This report summarises the current state of the Directory Enquiry services market.
It looks at the individual service providers and the market share of the providers, as well as the usage and accuracy of the Directory Enquiries market. An anlysis of the enternal environment, PEST has been carried along and it also takes a look at the industry using Porters 5 forces.
I have undertaken an in-depth analysis of the Directory Enquiries market, focusing on the market size and potential, service characteristics, customer attitudes, price levels and regulatory factors.
I will also look at Cable & Wireless in brief, outlining what they do and how they derive their revenues.
The report ends with a conclusion of the Direcotry Enquiry market and a possible strategy for Cable & Wireless.
As an employee of Ofcom, I have been asked to ‘research and analyse the way in which telephone directory enquiry services are being provided in the UK under the new regime’.
In order to complete this task, I have to achieve the follwing objectives:
1. Establish the individual enquiry services that are being provided, along with companions who own and operate the services.
2. Identify the overall level of usage of the services and the market share of each one.
3. Assess the main external features that led to the creation of new regime and how these may change in the future.
4. Analyse the sector in terms of ‘porters 5 forces’, ensuring that you establish the overall balance and how it fits with the theory.
5. Establish recent trends in profitability of one of the companies that offer these services, identifying the key sources from which they derive their revenues.
6. Based on the analysis in objective 5 draw conclusions about the future structure of the sector and recommend a possible strategy that the company chosen in (5) could adopt in the market over the next three years.
Directory Enquiry Services
There are two types of Directory Enquiry Service (DQ service) recognised by Oftel for the purpose of allocating 118XXX dialling codes:
1. International Directory Enquiries Service
2. National Directory Enquiry Service
For a service to be considered a DQ service, its main purpose must be to provide a ‘white pages’ (a directory searched by business and name or name and residential address) service. If a service only provides information relating to a particular restricted geographic location or a specific topic, that service will not be considered to be a DQ service.
Within the new regime, overall now within the UK there are 125 available different providers that assist customers with directory enquiries and10 of the selected ‘big players’ in the market is shown in the list below with a brief description what services they provide along with the companies own and operate the services.
BT UK Directory Enquiries
Service: Local & national enhanced directory enquiries service including classified business Directory. Call connection available plus text message to mobile.
Charges: Calls cost 15p per minute, billed by the second, plus 40p connection charge per call.
Cable and Wireless Quickcall
Owner: Cable & Wireless Plc
Service: UK business and residential single number enquiry, including classified business searches.
Charges: All calls cost 35p from BT and Cable & Wireless lines. Prices and availability may vary from other networks.
Directory Enquiries UK
Owner: Torch Communications Ltd
Service: provides a quick, reliable local and national directory enquiries service including a classified business directory. Call connection and multiple searches available along with instant SMS response and no extra cost.
Charges: 9p per minute charged per second, plus 49p per call.
Double ONE, Double EIGHT, Double EIGHT
Service: 11-88-88 is the complete directory enquiry service, offering features such as onward connection, business classifieds and mobile texting.
Charges: 25p call charge plus 20p per minute.
Owner: Cable & Wireless
Service: Maureen is a helpful and efficient national directory enquiry service. Extra services include classified business searches, number confirmation to mobile by SMS and call connection.
Charges: Calls cost 20p per minute, billed by the second, plus 25p connection charge per call.
O2 UK Directory Enquiries
Service: local and national enhanced directory enquiries service including classified business directory. Call connection available plus text message to mobile.
Charges: calls are charged at 65p per minute, billed by the second, from 02 mobiles.
ONE.TEL Directory Enquiries
Owner: Centrica Telecommunications
Service: calls are free for OneTel residential customers calling from their registered landline or mobile until 2004.
Charges: 35p per call (One.Tel donated 1p plus VAT per call thought 2003 to Samaritans Enterprise Ltd.
Service: Up to three numbers per call with call connect available. Call from landlines and mobiles for a full directory enquiries service including Orange mobile numbers. We’ll also text you the number at no extra cost.
Charges: 30p per call.
Service: A new type of directory assistance where they really do want to help. They even put you through for 9p per minute. Available from all major networks including Telewest and ntl.
Charges: 9p per minute charged per second, plus 49p per call.
Owner: Yell Limited
Service: Yellow Pages service on the phone, 24 hours a day, 7 days a week. Call connection and text to mobile for all business and residential listings.
Charges: Calls cost 40p per minute from most landlines, billed by the second.
Market share can be defined as the percentage of all sales within a market that is held by one brand / product or company.
The pie chart below shows the ‘Market share’ of the DQ industry.
After undertaking research, it appears that the DQ market is dominated by two main companies: ‘BT’ the market leader with a market share of 40%., followed closely by ‘The Number 118-118’ (owned by INFONXX), who have 36% of the market. Behind them is ‘Conduit’ with a small share of 15%. The remaining 9% consists of hundreds of smaller companies who struggle to keep up with the big players.
OFTEL and ICSTIS carried out a preliminary evaluation of the impact of DQ liberalisation In 2003 October and November, assessing the usage, quality and delivery of the new services. It found that overall in 62% of the cases; correct information was given by the 30 DQ providers tested. They then decided to repeat this survey in early 2004 and found that the level of accuracy was 83%
for information provided for standard residential and business UK numbers.
There is much narrower spread of accuracy among the providers, which Ofcom regards as very encouraging as it is likely to provide residential and business consumers greater confidence in the Directory Enquiry service.
Mystery shopping results:
* 87% of all requests resulted in accurate information, 83% of residential number requests and 87% of business requests.
* 99% of calls were answered on the first attempt.
* The average time-taken to speak to an advisor = 8 seconds.
* The average cost to obtain one number ranged between 27p-65p, with half of the services costing under 40p.
Consumers survey results:
* 57% of adults currently use telephone directory services
* 7 in 10 adults were able to spontaneously state at least one new DQ number.
* DQ number recognition stands at 85% of adults.
* 30% of adults have selected a main Directory Enquiries provider
Directory services are easy to access and generally take less than one minute to provide one number – costs vary according to the provider called and network used to make a call.
DQ recognition remains unchanged at 85% of adults, with a significant minority having already selected a main supplier for directory services.
Accuracy is a fundamental role for business survival in the DQ services industry and will truly determine how successful the company is.
Top 5 companies: Accuracy of provision of standard ‘residential and business’ UK numbers.
Top 5 companies: Accuracy of provision of standard ‘residential’ UK numbers.
3. Directory Enquiries UK
Top 5 companies: Accuracy of provision of standard ‘business’ UK numbers.
The table below shows the ‘accuracy of the information given’ based upon ‘all’ requests, surveyed from 5880 calls.
Directory Enquiry Number
The Number UK Ltd
The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses.
Monopolies and Mergers commission Its role is to investigate and report when there is a risk of creating a monopoly by a company merger or takeover, or when a newspaper or newspaper assets are transferred. It also investigates companies, nationalized industries, or local authorities that are suspected of operating in a non-competitive way.
All DQ service providers have to ensure that they process any personal data in accordance with the requirements of the Data Protection Act 1988, the telecommunications (Data Protection and Privacy) Regulations 1999. The ICSTIS committee expects service providers to have regarded to the Office of the Information Commissioners Code of Practice on Telecommunications Directory Information Covering the Fair Processing of Personal Data.
Service providers must ensure compliance with paragraph 3.4.3 of the Code of Practice, which states that:
“services which involve the collection of personal information, such as names, addresses and telephone numbers (which includes the collection of Calling Line Identification (CLI) or caller display information), must make clear to callers the purpose for which the information in required. This service must also identify the data controller (if different from the service or information provider) and any different use to which the personal information might be put, and give the caller an opportunity to prevent such usage.”
Political and legal factors impact fairly greatly upon the directory enquiry industry. They mainly evolve around the of.com regulations. Of.com is the regulator for the UK communications industries. The directory enquiry providers have certain laws and regulations that they must follow which are set down by of.com.
Along with political we also have privacy rights issues. They state that if companies and private customers do not have to list their numbers on the database. There is also no charge for this withdrawal.
At the moment one in four British households is ex-directory – the highest proportion in the world. At present the proposed regulations would ban the use of direct marketing faxes and automated marketing calls without an individual’s prior consent. The necessary regulations are being drawn up by the department of trade and industry in accordance with EU guidelines1
Interest rates currently remain on hold at 4.75% following the latest meeting of the Bank of England. The Bank’s rate-setting committee has put up rates five times in the past year but rates have been on hold since September. The interest-rate will not affect whether or not consumers will use the DQ services as it is a standard service, so consumers will pay no matter the cost. However, the interest-rate affects the number of companies who wish to join the industry. This is directly linked with ‘industry costs’. The costs of joining the industry are:
* Call centres – majority of the call centres are now situated in the Less Economically Developed Countries (LEDC’s) for example India, due to the fact that companies are able to find cheap labour, and provide basic working conditions where workers will make no commotion. Even though this may be a cost-advantage for companies, it will portray an unethical image to the general public which could lead to people refusing to use their services. They could possibly come under threat from ‘pressure groups’ who are against slave labour. A year ago, Nike was sued, as they were paying factory workers in India well below the minimum wage and providing below standard working conditions.
* Phones and Networks – this is the basic equipment companies will need to have in order to be able to operate. Current providers such as ‘Cable ; Wireless’ offer a 118 leasing service in which they provide the number to you. The number can be branded with the company’s corporate identity.
* Computer Database – the DQ companies will need to store information about each and every company and their details onto a database, so that when a call is received, they can compile a search and give out the required information. Generic database packages may be commercially available; however companies may wish to employ a ‘systems analyst’ in order to create a bespoke solution suited specifically for the company.
The Directory Enquiry services are Price Elastic which means that they price sensitive. Our lives don’t revolve around the DQ services, the public are only prepared to pay 40p for the service and if companies were to start charging ‘premium prices’ at ï¿½2 per call, then the public wouldn’t use the telephone services, instead they would just look up numbers in the Yellow pages or on the internet, or simply use cheaper alternatives.
There are huge economic anxieties all around the world and with the effects of recession still felt in Britain and interest rates kept low (3.75%) to reduce consumer concern the state of the British economy is shaky.
Some companies including BT are outsourcing their call centres to developing countries like India. This is to help maintain and reduce high labour costs within the UK.
The European telephone directory market, worth ï¿½6.4bn in 2002 has also undergone a period of dramatic change over the last four years, witnessing unprecedented Levels of M;A activity, according to this summary of AMR International’s European Telephone Directory Market Report 2003. As many providers operate in both the European and UK markets, the potential prosperity and investment is considerably high in this market.
Because there are so many different directory enquiries services in the current market, competition takes place through advertising and call charges. Different strategies are employed to become the most price-competitive companies in the market. Some of these strategies involve,
ï¿½ Simple per minute charge
ï¿½ Simple Fixed charge per call
ï¿½ Per-minute charge plus one-off fixed charge at the start of the call
ï¿½ Fixed charge for the first minute plus a per-minute charge for all other minutes
‘Choice’ – nowadays, the amount of information available to consumers has grown. Most companies provide two types services, ‘Residential’ and ‘Business. Residential is the standard service, whereas the ‘Business’ service can include:
* Three numbers per call
* No onward connection (to completely control costs)
* A dedicated, specially trained corporate team based entirely within the UK.
* The same databases as BT plus an additional two million business listings.
* A Free phone Corporate Customer Careline.
With the new prefix being introduced, customers have tended to become confused about which provider to use. There are many factors that are analysed such as accuracy, speed, and friendliness. However customers are still being left confused. Before it used to be much easier as there was only one provider BT who provided the required service.
Following the blaze of publicity that marked the end of BT’s directory service and the laugh of a myriad number of new 118-prefixed services, telephone number has arguably become more confusing.2
The quality of the service in terms of accuracy, friendliness and knowledge is also having an effect on customer take-up. For example yellow pages run by “friendly” “cheerful” and “skilled staff”
Technology is vital for competitive advantage, and is a major driver of globalization.
The world is becoming more technologically advanced every single day. Information Communication Technology (ICT) plays a key role in the world of business today. The DQ services originally advertised information in the form of a ‘paper-based directory’, which was distributed to each household containing contact details for thousands of organisations. Since then, technology has allowed new methods to be introduced offering consumers and businesses more innovative products and services such as Internet banking and new generation mobile telephones. The DQ services moved on from the paper-based directories to opening up call-centres. Their channels of distribution have also changed, as these services are now widely available on the internet, 24hours a day allowing information to be accessed globally.
The Internet acts as a leveller enabling Small Start-up Businesses to compete on a more equal basis with larger Companies. However, it is difficult to gain brand recognition as the larger companies will already have the brand recognition.
With technological advancement being on a rapid speed, the transfer, receiving and sending of information has never been easier and more efficient. As the 21st century is improving its technology the companies within the directory sector are taking full advantage. There are many ways of people to obtain fast information on the go. New services such as WAP, mobile phones and SMS services are growing widely and there are a number of services that are compatible with these products to access numbers. We are in an age where it is possible for people to obtain information quickly and easily through their palmtops and mobile phones. Requested information at a touch of a button, which offers customer’s content is certainly a cause for worry for the directory enquiries industry.
Along with this the Internet is a high risk towards the industry as well. Large providers such as BT and cable and wireless are now offering fast easy FREE online searches for numbers. As internet is growing all over, and more people are gaining instant access, even through there mobile this would be a major cause for concern, as customers are able to receive the same information for no cost
Porters model attempts to meet all the opportunities and the threats in the organizations external environment with a company’s corporate strategy. Porter has identified five competitive forces that shape every industry and every market. The forces indicate the intensity of the completion and hence the profitability and attractiveness of an industry. The five forces are especially useful to all managers as the model helps them to influence or exploit particular characteristics of their industry.
Threat of New Entrants
The barrier to entry for new entrants is fairly powerful considering the high starting costs required for a new entrant to establish himself or herself as a provider. Existing providers can also offer very low competitive prices and additional services to their customers, which will further discourage any new entrants to the industry.
Major providers who have been in industry for some time such as BT are able to draw upon their loyal customers, as they have formed brand loyalty, not only from their enquiry services but through the other products and services they offer.
Bargaining Power of Buyers
Customers enjoy strong bargaining power in the directory enquiry market. Alongside this other factors such as quality, accuracy and service are considered to be vital power factors. One of the largest Providers BT maintained its high number of loyal customers by lowering its price along with offering further new benefits such as SMS services. One of the reasons customer’s have strong bargaining power is that for each type of provider there is an alternative, so switching providers is easy and the cost is negligible even though research shows the customers tend to stick with their preferred provider.
A further point that needs to be taken into account is the alternative types of services such as internet and interactive, as well as being able to download content straight to your phone, and receive information at near the same pace as a call to enquiry services, however the service is not as accurate, and all information is not accessible.
Overall the force bargaining power of buyers is fairly strong.
Bargaining Power of Suppliers
The bargaining g power of suppliers is considerably high in the directory services market. Although the market only just opened its barriers to competition, there are a few companies that have managed to obtain a large segment of the market share and the majority of the directory services providers are owned by only economic activity in the market, influencing prices and profits.
The bargaining power of the supplier has been increased in this market as large suppliers have integrated forwards in order to obtain higher prices, margins and greater efficiency.
Competitive Rivalry in the Industry
The directory enquiry industry is an extremely competitive market. There have been many recent battles and price wars to ensure that companies gain the top spot. This was done to increase market share and circulation.
As most of the companies in the consumer market are roughly the same size and no monopoly exists, there are high competitive pressure on prices, margins, and hence, on profitability for every single company in the industry.
The fact that switching providers is easy and the cost is negligible makes tactics like these quite common. The nature of competition is strong.
Threat of Substitutes
The threat of substitutes to the directory enquiry industry is very real and will give companies a cause of concern. The directory enquiry industry is facing greater competition from other communication companies and organisations. Such competition includes alternatives such as Internet and web and WAP access on the go, via mobile telecommunication. The directory enquiry industry has recently attempted to get some of these services up and running, but they are not fully established yet, but this new forms of substitutes need to be looked into.
Overall taking into account the development of technology the total threat of substitutes to the Directory Enquiry industry is very fairly strong.
3.4 Overview of the Five Forces:
THREAT OF NEW ENTRANTS
BARGAINING POWER OF BUYERS
BARGAINING POWER OF SUPPLIERS
COMPETITIVE RIVALARY IN INDUSTRY
THREAT OF SUBSTITUTION
Porter’s 5 Forces
This model identifies and analyzes 5 competitive forces that shape every industry, and helps determine an industry’s weaknesses and strengths.
Threat of New Entrants – There is no surprise, in the capital-intensive telecom industry the biggest barrier-to-entry is access to finance. To cover high fixed costs, serious contenders typically require a lot of cash. When capital markets are generous, the threat of competitive entrants escalates. In the US, for instance, fledgling telecom operators must still apply to the Federal Communications Commission to receive regulatory approval and licensing. In addition, it is important to remember that solid operating skills and management experience is fairly scarce, making entry even more difficult.
Nowadays, it is easier to setup a DQ company, all you need to do is to purchase a 118 number, the only drawback is the raw materials needed are costly even through ‘bulk buying’, and generic database packages are commercially available. The more competitive the market is the reduced amount of profit companies are able to make.
The easier it is for new companies to enter the industry, the more cutthroat competition there will be. Factors that can limit the threat of new entrants are known as barriers to entry. For example: Existing loyalty to major brands and Government restrictions or legislation.
Power of Suppliers – It might look like telecom equipment suppliers have considerable bargaining power over telecom operators. Indeed, without high-tech broadband switching equipment, fibre-optic cables, and mobile handsets and billing software, telecom operators would not be able to do the job of transmitting voice and data from place to place. There are enough vendors, arguably, to dilute bargaining power.
Power is high where the brand is powerful. So if BT wanted to change their computer hardware from Hp to Dell, Dell would be able to charge a ‘premium price’ whilst offering bulk-buying opportunities, having the upper hand as they are company with enormous brand loyalty.
There could also be a possibility of a supplier integrating forward. So for example, Yellow pages, who provide quick, reliable access to anyone requiring local business information, have already diversified into the DQ market and created 118-247. In order for them to have done this they would have had to follow the ICSTIS Guidelines.
Power of Buyers – With increased choice of telecom products and services, the bargaining power of buyers is rising. Telephone and data services do not much vary regardless of which companies are selling them. For the most part, basic services are treated as a commodity. This translates into customers seeking low prices from companies that offer reliable service.
If one customer has a large enough impact to affect a company’s margins and volumes, then they hold substantial power. For example if BT were to charge a premium price, and the public protested in masses, there is a higher chance for action to happen, i.e. ‘In unity lies strength’. Reasons why customers may have power is because switching to another (competitive) product is simple – there are many cheaper alternatives in the market available, so if enough customers moved from BT to Maureen it would have significant impact on BT’s performance. Therefore highlighting that customers are ‘price sensitive’.
Availability of Substitutes – Products and services from non-traditional telecom industries pose serious substitution threats. Just as worrying for telecom operators is the Internet: it is becoming a viable vehicle for cut-rate voice calls. Delivered by ISPs – not telecom operators – “Internet telephony” could take a big bite out of telecom companies’ core voice revenues.
Competitive Rivalry – This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. Competition is “cut throat”. The wave of industry de-regulation together with the receptive capital markets of the late 1990s paved the way for a rush of new entrants. New technology is prompting a raft of substitute services. Nearly everybody already pays for phone services, so all competitors now must lure customers with lower prices and more exciting services. This tends to drive industry profitability down. In addition to low profits, the DQ industry suffers from high exit barriers, mainly due to its specialised equipment.
Cable & Wireless Overview
Cable & Wireless 118 Directory Services gives you a wide range of 118 directory enquiry services options at flexible prices. They offer five service options, each with a different combination of the following features:
* National or international number search.
* The ability to request a single number, or search for several numbers at once.
* Number delivery via an operator or automatically.
* Optional automatic connection to the number requested; this covers standard 01 and 02 telephone numbers and non-geographic numbers (such as free-phone or local rate numbers).
* number delivery via short message service (SMS
Monthly customer satisfaction surveys, undertaken by an independent market research company, show that an average of 95% of those surveyed are satisfied or very satisfied with the directory enquiry services they receive from Cable & Wireless.
The pie chart above shows the Group Turnover by Product 2004 (products/services)
Cable & Wireless is continually looking for ways to improve the quality and cost-effectiveness of our 118 Directory Services, so that the price you pay for calls is kept down. This is achieved through:
* effective and professional management of the operator workforce
* using the most cost-effective method of accessing high-quality directory data
* Judicious use of automation techniques to reduce operational costs, where appropriate.
The reasons the DQ market has become over-subscribed could simply be down be down to Cable & Wireless, as they developed a revenue stream which allows you to create your own directory enquiry service. Cable & Wireless will provide the number to you. That number can be branded with the company’s corporate identity, so that customers calling the number will hear your company’s name, not Cable & Wireless. This is ideal for businesses that have a strong brand, or that have easy access to a large potential customer base. Supermarkets, banks, retail chains and utility companies will be particularly interested in marketing their own directory enquiry number. However, the more companies that take this option, the tougher it is to make a respectable profit.
BT is still trying to grab the bulk of the market, with them launching the ‘BT Phones Disc’. The disc approximately contains 15.5 million telephone number listings across the whole of the UK. This is an extension strategy which is an attempt for them to take over the market completely. The service will give BT a ‘Unique Selling Point’ (USP), which will hopefully make them stand out from the competition.
In my judgement, I believe that that DQ market has reached it peak and future growth looks unlikely, due to the fact that too many companies have joined the market which has now become saturated. As a result of this, I feel that only the major companies, BT and The Number 118-118 (INFONXX) in the market can survive due to their market dominance.
I feel that in order for Cable & Wireless services’ to survive, they should focus on their ‘Core Competencies’ such as ‘Broadband within the UK (50% market share), 3rd Generation Roaming Exchange (3GRX), Internet Dial and Voice (Cable & Wireless Business Talk). If they build on these, it will ultimately increase brand loyalty and increase their success in the global market.
When concluding upon this report, it is clear to say that upon the introduction of the new “118” prefix customers have been left confused. There are 125 UK providers within the UK, with 35 competing owners of these providers. The market is mainly owned by cable and wireless, which own 40% of the providers; however the point upon customer satisfaction is left unfold. With so many providers now available, who merely offer the same type of service, customers don’t really know who the cheapest and most accurate service is. The figures within Appendix C show the companies who are performing well, in certain areas, however many of the outside world are unaware of this.
There is no simple way to sum up this market sector, due to its confusing variety, but safe to say, the most advertised services are the most recognised 58% of respondents named the number 118118, most probably because it was the easiest to remember!
In terms of competition for new entrants it is becoming quite hard to enter this industry even though the barriers to entry are open.
Upon this it’s proved that from looking at porter’s five forces, customers have strong bargaining power due to the industry being so competitive and can switch at ease.
The PEST Analysis shows that the market of directory enquiries is not affected as much. However the main external threat is the technological development, which creates substituted goods. The enhancement of mobile phones and Internet access on the go has got customers using Internet and WAP services on their mobiles to retrieve numbers. This in affect can result in a huge decrease of revenues as these services are cheaper than and as accurate as the high priced enquiry telephone services.
This is a large market with large potential, however with so many providers offering the same service there is not much difference upon which provider is used. The future of the market can be very bright, if the providers made their services more clear and understandable.
* Owners such as Cable and wireless need to enhance there image, and introduce new services to differ, from other providers. A new strategic plan will help the companies to successfully enhance new products, such as services for the disabled this should help gain more share of the directory enquiries industry
* Awareness is another major factor; providers need to be aware upon certain price changes and new services offered by competitors.
* Customers seem to be most confused upon, who is cheapest in the market. Providers need to make their prices clear. A fixed charge would help the customer understand how much is being charged for the service
* Providers need to keep an up-to-date website explaining their services and prices
* Information leaflets or help guides should be published like shown in Appendix D, to help customers, in understanding