Bonanza Offer FLAT 20% off & $20 sign up bonus Order Now
This is to be acknowledged that risk taking is fundamental characteristic of business. The inherent part of the risk comes from various facade of transaction. The business and organization should have the philosophy and culture of risk management. The risk management practices should be formed along with risk framework which includes appropriate risk awareness. The part of the process is effective risk management practices. The risk management practice has to be comprehensive and it should include distinct lines of defense in corporate risk management (Ge, 2014).
The part of the risk management practice includes appropriate risk awareness which actually includes Corporate Risk Management and Internal Audit. The risk management is part of the board function which includes independent oversight and there should be second line of defence in the risk management. The comprehensive risk management practice includes staffs as the first and the second line of defence. The risk management professional with adequate experience should be the third line of defence in risk management practice.
Each and every company should invest large pool of funds and efforts for building much needed infrastructure in risk management. It is also seen in many organizations where risk committees are formed under the board to oversee risk appetite, risk assessment and management processes. Here the risk management and control practices to be adopted for an Australia based telecommunication company One.Tel. The company was launched its services in Sydney, Australia in May 1995. The telecom industry in Australia is highly competitive. The business is developed on the platform of various services including; low-cost international and national calls, Internet services, prepaid calling card and GSM mobile phone service (Ey, 2014).
The company has already presence in other countries like UK, France, Netherlands, Hong Kong, and other places. In terms of revenue Australia is positioned at the top. The Australian telecommunication industry has the much needed infrastructure of world standard. The network in Australia is sophisticated and as modern with the land based phone penetration is at 96% of the total household. There are 2 million internet subscribers and 7 million internet users. The mobile phone users are of 8 million which is 42% of the population. There are three current operators in the market Telstra, Optus and Vodafone and each of the company is operating in separate GSM mobile networks. Telstra has the highest market share of 57% followed by Optus 31% and Vodafone 11%.
Prior to the deregulation in the market there were two carriers operating in telecommunication sector in Australia, after the deregulation there are 35 carriers in the market operating by leasing network from Telstra. The market is already overcrowded and launching a new company will attract inherited risk as late starter (Athow, 2014).
The financial risk is also significant for One.Tel. The company has seen lass of $282.1 million in 2000. This poses great risk to the company. The presence in the new market would require further investment but ROIC is expected to be lower during first three years of the operation. The proposition of investing in a nearly saturated market would increase the risk burden for the company. It would take time for the company to reach the breakeven.
One.Tel either has to lease network from Telstra or Optus. This would really increase the recurring cost of the company and the OTT players might not offer friendly environment for the market to grow. The company has already paid $525.6 million towards license fees. The new entry in the market and also the purchase of licenses has its negative impact on the Cash flow of the company. The expenses are met up with Proceeds from issue of shares of $ 818.5 million and from financing of $ 945.3 million. The company would inherit the risk of paying interest. The operation in the saturated market is always a risk and for new entrant with weak financial would be worrisome (Borio & Tsatsaronis, 2006).
The risks can be classified as threats to the business. The threats for in telecommunication sector are classified as;
The global economy has undergone several shifts in recent past. There are recovery observable in the market but is always expected that global output set to increase at a faster rate in next decade. The major boom was expected in the telecom market. The market is however already saturated to some extent. One.Tel. would probably face the risk from the top players in the market which is called over-the-top (OTT) players; the market condition for the new player would remain challenging. The concern in the profitability is one of the areas for the company. The overcrowded market is expected witness lower return on invested capital (ROIC). The intensifying competition from other low cost carriers and from the OTT players is also inherent risk in Australian telecommunication market (Karpinski, 2015).
The target of the new entrant is the market would be to create new value chain. The new operator shall occupy range of positions within a single ecosystem to maximize the possibilities of creating new value chain. The new technologies and the implementation of the converging services like mobile payments and location-sensitive marketing are the options available to the market. The new operator should take holistic view of new digital ecosystems with new complementary services on offering.
The new operator in an overcrowded market might see price deflation driven by competition from OTT. The company has to position itself based on the market share. The innovative approach and the holistic point of view of the market scenario would help it to guide further in future. The market concentration in Australian telecom market is high. Due to over competition it is expected that profit margins remain below average in markets. There is possibility that new market entrant in nearly saturated market bring up long-term price erosion. The regulatory risk is also plays a significant part in the business. The telecom market in Australia would further require reform existing rules to drive industry growth (Frc, 2009).
The regulatory environment can be major hurdle for a new entrant to pursue acquisitions. The most significant risk for One.Tel would be to build coverage and capacity. These are the two fundamental challenges of new entrant in the market. There is several inherent risk factors that would have contributed to an increased inherent risk to the account balance level are listed out as following;
Tel is already under financial pressure due to loss in 2000. The financial stain would not allow it to invest heavily for building network infrastructure.
As it is a new entrant in the market, the cost effective deployment of the network would remain to be challenge.
The company has already drawn $ 3 million from financing and the interest charge would impact on the profitability of the company significantly.
There would a requirement of large pool of fund because the company would have to invest heavily to support higher capacity and to adapt to future implementations of more advanced wireless services.
The regulatory impact may not allow the company to strike an M&A deals with other smaller companies. The consolidation could be part of the plan for One.Tel but regulators would evaluate the larger competitive impact of the proposed deals.
Tel has already issues fresh shares to draw the capital for the new market but extra burden of consolidation can put is cash flow out of shape. The inherited risk of this business would be the time it would require to reach breakeven.
The long term target of the company would be build higher market share but with higher competition from OTT player it would seem more difficult.
The urgent requirement for the company would be to provide more sophisticated service delivery and the data monetization strategies should be part of the new plan. To accomplish such plans, required infrastructure has to be build. This would significantly impact on the business and on the profitability.
The higher investment would only make the case for One.Tel to build the required infrastructure but service delivery and the focus on the voicing and messaging delivery remains to be greater challenge for the company.
The advance technologies and the carrier aggression to suppress the new entrant could be bigger challenge. It is evident that a new operator trying sneak into a nearly saturated market will have to bear loss unless it brings new technology and better service delivery to the customers.
The financial factor would play a major role in the market and it is expected that One.Tel would have to be bear interest burden along with the expected loss in initial days of operation (Dewey, 2016).
The going concern concept represents a bigger term for a company. One Tel is one of such companies which are wishing to be part of the telecom industry of Australia, where already three major companies are operating. The important parameters of the going concern have evolved over the time. Serious efforts are put into to analyze the going concerns and their respective strength and the weaknesses.
The basic assessment factors for the going concerns are particularly based on following parameters;
The forecasting and the budget expectation is a serious fact for any going concern. The target of One Tel is to operate into the new market and the forecast for the market is slowing down growth in landline business and expected increase in mobile telephony with current penetration level of 42%. The forecast for the company would be of lower revenue and the margins for the new a few years due to price erosions and increased competition from OTT.
The new entrant will have to invest heavily in building capacity for proper service delivery and the quality and complementary service in offer. These are subject to infusing of more funds that poses the risk of paying interest. These factors will cast significant doubt on the ability of the company to stay as going concern. The investors’ confidence would be an important part of the business.
The medium and the long term plans have to be concrete and according to the expectation of the investors. The long term plans shall indicate how the company is expected to fare in the long run.
The major point of contention would be the economic outlook of the country which it is planning to operate. The global market condition and the expected growth in that market area is the part of contention.
The cash flows are important factor for the company. The company has already paid $525.6 million towards license fees. The company has entered into a new market and the cost of the license has impacted the cash flow negatively. The expenses are met up with Proceeds from issue of shares of $ 5 million and from financing of $ 945.3 million. The significant risk would be to maintain the margins and to be cash rich to withstand any negative impact on the business (Ciosummits, 2011).
The risk management factors is important for all business whether a new entrant or established market player. The fixed price contracts like leasing and the n foreign currency exchange rates are the other factors in the business. The current financial condition and the future outlook are explaining the situation for the company. The areas of the going concern for One Tel are to be considered as medium. There are risks for the new entrant in new market; the game would most likely be played in market share and the quality of service they offer.
Athow, 2014. The most important challenges facing the mobile industry. [Online] www.in.techradar.com Available at: http://www.in.techradar.com/news/mobile-computing/The-most-important-challenges-facing-the-mobile-industry/articleshow/38442519.cms [Accessed 05 September 2016].
Borio, C. & Tsatsaronis, K., 2006. Risk in financial reporting: status, challenges and suggested directions. [Online] www.bis.org Available at: http://www.bis.org/publ/work213.pdf [Accessed 05 September 2016].
Ciosummits, 2011. The Future of Telecoms Risk Management; An explanation of the changing nature of Risk in Next Generation Networks. [Online] www.ciosummits.com Available at: http://www.ciosummits.com/media/pdf/solution_spotlight/wedo_future-telecoms-risk-management.pdf [Accessed 05 September 2016].
Dewey, R., 2016. Mobile network operators: Overcome IoT challenges using the power of SIM. [Online] internetofthingsagenda.techtarget.com Available at: http://internetofthingsagenda.techtarget.com/blog/IoT-Agenda/Mobile-network-operators-Overcome-IoT-challenges-using-the-power-of-SIM [Accessed 05 September 2016].
Ey, 2014. Top 10 risks in telecommunications 2014. [Online] www.ey.com Available at: http://www.ey.com/Publication/vwLUAssets/EY_-_Top_10_risks_in_telecommunications_2014/$FILE/EY-top-10-risks-in-telecommunications-2014.pdf [Accessed 05 September 2016].
Frc, 2009. GOING CONCERN AND LIQUIDITY RISK: GUIDANCE FOR DIRECTORS OF UK COMPANIES 2009. [Online] www.frc.org.uk Available at: https://www.frc.org.uk/FRC-Documents/FRC/Going-Concern-and-Liquidity-Risk-Guidance-for-Dire.aspx [Accessed 05 September 2016].
Ge, 2014. RISK MANAGEMENT. [Online] www.ge.com Available at: https://www.ge.com/ar2014/assets/pdf/GE_AR14_RiskManagementFactors.pdf [Accessed 05 September 2016].
Karpinski, R., 2015. 2016 Trends in Mobile Telecom. [Online] Available at: file:///C:/Users/amitcs27/Downloads/451_MobileTelecomPreview_ExecOverview.pdf [Accessed 05 September 2016].
The writers at MyAssignmenthelp.co.uk are known to produce world-class dissertations. Our dissertation writing services are made up of highly talented PhD experts who are extremely knowledgeable and creative. We offer our dissertation help for 100+ subjects and make sure the copy is submitted on time.
Upload your Assignment and improve Your Grade
Boost Grades