Case Study on "on Australian Telecommunications"

>

Optus was the first company to benefit from the deregulation of the Australian telecommunications market. The government created Optus as Aussat in 1981, but then privatized the entity by selling it to a consortium of private firms. Thus, Optus was one of the first government initiatives aimed at introducing and promoting competition in the Australian telecommunications market. Optus began inn fixed-line long distance but has since expanded its offerings to include other forms of fixed telephony, mobile telephony, Internet access, cable television and other lines (Optus, 2009).

Today, Optus is a wholly-owned subsidiary of Singapore-based SingTel. It is the second-largest telecommunications company in Australia, after Telstra. The eponymous main brand is the core of the business, but other brands exist as well, including Virgin Mobile and Boost Mobile. While Telstra remains the industry leader with large installed base and significant brand loyalty, Optus has benefited from consolidation in the industry in recent years, absorbing market share from smaller competitors (Best, 2007).

The government has continued to push for competition in the industry, which results in policies that provide some advantage for private firms in the market at the expense of government-owned Telstra (Morgan, 2007). This is expected to continue in the future as Telstra still holds a dominant 70% market share in fixed telephony (Morgan, 2007) and a 40% share in mobile (Oakes, 2009). Optus is the second-ranked firm in mobile with 33% share (Oakes, 2009).

The focus of this report will be on the Australian telecommunications industry as a whole, after which a company analysis will be done on Optus. Lastly, Optus' strategy will be analyzed against the industry environment to determine the effectives of that strategy. A recommendation will then be made with respect to the Optus strategy and how it may be improved.

General Environmental Analysis

A number of tools have been developed to assist in the general environmental analysis. One that has shown to be useful is the PEST analysis. This form of analysis focuses on the political, economic, social and technological analysis (Quick MBA, 2007). These four environmental factors are the main drivers of the telecommunications industry in Australia. The industry is heavily regulated, demand fluctuates with the state of the economy, social trends drive demand is certain segments and the industry has been subject to a high degree of technological innovation in recent years. Understanding how these four factors are shaping the industry will help to understand the potential effectiveness of Optus' strategy.

The political environment is generally favorable to Optus. The main driver of change in the industry at present is the Australian Communications and Competition Commission (ACCC). The ACCC has been responsible for guiding the course of competition in the industry since the deregulation process began. ACCC policy is heavily influenced by the ruling political party at the time. In recent years, politicians of all stripes appear oriented towards increasing competition in the industry. ACCC chief Graham Samuels and the government-run Telstra have been at odds for several years. There appears to be strong personal and political stakes in that battle between public entities and this conflict has resulted in regulation favorable to the development of private enterprise. At present, this has manifested itself in opportunities for Optus to not only grow, but to have a substantial portion of its risk buffered by government pricing policies. Going forward, the regulation appears to still favor private enterprise competition over Telstra. Given that public opinion on the issue is not strong, it is unlikely that the regulators' views of competition are going to change. Optus, therefore, can count on continued political support in the future. This includes support on key issues such as bandwidth auctions in mobile and in pricing controls across the industry (Oakes, 2009).

The economic environment affects telecommunications in that it can affect demand in the industry. Demand is characterized not only be price elasticities of demand but also cross price elasticities (Bannerjee, 2007). There is evidence to suggest that mobile and fixed telephony are both complementary products in Australia. This indicates a relatively low level of cross price elasticity. The long-term trend, however, is towards increasing cross-price elasticity. Evidence from more developed telecommunications markets shows that consumers have begun to drop fixed line telephony in favor of mobile, and that this change is in part related to price. As fixed line communications become less useful to consumers, the value proposition is reduced, increasing the amount of cross-price elasticity between mobile and fixed (Bannerjee, 2007).

While the Australian economy has weathered the global economic downturn better than most due to robust banking regulations, the country still suffered as a result of reduced global trade, particularly in the Asia-Pacific region (Barrowclough, 2009). The result of this is that telecommunications demand has been stagnant. That, however, is set to change with economic recovery.

The social environment in Australia has resulted in increasing emphasis on mobile services. Both the mobile and fixed markets are relatively saturated in Australia. As consumers currently view the two as complementary, they substitute usage based on convenience and robustness of service rather than by price at present. Consumers are increasing their use of mobile services including downloads, photos and other bandwidth-oriented products. This trend is expected to increase in the future. This again represents an increased focus on broadband. Furthermore, the satellite market in Australia, estimated at 1-2% of the total telecommunications market, is decreasing as broadband service is expanded to rural outposts previously only served by satellite companies (Collins, 2009).

The technological environment is subject not only to rapid change. The current trend is towards increasing the functionality of broadband mobile devices. This is driving demand from consumers for broadband service. Optus is not well-positioned. Bandwidth is controlled by the ACCC and is subject to auction. Bandwidth is considered to be a finite resource and it is possible that the available bandwidth will be entirely saturated in the future. Vodafone/3 has significantly more bandwidth than it has market share, whereas Optus has less bandwidth than market share. The company therefore needs to find ways to gain more bandwidth. It already had one bandwidth shortage scandal in 2004, which reduces customer satisfaction and reduces the image of the brand (Dinham, 2004).

The other major technological trend is the work to take the Australian telecommunications industry beyond the current 3G technology. While the industry has long been at a stalemate, completely with public political bickering (Sutton, 2007) over the development of faster networks, Optus has recently announced that they are pushing ahead with a trial of next generation technology LTE. The trial will take place for several months and will help SingTel understand the technology better and set its strategy for full national rollouts (Bingemann, 2009).

Task Environment Analysis

While the general environment provides a backdrop to the key issues that govern the industry, the task analysis focuses on the environment regarding specific actions that drive industry success. Marketing is one major task that drives success; another is technological development. Customer service is a third major task in the industry. With many other aspects of the industry subject to an intense regulatory environment, success in the industry from the company's perspective is driven by its capabilities in these three areas.

The industry is largely oligopolistic in nature. With just a handful of firms competing, the intensity of competition is high. Thus, marketing budgets are high. The promotion component of the industry can be intense, particularly for mobile. Advertising is highly visible, and focused on communicating a range of product benefits. Branding is also important.… READ MORE