Telecommunication Industry in Australia

...

Competition

Mobile telephone subscription growth is beginning to slow as the market becomes saturated. As a result, the major players’ attempts to increase market share have led to intensifying competition in the industry over the past five years. Declining airtime charges, falling handset prices, new promotional offerings, product innovation, high customer churn rates and new capped plans have demonstrated this trend. The increase in price-based competition indicates the advancing commoditization of the industry as the core voice product offering has become increasingly difficult for players to differentiate.

Carriers have stepped up efforts to hold on to existing customers and lure potential customers away from other carriers by offering better deals, such as attractive handset subsidies and increased value in capped plans. Major players Telstra and Optus have invested in expanding their respective 4G networks to expand coverage, and reduce dead spots and call dropouts. However, as the market is highly saturated, carrier churn rates are expected to remain high as price- and promotion-based competition intensifies.

Industry profit margins have increased in the past five years, primarily due to subscription growth. Wage cost declines have also strengthened profit margins as industry operators have sought to increase operational efficiency. The explosion in 3G and 4G usage has resulted in data revenue gains. The ongoing rollout of 4G networks has intensified the industry’s operational expenses, limiting pro t growth. Pro t is projected to expand slightly in the next five years as users maximize data usage through 4G networks. Industry competition is expected to remain high as players aim to expand user bases, which is likely to constrain pro t growth.

Price is the major basis of competition in a commoditized industry, as it is often di cult to differentiate products. Price competition is based on call charges and handset costs, which are often heavily subsidized. Variables influencing call charges include the time of day, distance, flag fall charge, charge per time interval and networks involved. Networks tend to provide capped plans that charge users a set monthly fee for a predetermined value of calls, messages and data usage.

Vodafone Hutchison Australia

Vodafone is a renewable telecommunication brand in the world and is permitted to enter Australia market in 1993. According to Vodafone corporation responsibility report 2007 (Vodafone Australia 2007), Vodafone services more than 3.69 million people and has 1294 employees. On 9 February 2009, Vodafone Australia announced a merger with Hutchison via a joint venture company VHA Pty Ltd, which would offer products under the Vodafone brand. The combined entity, VHA, markets its products and services under the Vodafone brand. The high industry concentration is largely due to high capital intensity and the need to spread fixed costs across a large user base to maintain commercial viability. Having a large user base is crucial for enhancing competitiveness as it delivers the economies of scale necessary for maintaining profit margins. However, the financial performance presents a decline from 2011 to 2014. Especially, the total revenue reduces by over 10 percent in the 2012 and the 2013. In 2014, the revenue of Vodafone is around 3.5 billion.

Competition

The Wireless Telecommunications Carriers industry is an oligopoly, which has high barriers to entry. Primarily, influenced by the industry’s considerable market share concentration and its high capital intensity. Subsequently, These carriers enjoy considerable cost advantages arising from economies of scale and scope. Considerable resources have been invested over the years in establishing a customer base and achieving brand loyalty. In addition, other barriers relate to the established position of the three national network providers (Telstra, Optus and VHA). Optus and VHA are both ultimately foreign controlled. Telstra Corporation Limited is Australia’s largest telecommunications services provider, with 16.0 million subscribers as at August 2014, as the company has sustained growth in its prepaid user base. Telstra own 47.3 percent of market share in 2014. SingTel Optus Pty Limited (previously Cable & Wireless Optus) was formed in 1991 as a consortium to bid for the right to become Australia’s first privately owned fixed and mobile carrier, which has 27.1 percent market share in 2014. The three main providers occupy around 91.6 percent of market share in the industry.

Reference:

http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/9F25FC6061382290CA257B9500133B6F?opendocument