Telecommunication Industry in Australia
Introduction
Telecommunication is one of the dynamic industries in the world. The industry has experienced significant developments and innovations in the past few decades. The innovation has moved from fixed-line connections to mobile serves which encompasses voice, text messages and internet. The sector is driven by the innovation of sophisticated devices such as smartphones. The emergence of low cost smartphones has enabled different use cases for telecommunication services such as access to online platforms that enhance communication and social interactions. This makes the sector one of the most lucrative in terms of returns and different areas in the industry that one can invest in.
Australia is among the countries with the most developed and regulated telecommunications industry. The vast geographical area and high population of the country necessitate the rapid growth of the telecommunication industry. The sector comprises of giant telecommunication companies that make it possible for the people to communicate on a global scale. This communication is through the transmission of data in words, video or audio across the globe. Though the sector seems to be robust, the risk-return concept is mandatory to project risks and future returns. Through the analysis of subscribers, major competitors, market-entry, products substitution as well as regulations, this report justifies that investing in telecommunication industry will be a wise capital budgeting decision. Lack of dominant operator, ease of entry to the market and favourable government policies contributed to choice telecommunication sector.
Why the Telecommunications Industry
The telecommunication industry is one of the most dynamic sectors in Australia. In the past two decades, the industry has developed to the levels no one would have imagined. Telecommunications industry plays a vital role in connecting people who are far from each other. This has been enhanced by the emergence and widespread adoption of smartphones. At an individual level, the industry enables quick and effective communication between two individuals who are far from each other. This saves time and cost of physically visiting that person. In business, the industry has enhanced customer services as it enables a faster and effective customer service which can be done via a call or a text message. It also enables collaboration between teams and companies hence enabling effective service delivery and efficiency and reducing the cost of holding physical meetings in boardrooms. Therefore, there an increased demand for telecommunication services due to these industry developments.
Market trends
The Australian telecommunications industry has continued to experience strong growth with new developments and trends driven by the increasing demand for smart devices such as smartphones and the adoption of wireless network technologies. Like any other industry in the world, the industry is experiencing the impact of COVID-19. However, it is not worst hit since the new trend in communication the country and globally is virtually hence there is a likelihood of increased sales in the industry as individuals and businesses increase mobile and online communication and reduce physical interactions.
The mobile data sales are also likely to increase as subscribers purchase mobile data to access online platforms such as WhatsApp, Skype, and Zoom, among others to communicate. Also, as they reduce physical interactions, they are likely to interact online; hence they are likely to spend more time on platforms such as Facebook, Instagram and other social interaction platforms.
Mobile operators in Australia, like many other mobile operators globally, are working to introduce 5G network, which will enable subscribers and businesses to experience higher internet speeds. In fact, Australia is likely to be among the first four markets to drive the growth and development of a 5G network in Asia. This is likely to lead to a further decline in fixed-line broadband and continuous increase in fixed-wireless bandwidth which has become widely available across the country.
Subscribers
There has been an increase in the number of mobile cellular subscribers in Australia over the past two decades. For instance, Australia did not have any mobile cellular subscriber in 1986. However, due to increase innovations and development of the industry, the country had a total of 21 million subscribers by 2007. The number of mobile cellular subscribers increased from 21 million in 2007 to 28 million in 2018. These subscribers include both postpaid and prepaid customers. (CIEC, 2019).
In terms of market shares, in 2018, Telstra had the most significant market accounting for 42% of the total subscribers, followed by Optus at 28%. Vodafone Hutchinson Australia had a market share of 18% the same year while the rest other smaller operators accounted for the other 13% of the market share.
Figure 1: Number of mobile cellular subscribers
Source: CEIC,2019
Major Competitions
Australian telecommunications industry faces competition from online platforms such as WhatsApp, Facebook, Zoom, Skype, among others. These internet-based internet-based, cross-platform messaging and call platforms allow users to communicate by sending text messages and making calls, video calls, and even sharing videos, images, locations and other media across the globe. Many telecommunication subscribers prefer them because they are cheaper and cross-border; hence they pose major competition to the telecommunication industry in Australia.
The telecommunication industry also faces internal competition where operators compete among themselves. There are dominant operators that control the largest market shares and are a threat to the growth of the operators with smaller market shares. (The Australian Competition and Consumer Commission, 2014 )
Market Entry
In any industry, there are many factors that determine the ease of entry to the market. One of the major determinants is the market structure. If the market is more concentrated, other firms find it hard to enter the market since there is a dominant firm that is controlling the market. If the industry is less concentrated, there are many firms with almost equal market shares hence the entry to the market could be easier. Other factors such as regulation and infrastructure could also influence the easy of market entry. (Regulations and Polices A)
In the Australian telecommunications industry, there has not been a dominant operator. For instance, Telstra which has the largest market share, had a market share of 37% in 2010 which increased to 42% by 2018 with a peak of 45% in 2014 and 2015. Optus has maintained its market share with a slight decrease from 30% in 2010 to 28% in 2018. Vodafone Hutchinson Australia market share reduced from 27% to 18%. Other smaller subscribers have gained their market shares from 6% in 2010 to 13% in 2018. (statista.com 2019)
There is no dominant operator in Australia telecommunications industry hence this makes it easier to enter the market. However, the industry is highly regulated and capital intensive; consequently, this makes it hard for firms without financial muscles to enter. However, with infrastructure sharing, smaller firms are able to use the infrastructure of larger firms to operate.
Table2: Market shares of the operators
Source: statista.com,2019
Product Substitution
In Australia, there is no motivation for the consumers to switch from one mobile operator to others. First, the difference in tariffs among different mobile operators is small hence subscribers might not be influenced by prices to switch from one operator to another. Also, in 2015, the Australian Competition and Consumer Commission reduced the mobile termination rates (MTR) by half which made it cheaper for subscribers to call different subscribers.
With small difference in call rates within operators and small mobile termination rates which makes the call to other operators cheaper, there is less likelihood that consumers would switch from one operator to another.
Regulation
Telecommunication act 1997 is the main legislation that regulates telecommunication carriers. The act in support of other range of legislations, instruments and codes. The provisions of Telecommunication Act 1999 is also very key. The market is also regulated by the Australia Communications and Media Authority (ACMA) which is mandated to set performance standards as well as the obligations on the carrier. Also, the authority provides the requirements by the carrier to enter the telecommunication market. For instance, in Australia, specific National Broadband Network (NBN) Co laws. (DLA Piper,2020) . Regulations and policies form the existing telecommunication regulatory framework. Such policies include Non-discrimination obligation, ACCC explanatory material on the part of XIC Non- discrimination provisions which provides access agreement in relation to terms and conditions of wholesale services. Special Access Undertaking (SAU) which is under NBN Co specifies basics for the provision of wholesale services. Also, Authorized conduct, whose provision allows the necessity to achieve uniform national pricing. It relates to interconnection issues, bundling of services and cross-subsidizing in the charging of the services. Finally, the introduction of part 7 and 8 of Telecommunication Act apply to the fixed-line local access network to be in a position to provide a carriage service to residential and small business owners where download transmission speed is more than 25 megabits per second.
Conclusion
Overall, the telecommunication industry in Australian is good for investment. First, there are many areas that one can decide to invest in. One can choose to offer a whole range of telecommunication services such as voice call, text messages and data or decide to specialize in data only. Also, the industry has experienced strong growth in terms of the number of subscribers, and the outlook looks promising. Again, there is no match competition because there is no dominant market player which also ensures there are no strict barriers to entry. Also, that subscribers are unlikely to switch operators because of standardized call rates and mobile termination rates. Lastly, the industry regulations are permissive which gives investors a good regulatory environment for their businesses