Marketing essay

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Case

Revamping the business of a telecom multinational in an Eastern Mediterranean market

Vodafone is a telecommunications company providing mobile and fixed network services to consumers and businesses across more than 65 countries in Africa, Asia, Europe, North and South America and Oceania. With global headquarters in the UK, Vodafone manages operating companies in 21 markets. In the rest of its footprint, Vodafone Group does not hold an equity stake and relies on agreements with other network operators which may use Vodafone's brand and commercialise some of the products and services of the multinational. As part of their global expansion strategy, by the end of 2005 Vodafone Group entered the Turkish market by acquiring Telsim, the second biggest mobile operator in Turkey. In a matter of months, the company was rebranded as Vodafone Turkey while a comprehensive plan started to facilitate the integration of the new subsidiary into Vodafone Group and exploit the multiple opportunities of commercial and operational synergies. By 2009 the process of integration was mostly concluded, and the Turkish subsidiary was growing faster and performing better than their local competitors. However, this process of integration had overlooked the former business unit that Telsim had been operating in Northern Cyprus for about 15 years and which had been running as an independent company since Vodafone’s takeover. The island of Cyprus, located in the Eastern Mediterranean, south of Turkey, southeast of Greece and west of Syria, is de facto partitioned into two different states: the Republic of Cyprus and the Turkish Republic of Northern Cyprus (TRNC). The Republic of Cyprus, a member of the European Union since 2004, has a population of 1.2m (mostly Greek Cypriots) and controls the southern part of the island. On the other hand, the TRNC is a de facto state, mostly independent from Turkey(The TRNC is only recognized as an independent state by Turkey, while the rest of the international community considers this territory to be a part of the Republic of Cyprus occupied by Turkey. This is the cause of multiple practical problems. For example, all the international trade between the TRNC and the rest of the world must be done through Turkey, as all the ports and airports in the state are officially closed to international traffic of goods and passengers. This creates a strong dependence of the TRNC from Turkey, which exerts a significant influence in Northern Cyprus economy and politics.) , which occupied the northeastern region of Cyprus in 1974 following different episodes of violence between the Greek and Turkish communities after the independence of the island from the United Kingdom.

Northern Cyprus has an official population of over 300k, of which roughly 80% are native Turkish Cypriots and 20% settlers from Turkey (older, more traditional, and predominantly living in rural areas). On top of them, Turkey maintains a stable military force of around 40k troops who in most cases spend around 12 months in the country. Other relevant but unaccounted communities include around 55k international university students (of which 35k from Turkey), unqualified foreign workers (in the range of the tens of thousands according to unofficial sources, mostly from Ukraine and other Eastern Europe countries) and around 5-10k high-income expats (mostly from UK and Russia). KKTC Telsim had been the first mobile operator to be set up in Northern Cyprus. For several years, the company operated as a monopoly, until a second operator (KK Turkcell, a subsidiary of Turkcell, the incumbent mobile operator and main competitor of Telsim in Turkey) was authorised by the national telecom regulator. Since its launch in 1999, KK Turkcell applied an aggressive commercial strategy (particularly in terms of pricing, communication and distribution), leveraged on strong brand investment and superior customer service, and rapidly took the lead of the market both in total subscribers and revenue and built a loyal customer base among all marketing segments. Ten years later, KKTC Telsim held less than 35% of the total market, with significantly higher churn and lower ARPU (average revenue per user) than its competitor. Although the company had managed to stabilise churn and obtained a moderate success competing in certain consumer segments (e.g. students and foreign workers), the lower level of investment in marketing and customer service in the previous years was taking its toll. By the end of 2009, the overall performance of Telsim’s former subsidiary in Northern Cyprus was poor, its market share was steadily declining, the distribution network was perceived to be collapsing and the business projections for the coming years risked to negatively impact the valuation of Vodafone Turkey (the owner of KKTC Telsim). A decisive reaction was necessary. Vodafone was ready to make a reasonable investment in the market to turnaround the situation, but several factors conditioned the possible solutions. The particular structure of the consumer market was completely different than in other countries in the region. The political, legal and cultural context of Northern Cyprus and its significance for Turkey and Greece (two major markets for the strategy of Vodafone Group in the region) was also unique and had to be carefully considered for both corporate and marketing decisions. A few years ago, Vodafone had also signed a partnership agreement with the incumbent operator in the Republic of Cyprus, Cyta, which granted exclusive use of the Vodafone brand in the whole territory of the island of Cyprus. Finally, the IT and network infrastructure would require the execution of major works to improve customer service, network coverage and the deployment of certain new services. It was clear that to obtain the desired results, this time it was not going to be enough to just extend the marketing strategy that Vodafone had already applied with success in Turkey and other countries in the region.