Patrick Zuliani is the founder and CEO of Zuliani Telecom, a publicly traded cell phone service provider that is about to start offering service in remote areas across Canada (see grey area in figure 1) following the approval of their application to the Canadian Radio-television and Telecommunications Commission (CRTC). The CRTC was willing to fast-track the approval for Zuliani Telecom to enter these markets as there is often only one provider of wireless mobile in these areas and rural Candians have been complaining about high prices and poor customer service. The CRTC has not yet granted them access to any of the densely populated urban areas of Canada (see vellow area figure 1).
Patrick Zuliani is the founder and CEO of Zuliani Telecom, a publicly traded cell phone service provider that is about to start offering service in remote areas across Canada (see grey area in figure 1) following the approval of their application to the Canadian Radio-television and Telecommunications Commission (CRTC). The CRTC was willing to fast-track the approval for Zuliani Telecom to enter these markets as there is often only one provider of wireless mobile in these areas and rural Candians have been complaining about high prices and poor customer service. The CRTC has not yet granted them access to any of the densely populated urban areas of Canada (see vellow area figure 1).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The Situation:
Patrick Zuliani is the founder and CEO of Zuliani Telecom, a publicly traded cell phone service provider that is
about to start offering service in remote areas across Canada (see grey area in figure 1) following the approval of
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their application to the Canadian Radio-television and Telecommunications Commission (CRTC). The CRTC was
willing to fast-track the approval for Zuliani Telecom to enter these markets as there is often only one provider
of wireless mobile in these areas and rural Candians have been complaining about high prices and poor
customer service. The CRTC has not yet granted them access to any of the densely populated urban areas of
Canada (see yellow area figure 1).
Canada's current mobile wireless industry can best be described as an oligopoly where Rogers, Telus, and Bell
have over a 90% market share. This means that the market can be potentially very lucrative if Zuliani telecom
can strategically secure a foothold in the rural market and create a strong business case to present to the CRTC
so that they gain access to the urban market.
The shareholders and the board of directors for Zuliani Telecom are getting very impatient with the current
share price of the company and the large capital investments that have been made to enter the Canadian
wireless mobile market. The pressure is on Mr. Zuliani to present a strategic plan that will impress the board and
show the company's long-term profit outlook justifies the recent investments.
Mr. Zuliani's friend, Nathan Price, has recommended you based on your outstanding work helping Northern
Cottage Living. Therefore, Zuliani Telecom has made you a lucrative offer to consult them during this important
time.
Pricing Strategy and Profit Prediction:
Zuliani Telecom will only be offering a single monthly plan (unlimited talk, text, and data) and is still unsure of
what price they will end up offering for this wireless mobile service. Since Zuliani will essentially only be
competing with one existing company in most rural markets there will be an expected transition from the
existing monopolies to Cournot duopolies since:
Transcribed Image Text:1) There are usually only two tirms in the rural markets serving millions of potential customers
2) The firms produce essentially homogeneous products
3) Each firm essentially has fixed capacity or output
4) Barriers to entry for other firms are very high
Mr. Zuliani anticipates that prices will be lower given this change but needs your help determining what the
equilibrium price is and what the expected profits (not including fixed costs) will be for the company.
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Zuliani Telecom analysts have estimated the yearly inverse market demand to be (quantities are in 000's):
P = 140 - 0.02(Q1 + Q2)
The estimated yearly costs for Zzuliani Telecom to be:
C1(Q1) = 26Q1
They estimated yearly costs for whoever their sole competitor (one of Telus, Bell, and Rogers) to be:
C2(Q2) = 20Q2
Mr. Zuliani would love to be able to present to the board of directors the expected equilibrium price and
expected yearly profits at the next board meeting coming up next week.
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