Continental/Fintelco Jv Case Analysis
1. Is entry into the Argentine market a good strategic move for Continental?
Entering Argentine market in 1993-1994 was a good strategic decision for Continental as one of the TOP5 cable TV companies in the US despite certain risks for several reasons: 1. Changes in the US regulatory environment created additional challenges for Continental’s core business: 1992 Cable Act limited the cable TV companies’ ability to raise cable rates whereas costs at market prices reached up to $2000/subscriber. This inevitably led to constrained profit margins 2. US market began saturating: long-standing competition on the market coupled with growing demand and consumer selectivity has led to further squeezing margins and forced companies to seek for diversification of revenue streams –by entering non-traditional cable markets, capturing smaller niches, or expanding overseas. 3. Argentine cable TV marked lagged in behind US market by almost a decade: cable TV penetration barely reached 50%, subscription growth rates approached 60-70% in selected areas. Also, the market was only beginning to consolidate around 4 major players – more than 50% of the market was controlled by a thousand of smaller operators. Although Buenos Aires was relatively more mature market, other regions and provinces presented lucrative opportunities. Telephone, satellite, and other adjacent markets had untapped future opportunities. So far, emerging Argentine promised much brighter prospects for cable TV companies than saturating US. 4. Argentine macroeconomic indicators exhibited positive dynamics despite high level of uncertainty: indeed, after a decade of political turmoil and military rule Argentine was finally building a democratic civilian government. During four years preceding the acquisition, Carlos Menem and Domingo Cavallo launched effective economic and political reforms, including deregulation and privatization in TMT and other major sectors. In particular, legislation became
Entering Argentine market in 1993-1994 was a good strategic decision for Continental as one of the TOP5 cable TV companies in the US despite certain risks for several reasons: 1. Changes in the US regulatory environment created additional challenges for Continental’s core business: 1992 Cable Act limited the cable TV companies’ ability to raise cable rates whereas costs at market prices reached up to $2000/subscriber. This inevitably led to constrained profit margins 2. US market began saturating: long-standing competition on the market coupled with growing demand and consumer selectivity has led to further squeezing margins and forced companies to seek for diversification of revenue streams –by entering non-traditional cable markets, capturing smaller niches, or expanding overseas. 3. Argentine cable TV marked lagged in behind US market by almost a decade: cable TV penetration barely reached 50%, subscription growth rates approached 60-70% in selected areas. Also, the market was only beginning to consolidate around 4 major players – more than 50% of the market was controlled by a thousand of smaller operators. Although Buenos Aires was relatively more mature market, other regions and provinces presented lucrative opportunities. Telephone, satellite, and other adjacent markets had untapped future opportunities. So far, emerging Argentine promised much brighter prospects for cable TV companies than saturating US. 4. Argentine macroeconomic indicators exhibited positive dynamics despite high level of uncertainty: indeed, after a decade of political turmoil and military rule Argentine was finally building a democratic civilian government. During four years preceding the acquisition, Carlos Menem and Domingo Cavallo launched effective economic and political reforms, including deregulation and privatization in TMT and other major sectors. In particular, legislation became