ROGERS OUTAGE: Strategic Analysis by End user (part I)

The Five Forces That Shaped Oligopoly

Rogers Communications is by far the largest all-sorts-of-communications provider in Canada. Rogers is the most successful and prosperous one in Canada (and arguably in the world): it has more mobile subscribers than any of its rivals, while the mobile tariffs in Canada would make any other operator gasp in envy (at least in the “developed world”).

Overall, Rogers is a good business-case example of a successful strategy, with the only memorable glitch to date: the recent network outages. The impact of the second outage was so significant that it made the CRTC wake up and “demand” answers.

The whole story reminds of the recent Boeing crashes. As (almost) nobody has lost their lives as a result of the outage, this investigation will not be too long though: just long enough for the general public to calm down and switch their ire to something else. Like in the case of the Boeing crash, the promised investigation will probably not disclose the root cause that must be surprisingly similar to the one not disclosed by Boeing, and no meaningful change will follow.

Unconvinced? Let’s conduct our own investigation into the Rogers outage. It will take a few minutes (not a few months!), and cost nothing to the taxpayer (you). With the recent outage, Rogers presents a solid business case, so if you are interested in management and strategy, this will be five minutes well spent.

Shareholder Value Strategy: The Five Forces Model

Business analysts, MBAs, and strategy aficionados always start with Porter’s Five Forces analysis. According to Michael Porter, the Five Forces that shape competition are: 

  1. Threat of new entrants
  2. Threat of substitutes
  3. Bargaining power of customers
  4. Bargaining power of suppliers, and
  5. Competitive rivalry.

It is not a surprise that Rogers comes on top.

Consider this. When you control the entire market, so that the lame regulator does not bother you, no new entrant will be a threat. More than a decade ago, the government made a feeble attempt to establish real competition in the mobile market, but it was professionally thwarted by the existing oligopoly. (Rogers, Bell, Telus). And let’s give credit to the three big mammals: their consistent introduction of bundled services makes switching to a new entrant next to unthinkable.

For the same reasons, the bargaining power of customers (you) is nil, as there’s no real alternative, while suppliers feeding the mammoth are rarely powerful. Indeed, Rogers is the sole supplier of vital services for many Canadians (there were several heartbreaking cases when people could not call 911 because nobody around had a non-Rogers phone). This makes Rogers’s strategic position particularly strong.

There is a threat of substitutes – but not immediate. The mobile network will be eventually replaced with a more global and flexible satellite network. But that won’t happen this financial year. One day, the likes of Elon Musk will assault the entire global market with the new-generation communication service – but that will not happen before the present honchos retire with a mindbogglingly handsome package.

Almost forgot to mention the fifth Porter’s force – Competitive rivalry – which is clearly not a problem in Canada’s stable mobile oligopoly.

Shareholder Value Summary

Overall, Rogers has a solid and sustainable strategic position. Its share price will continue to rise to the delight of shareholders and senior management despite yet another “software issue” – the official root cause of this most unfortunate incident. Probably more will follow – but step over it: Rogers cellphones, services, and shares remain a “strong buy.”

Roger that.

This post is “Part 1” of the analysis. Go here to Part 2 (quick cultural assessment and the root cause of the outage), and for Part 3 (what we can and should do).