Telstra is a telecommunication company in Australia
Telstra is a telecommunication company in Australia, the biggest one in the country, providing full services ranging from information services and network services. The company is was formerly state-owned, and for the larger period of its earlier years was a monopoly in the telecommunications field. Its roots are traced back to 1901 when the Australian Postmaster-General’s Department was instituted to manage postal and telegraph services (Referenceforbusiness, n.d). The Australian Telecommunications Commission, also known as Telecom Australia, then broke off from the Australian Postmaster-General’s Department in 1975 (Referenceforbusiness, n.d). The commission was eventually privatized upon appeals from stakeholders in the private sector over the monopoly of the corporation in the telecommunications sector. A merger between the Overseas Telecommunications Commission and Telecom Australia took place in 1992 (Referenceforbusiness, n.d). The merged company eventually gained its new, legal corporate name, Telstra, in the year 1993 (Referenceforbusiness, n.d). The company went on to realize massive profits over the next decade or so, gradually cementing its place as the largest telecommunication company in Australia. Currently, the company offers traditional telephone services, mobile services and various data services, that is, internet and online services, to many households and businesses across the country (Referenceforbusiness, n.d).
Bargaining power of suppliers refers to the ability of a supplier to change the cost of inputs provided to certain companies for profit (Jim Chapellow, 2020). The bargaining power of a supplier depends on the number of supplier of the same product in the market, the uniqueness of the product on supply and the cost of changing to another supplier (Jim Chapellow, 2020). The fewer the number of suppliers of a certain product are, the more dependent a company is on these suppliers, who can then drive up the cost of inputs at any time for their advantage (Jim Chapellow, 2020). Telstra is, no doubt, one of the biggest, is not the biggest, telecommunications company in Australia. The only other notable companies offering competition to the Teleco include Vodafone Hutchison and Singapore Teleco. The two companies have emerged as stiff competition for Telstra over the last few years. Telstra, however, holds a considerable advantage over its competitors due to its widespread services, as it covers Australia, quite literally, coast to coast. The teleco has its telephone network fixed from the major cities to the rural out backs of Australia, utilizing its delivery platforms over which services are provided, including transactions. Its recent merger with Vodafone Hutchison also, which is in the cooking, having being approved by the courts, means the company has a larger market reach and less competition. In terms of supply of their services to the Australian market, Telstra, definitely have the lion’s share of the bargaining power.
The buyers for any company have the ability to lower or raise the profitability of the company by increasing or decreasing demand for a good or service. The power of customers wholly depends on the number of customers a company has, how significant each customer is to the company, and the cost of looking for other customers on the company (Jim Chapellow, 2020). A small client base means more power for the customers, as they can successfully negotiate for the lowering of prices (Jim Chapellow, 2020). A small group of individual customers means lower negotiating power for the customers; hence the company can raise the price of goods and services at any time (Jim Chapellow, 2020). Telstra has a broad customer base in its locality, that is, Australia, and is not as widespread abroad. The cost of seeking new customers in foreign countries where other Telecos are already established is high, therefore, the local customers have a high bargain power. However, the vast service range offered by the company and its dominance means the supplier negotiation power outweighs that of the customers.
Risk of substitution refers to the potential of the goods or services of a company getting replaced by better alternatives in the market (Jim Chapellow, 2020). Telstra prides itself in the diversity of the services it offers, from mobile connectivity, transaction, and network services among others. The vast array of products in the telecommunication industry puts the company at a significant advantage over competitors, and reduces the risk of new products or services getting discovered that are not already within their scope. The threat of substitutes is, therefore, minimal.
Potential of new entrants refers to the extent of impact a new company may have on the position of an already-established one in the market (Jim Chapellow, 2020). Telstra and other competitors in the telecommunications field have made significant strides in the industry, and expanded their market reach to most parts of the country. The infrastructure put up by these companies is invaluable both in the monetary sense and in terms of their importance to their functioning. A company that opts to join the market, therefore, not only has to match up to these standards, but surpass them. Though not impossible, it is an extremely difficult feat that can only be achieved by intense investment and flawless management. Such a scenario is unlikely; therefore, the potential of new entrants is low.
As stated earlier, Telstra faces stiff competition from various telecommunication companies, but none comes close to the level of penetration and diversity that Telstra offers in the current market. This coupled with the imminent merger with Vodafone Hutchison puts it at an advantage over most competitors in the telecommunications market.
A case example of the relative success of Telstra Company in the telecommunications is its comparison to one of its biggest competitors, Singapore Telecommunications. The two companies offer largely similar services, from broad band internet, to mobile connectivity, among others. Telstra has a greater track record of continued growth and increased profits over its peer, and due to its diversity, has been forecast to realize even greater profits over the coming years (Elio D’Amato. 2014).
The liquidity ratio of the Telstra stood at 2.89:1 by the close of their last financial year (Telstra, n.d). This means that the company can pay off its debts by 2.89 times its assets. What this means is the company has adequate assets to offset any debts incurred and are not at the risk of financial collapse or bankruptcy in the near future. The solvency ratio of the company stood at 1.01:1 as per the financial records at the end of last year (Telstra, n.d). The solvency ratio is usually a pointer to how much of a company’s money is coming from the banks, compared to that coming from shareholders. The above one solvency ratio means majority of the funding for the company comes from banks as opposed to shareholders, which is a pointer to the little prospect of self-sustainability by the company. The profitability ratio of the company stood at 0.65:1 at the end of the last financial year (Telstra, n.d). The low profitability ratio means that the investment being pumped into the company is more than needed or the company assets are not being utilized optimally to produce profit.
The firm does not present a suitable option for investment based on the ratios stated above. Though the debt incurred by the company is insufficient to cause any financial struggle in the near future, evidenced by the high liquidity ratio, the profitability ratio of the company is worrying. The profitability ratio is low, meaning too much investment has been put into the company without realizing profit or the assets are not being utilized properly. All are pointers to poor management. Also, the higher borrowing compared to money input from the shareholders, as evidenced by the high solvency ratio might be a sign of distrust in the operations of the companies by the shareholders, and their resultant reluctance to pump in money. Overall, the company is not the ideal place to pump in money for an investor.
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Jim Chapellow. 2020. Porter’s 5 Forces Definition. [online] Investopedia. Available at: https://www.investopedia.com/terms/p/porter.asp [Accessed 1 May 2020].
Elio D’Amato. 2014. Telstra V Singtel: How Numbers Add Up. [online] Available at: https://www.afr.com/markets/equity-markets/telstra-v-singtel-how-numbers-add-up-20141120-11qjfu [Accessed 1 May 2020].
MBA Crystal ball Admission Consultants. n.d. Ratio analysis | Formulas, examples, limitations [online] Available at: https://www.mbacrystalball.com/blog/finance/ratio-analysis/ [Accessed 1 May 2020].
Telstra. n.d . Financial Results [online] Available at: https://www.telstra.com.au/aboutus/investors/financial-information/financial-results [Accessed 1 May 2020].