At a wholesale level Telstra’s market share stands at around 64%, Optus at 22% and the other service providers make up the rest of the $31 billion telco market.
On the retail side Telstra’s market share is around 55%, with the service providers at 25% and Optus in charge of the balance.
Fixed voice accounts for 40% of revenues, followed by mobile with 33% and data by 17%.
The market is on the brink of significant changes, mobile is saturating, VoIP is taking over traditional voice and broadband is moving into triple play models.The industry moving into 2006 Revenue Overview 2000-2005 Market Share Analysis 2004-2005 Market Forecasts 2005-2015 Revenues and Market Shares - 2nd-tier telcos 2004-2005 Forecasting (qualitative) 2006 Industry Overview International Carriers Local Access and Services Market Wholesale Services Mergers and Acquisitions Data Market - Revenues and Key Trends Calling Card and Callback Markets Premium Rate Services Enhanced Voice Services, IVR Pricing Strategies, Churn Competition Issues Regulations - developments in 2005 The August 2005 Telco revolution Executive SummaryContinuing strong growthDespite some reports that might indicate otherwise, the Australian telecoms industry is in good shape - I would say perhaps in its best form since 2000.Revenues are increasing by 5.5% in 2005, and a conservative forecast for 2006 is 4.1%.
Over the last five years the average growth has been 4.6%, well above most of our western trading partners.Telstra the best international performerTelstra’s profits are world famous.
No other similar incumbent telco in the western world even comes close to Telstra’s consistent financial performance.On competition, we see that competitors now have 45% of the retail market and a 35% share in wholesale values.
This is certainly not a bad achievement.
We have seen a number of new players coming to the fore, and the situation is now back to what it was in 1999, when we had nine major telcos with revenues of over $100 million per annum.
Some of the names have changed, however – they now include Vodafone, AAPT, Hutchison, Commander, SP Telemedia, Macquarie Telecom, PowerTel, iiNet and People Telecom.So what are these negative reports all about?Profit margins set to halveTelstra’s part of the problem relates to the fact that the company will finally have to join the rest of the industry and become used to much lower profit margins.This could, over time, be as dramatic as a reduction of 50%.
The competitors are used to low margins, but they also will experience further pain.The margins on voice services are going down across the fixed and mobile markets.
VoIP (fixed and wireless) will have an even greater impact here during 2007/2008.
And the move from dial-up Internet to broadband constitutes a further margin squeeze.
While I, of course, welcome the low entry-level prices for broadband, I am not sure if the industry has been managing these margins well.
But what’s done is done.The other reality is that the current telecommunications market is very much a commodity industry.
In other words, you need a very large operation to make a profit.
Back in 1999 I forecast that this would mean there wouldn’t be room for more than six national competitors, and they would need revenues of $1 billion plus.And even such a large revenue figure is no guarantee of success.
AAPT is still struggling; I remain pessimistic about Hutchison’s ability to deliver a decent ROI; and Vodafone is still only marginally successful.
Optus’s margins are also squeezed and, given the current situation, I don’t see them going back to their heydays of double-digit growth.Value-added servicesOn the other side we see the success and resilience of many ISPs, most of whom have built interesting value-added services around their businesses, ranging from PC services, web hosting, firewalls, security to home networking and so on.
In general terms, most of the telcos have failed to move into value-added areas and the margin squeezes are going to cause further problems in this market.It is too easy to blame this simply on poor wholesale rates from Telstra.If we follow the developments of the industry over the last decade then we see that, despite Telstra’s dominance in the market, other telcos and ISPs have made good inroads – customers obviously value the extra services they receive from these competitors.Infrastructure competitionThere are now also more than 50 infrastructure-based projects, either in existence or under construction.
These include Fibre-to-the-Home (FttH), Broadband over Powerlines (BPL), and wireless.
In the infrastructure business the first few years are always the most difficult, as it is necessary to build before customers can come, but this has now been done by companies such as Unwired, PBA, SP Telemedia, utilities and regional companies such as BushCom, CountryTel and a dozen or so others.On top of this, there are a dozen WiFi operators who can extend their business into WiMAX, plus an equal number of DSLAM operators who are also able to deliver new innovative services independently of Telstra.With another $5 billion earmarked for infrastructure investments the future looks bright for telecoms in Australia, as long as we are able to use this money wisely and not fritter it away in political pork-barrelling.