has to compete with the industry runner, and there are multiple products available. Therefore, the competition level is high.

Threat of Substitutes

The substitute is a product offered that offers the same service as the firm’s product. The availability of better alternative products is moderate to high. It is mainly because of the telecom industry’s dependency on technology and innovation. The threat is increased when there is a low switching cost, and better alternatives are also widely accepted.

The telecommunication industry is revolutionized in the last two decades. Information and Communication Technology (ICT) services became cheaper, the price of high-speed internet, and mobile cellular services dropped, a transformation that has brought great benefit to consumers (Parkers & Teltscher, 2011).

The 5g technology is changing the industry. Lumen is investing heavily in 5g services and is capturing market share in the cloud computing industry (Silva, 2020). The company needs to expand and innovate new products so it can keep its market share intact. Therefore, the threat of substitution is moderate to high due to technology innovation.

The Threat of New Entrants

The threat of new entrants is assessed to be low. The threat of new entrants into an industry is related to entry barriers within the industry and geographic boundaries (E. Dobbs, 2018). One of the significant problems in regulation and initial capital requirement. To cover fixed operating costs, startups need a considerable amount of cash. The startup must come with a better service than the existing one and cost-effective too.

The aggressiveness of the existing companies in the market makes it impossible for newcomers. The only threat companies have a new international player entering to local marketing. Considering the factors mentioned above, the threat of new players breaking into the sphere is moderate.

Bargaining Power of Buyers

The bargaining power of the buyers depends upon the nature of the industry and the value buyers bring. The major factors which affect buyers’ power are buyers’ concentration, switching cost, and available substitutes. The buyers of telecommunication products are individuals and corporates. The most influential factors in their decision-making are price sensitivity and the perceived quality of service (Kim, Ryoo, & Jung, 2011).

In the telecommunication industry, customers are price-sensitive, whether they are individual or firms. They gauge the price with the quality of the product and the availability. The market is saturated, and IOT makes it easier for people to compare products. In addition, Companies can use the geographical availability of the product against the buyers. Overall, the bargaining power of buyers is low to moderate.

Bargaining Power of Suppliers

The power of suppliers in the telecommunications industry in the world is affected by two key elements: the power of the Network Equipment Providers (NEPs) and the power of the workforce, or suppliers of labour. Suppliers assert higher power if they are in concentration, compromising product quality. Equipment suppliers are saturated, and East Asian companies are competing for the market share.

Recently Chinese companies are becoming major supplier in the Telecommunication industry. If suppliers have more bargaining leverage against the firm, they are more powerful and can dictate terms (Brown, Fee, & Thomas, 2009). The workforce suppliers are the second element; it is affected by the availability of a qualified and experienced telecommunications sector workforce and the consolidation in the regional labour market in the telecommunications sector. Therefore, suppliers have low bargaining power

References

E. Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Available at: Competitiveness Review, 24(1), 32-45
Juan P. T. (2021). WindTre’s 5G network reaches 59 Italian provinces: Report. Available at: https://www.rcrwireless.com/20210125/5g/windtre-5g-network-reaches-59-italian-provinces-report
• Kim, K. K., Ryoo, S. Y., & Jung, M. D. (2011). Inter-organizational information systems visibility in buyer–supplier relationships: the case of telecommunication equipment component manufacturing industry. Available at: Omega, 39(6), 667-676.Steven, A. B., Dong, Y., & Corsi,
Parkes, S., & Teltscher, S. (2011). ITU sees 5 billion mobile subscriptions globally in 2010. ITU International Telecommunication Union [Online]. Available at: www.itu.int/newsroom/press_releases/2010/06.html.
• Forbes. (2021). Lumen Technologies. Available at: https://www.forbes.com/companies/lumen-technologies/?sh=1d36dfce4cb6
• Brown, D. T., Fee, C. E., & Thomas, S. E. (2009). Financial leverage and bargaining power with suppliers: Evidence from leveraged buyouts. Available at: Journal of Corporate Finance, 15(2), 196-211.
• Statista. (2021). CenturyLink (Lumen Technologies) revenue worldwide from 2012 to 2020. Available at: https://www.statista.com/statistics/209525/operative-revenues-of-centurylink-since-2005/
• Statista. (2021). Revenue of T-Mobile US from 2009 to 2020. Available at: https://www.statista.com/statistics/219458/total-revenue-of-t-mobile-usa-since-2006/
• Statista. (2021). Comcast Corporation’s revenue from 2006 to 2020. Available at: https://www.statista.com/statistics/273560/comcast-corporations-annual-revenue/
• Macrotrends. (2021). Verizon Revenue 2006-2021 – VZ. Available at: https://www.macrotrends.net/stocks/charts/VZ/verizon/revenue
• Silva. D.D. (2020) Lumen Technologies: A 5G Play With a 10% Yield. Available at: https://finance.yahoo.com/news/lumen-technologies-5g-play-10-151216866.html

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