| 1. Threat of New Entrants
The cell phone industry is highly concentrated. Following the recent Sprint/Nextel merger, only four firms actually control 80% of the current market.
Since start-up costs for a cell phone service provider are extremely high, the threat of new entrants is low. A great sum of money must be invested to attain the economies of scale, and it is difficult to enter the market with existing firms already operating on cost and differentiation strategies.
2. Bargaining Power of Suppliers
Cell phone operators provide such high volume orders that suppliers have been cautious not to temper with the relationship and ended up being in a low bargaining position. Already dragging with the specter of gadget gridlock, carriers continuously seek for ever more features in the handsets and threaten to increase the pressure on suppliers with the “reverse e-auction.”
T-Mobile is the first carrier, who has staged an online bidding war, asking six vendors to bid against each other online for a contract to build cell phones for one handset segment. Christian Dupont, director of Texas Instruments Inc. refers reverse e-auctions as “devastating for technology companies.” He comments that this trend hinders operators and handset vendors to build trust and keep companies that thrive on innovation from “bringing value” to the industry.
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