Omnitel Case Study

Omnitel Pronto Italia

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CASE OVERVIEW
Omnitel entered the Italian telecommunication market in February 1995. Till then the Italian
telecommunication market was dominated by Telecom Italia Mobile which had a monopoly in
this market.
The rst private company to enter the Italian telecommunication market was Omnitel. This
was facilitated by the decision taken by the European Commision (EC) in 1993 that all member
states should open their markets and guarantee competition in the telephony market by January
1998. Omnitel had to purchase a license for the GSM network for 760 million dollars.
Currently the biggest competition for Omnitel is Telecom Italia Mobile (TIM) which was formed
in July 1995 and was listed in the Italian stock exchange after splitting from its parent company
Telecom Italia. TIM had a customer base of over four million and held 97% of the market share.
STRATEGY TO OBTAIN MARKET SHARE
Omnitel is at a critical stage at this point unless penetration in the market is achieved prospects
for growth are limited. During the initial six months Omnitel oered plans similar to TIM and
focused mainly on high quality customer service. This was the only dierentiating factor between
Omnitel and TIM.
By means of a market survey conducted it was found that a large share of mobile phone users
were reluctant to change brands. Unless new revised plans and schemes by Omnitel were oered
the company would not appear attractive to prospective customers.
Two high level management executives of Omnitel were of diered viewpoints. Fabrizio Bona the
Marketing Director of Omnitel proposed the idea of LIBERO, which eliminated the monthly fee
completely and making payments for only the time duration of the calls made by the customer.
At the same time Francesco Caio, CEO of Omnitel was of the opinion of oering customers
handset subsidaries in exchange for signing a contract with the company. This would be done
as a substitute to eliminating the montly fee charged to its users. He was of the opinion that by
doing this he would be able to guarantee
a constant revenue scheme from the monthly fees. Such
schemes had worked elsewhere in Europe.
ALTERNATIVES AND THEIR SWOT ANALYSIS
Subsidized handsets with contracts
In this plan we provide the customers with a handset at lower than market rate (in addition to
the usual call plan).
• Strengths:
 Proven Strategy in the other European markets.
 Tested and proven in several other countries.

 A decrease in cost of handsets might entice customers- subsidies lead to a fall in the
price of the handset, thus decreasing the initial cost of acquiring a connection for a
customer.
 Constant Revenue stream for the period of the contract- this guarantees constant

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monthly subscription fees irrespective of the usage thus ensuring a xed revenue from
every customer.
 Initial cost of acquisition is low hence this might be more attractive to the low income
groups thereby increasing our market penetration.
• Weaknesses:
 Not suitable for Italian market because Italians being very brand conscious might
consider a subsidized handset below their status.
 People are unhappy with xed charges and in this plan - here we have two xed
charges i.e. the connection charge and the monthly subscription charge.
 Customers seek a sense of exibility & freedom in any purchase, therefore being locked
in a contract might be a deterrent to their purchasing decision.
When I rst signed up for a cellular phone, I got the phone for free but I had to
sign a contract for a year, which seemed alright at that time. But I was shocked
to see my bill at the end of the rst month. It was so very high. It included the
connection fee, the activation fee and the monthly fee. I felt duped because of
all these other charges. I discontinued the service as soon as the contract was
up?- Previous cell phone customer.
 Increase in Customer Acquisition Cost - As company has to bear the cost of providing
subsidies on handsets for this plan, the overall cost of acquisition per customer rises
signicantly.
• Opportunities:
 First mover advantage might give us an upper hand in acquiring market share which
the competitor might struggle to cope with in the short run.
• Threats:
 Italians still consider mobile phones a status symbol viz. a viz. a utility.
The cellular phone was a possession that was both expensive and exclusive.
Something that only people of a certain stature had the right to own.
 Due to a shift in the business plan, the company might lose its existing customer base-
As we have seen that the subsidized handsets might create a negative image of the
company in the minds of the Italian customers, our existing customers might opt out
as they might not want to be associated with a brand like that.

LIBERO - No monthly subscription charges and no handset subsidy
In this plan we provide a plain calls package sans the monthly subscription. We do not provide
any handsets.
• Strengths:
 According to our Market research report, a lot of people have asked for a plan in
which there are no monthly subscription charges.
 Low cost of acquiring a customer? As we dont have to pay subsidies, it reduces the
cost of acquiring that connection.
 Lower commissions for dealer - This will further reduce our acquisition cost per cus-
tomer. We are expecting to have high sales volume which will oset the decrease in
commission rate.
 No signup fee - as there is no contract there is no signup fee.
• Weakness:
 Higher call charge - As there is no monthly subscription fee or contract fee, we have
to increase the call charges to maintain our revenue.
 The xed revenue is lost - Absence of monthly subscription fee translates to a loss of
guaranteed xed revenue (irrespective of usage).
 Customers may buy the phones and never make calls thereby reducing overall revenues
and increasing our administrative costs.
• Opportunities:
 First mover advantage might give us an upper hand in acquiring market share which
the competitor might struggle to cope with in the short run.
 Large untapped market? With a penetration rate of 7.5%, such a plan may lead to a
sudden increase in market share/penetration which our competitors may struggle to
catch up with in the long term.
• Threats:
 Possible price war: A price war with TIM might seem imminent if such a plan is
brought out in the market.
 TIMS responded to Pronto's entry in the market by rewarding their highest performing
dealers and oering them shares. Therefore we can infer that TIM will be aggressive
in its initiatives to retain its market share.
 Since this has not been tried in any market in Europe, the risk of employing this
strategy is high.

LIBERO + + ..... + Unlimited Flexibility Guaranteed
In this plan we provide various options such that they can build their own plan (they can choose
a subsidized handset, opt for a monthly subscription charge and/or forego both of them).
Subsidy Call Charges Monthly Subscription Charge
Low Low Yes
High Low Yes
Low High No
High High No
XXX Low Yes
XXX High No
• Strengths:
 Flexibility to customer in terms of selecting a plan which caters to his personal con-
straint.
 Caters to all segments of the market because we are empowering the customer to
choose what he wants based on his needs and wants.
 Entices market interest, therefore also raising brand recognition ? As this is a unique
plan which is probably being introduced for the rst time in the Italian market backed
by good advertising and promotional strategy, Pronto is sure to get noticed.
 Lower commissions - This will further reduce our acquisition cost per customer. We
are expecting to have high sales volume which will oset the decrease in commission
rate.
• Weaknesses:
 Higher administration costs: Implementation of a multi faceted plan will increase the
need for upgraded systems and additional employee training.
• Opportunities:
 Can increase market penetration - the USP of this plan is the incredible exibility it
oers and the customer centric approach it adopts. Such a plan can, not only increase
the market share, but also increase the market penetration signicantly.
 Large untapped market? With a penetration rate of 7.5%, such a plan may lead to a
sudden increase in market share/penetration which our competitors may struggle to
catch up with in the long term.
 First mover advantage might give us an upper hand in acquiring market share which
the competitor might struggle to cope with in the short run.
• Threats:
 This is a radical initiative involving high administration cost therefore the risk involved
is higher.



In July 2004, the Vodafone Group introduced a new share scheme, called Allshares. The Vodafone Group distributes shares free of charge to all full-time staff, including the approximately 10,000 employees who work for Vodafone Italia. In this way, Vodafone rewards its entire staff for their contribution to the Company's future and gives everyone, regardless of their role or status within the organisation, a chance to play a part in its success.

Organisational background

Vodafone Group Plc is a British mobile phone operator with headquarters in Newbury, England, and employs a total of 60,000 workers. It is the largest mobile telecommunications network company in the world in terms of gross income, with equity interests in 26 countries and partner networks (networks in which it has no equity stake) in an additional 33 countries. In Italy, the subsidiary company, Vodafone Omnitel NV, has a workforce of almost 9,500 employees; the average age is 32 and 75% of the employees are women. The workplace union structure, RSU (Rappresentanza Sindacale Unitaria), is composed of about 100 representatives of whom 50% are women. The union density, however, is only about 15% to 25%, as Vodafone is a relatively young company. The management and the employee representatives meet on a national or territorial level, whenever requested by one of the parties. Vodafone Italia (former Omnitel Pronto-Italia) is the second-largest mobile operator in the group in number of subscribers. Vodafone Italia has about 24 million clients in over 2,000 sales offices in Italy. The GSM network covers over 97% of Italy, representing 99.4% of the population. The main local competitors are TIM, Wind and 3. The company is a member of the employer association, Asstel, affiliated to Confindustria.

Description of the initiative

In July 2004, the Allshares programme was implemented for the first time. It was initiated by the ‘Compensation and Benefits Group’ of the Vodafone Group Plc.

The Compensation and Benefits Group, as part of the Human Resources Group, has the task of providing a number of services, such as pensions, basic salary (locally determined and reviewed annually), life insurance, holidays, company sick pay, company maternity pay and share schemes.

In July 2004, all employees who had an open-ended contract on 1 April 2004 received a bonus of 350 shares. The shares were given to each employee, regardless of their role or status within the organisation. The awards are not subject to performance conditions. After July 2006, each employee could decide whether or not to sell the shares.

In July 2005, all employees with an open-ended contract received an award of 320 shares. Also in this case, the shares lapse after two years and thus from July 2007, each employee can decide whether or not to sell the shares.

This financial reward, in addition to the standard salary agreements, is considered an opportunity for each employee to share in Vodafone’s growth and success.

Throughout a personal monitoring system, each employee can follow the trend and the value of the shares. The monitoring occurs on a specific internet site, to which each employee has a personal access code. As an alternative, all employees of Vodafone Italia have received a checking account, free of charge, at the bank ‘Banca Intesa’, through which they can check and track the value of the shares.

Besides the Allshares programme, Vodafone has two more share schemes for its employees:

  1. Shares you can save for: Sharesave. Under this scheme, an employee can save for three or five years, using a Save-As-You-Earn account to buy shares in the Vodafone Group. At the end of this time, the employee can decide to either use the savings to buy the shares, or to carry on saving. The price of the Vodafone shares is set when the worker takes out the contract. According to this share scheme, the employee can save up to £250 per month. 
  2. Shares you can buy: Share Incentive Plan. This allows the employee to become a Vodafone shareholder with immediate effect. The worker can buy shares, free of income tax, via a payroll deduction, and for every share bought the company provides a matching share for free. The matching shares need to be held in the plan for at least three years. According to this save scheme, the employee can contribute up to 5% of the pre-tax salary, or £125 per month.

In addition, in December 2004, the management and main sectoral trades unions at Vodafone Omnitel in Italy signed two agreements with a focus on improving the work–life balance of the company’s 10,000 employees. The provisions of the two agreements include measures to help working mothers, a new organisation of working time, increased pay bonus for Sunday and night work, and the rules for performance-related pay over the period 2004–2008. The signatory unions were Slc-Cgil, Fistel-Cisl and Uilcom-Uil.

The objective of the first agreement was to identify work models that could improve the balance between work and private life.

In line with the bargaining model, determined by the national tripartite agreement of 23 July 1993, the second Vodafone agreement defines the rules of performance-related pay from 2004 to 2008. Payments will be directly linked to increases in profitability and service quality (to be measured by external bodies), with the aim of achieving, through greater worker involvement, the company’s objective of overall improvement. According to the company, the performance-related payment is ‘a very important bonus, equal to about two months remuneration, and underlines the company’s confidence that the success of previous years will be confirmed and strengthened, thanks to the involvement of all Vodafone workers’.

Analysis

The Allshares programme is a stock incentive plan, in which the Vodafone Group distributes shares free of charge to its 60,000 employees around the world. In this way, Vodafone rewards its entire staff for their contribution to the Company’s future and gives everyone, regardless of their role, status or seniority within the organisation, the chance to take part in its success.

All employees, including the approximately 10,000 staff that work for Vodafone Italia, received a letter from the Vodafone Group X Chief Executive Officer (Arun Sarin) confirming their allotment of shares. This letter, which contained various instructions, was translated into Italian by the management of Vodafone Italia for the Italian employees.

The Allshares programme was introduced on a unilateral basis by the management of the Vodafone Group, with the idea of letting its employees participate in the success of the company. Until now, there have been no difficulties linked with the policy. Trades unions accepted the introduction of a financial reward since it represents an additional benefit, not dependent on performance conditions, to existing salary arrangements.

Regarding the performance-related pay, it is clear that the innovative agreements proved that high-profile industrial relations between a company and trades unions produce high-level results.

Exemplary and contextual factors

The Allshares programme is a global employee share plan, which gives all employees the opportunity to receive a number of free Vodafone shares at a pre-determined date in the future. As the value of the shares represents a benefit added to the pre-existing salary arrangements and performance-related pay, it makes working more attractive. Furthermore, each employee is able to track the value of their shares via the internet or the bank.  

Maite Tapia, Volker Telljohan, Fondazione Istituto per il Lavoro, Bologna

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