Continuing strong growth
Despite 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.
Revenues services market by operator
Year ends June
(Source: BuddeComm – Telecoms Industry – Overview and Statistics Report 2005/2006)
* at wholesale value
Telstra the best international performer
Telstra’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.
Total revenues 2nd tier market
(Source: BuddeComm Telecoms Industry – Overview and Statistics Report 2005/2006)
Note: Excluding Telstra and Optus
So what are these negative reports all about?
Profit margins set to half
Telstra’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.
On 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.
There 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.
On 24 August, BuddeComm will launch the 2005/2006 edition of its annual reports on the Australian Telecommunications Industry. In all, a set of 12 reports analyses the Australian telecommunications market in great detail.
The launch will take place at two Roundtables – one in Sydney (24 August) and one in Melbourne (25 August).
2005 Australian Publications
Due For Release in August 2005
Telecoms Industry – Overview and Statistics
Market & Industry Analyses – Moving into 2006
Residential, Business, Government and Regional Markets
Telco Company Profiles – Telstra and Optus
Telco Company Profiles – 2nd Tier Companies
NGN, VoIP, IP and Internet
Broadband Powerlines and Utilities Markets
Mobile Communications – from 2G to 3G
Mobile Data and Content Markets
Broadband Market – DL and cable modems
Wireless Broadband market – the arrival of WiMAX
Released in May 2005
Triple Play: IP, Broadband and Digital TV
Broadcasting and Pay TV Market
*Prices: Single-User PDF Licence excluding GST for Australian customers).
I have put all the synopses of these reports into one pdf file (13 pages), which has become an interesting research document in itself – free for you to download here
‘State of the Industry’ Roundtables with Paul Budde
Sydney – Wednesday 24 August 2005
Melbourne – Thursday 25 August 2005
Theme: Australian Telco Market moving into 2006
Presentations and discussions will mainly concentrate on the latest results contained in our new Australian reports, bringing you up to date regarding the latest research data and, perhaps more importantly, analysing the market with you – highlighting the areas where opportunities exist.
I will bring you up to date regarding the latest research data and, perhaps more importantly, analyse the market with you – highlighting the areas where opportunities exist.
$350 per person (excluding GST) – this includes morning/afternoon coffee and lunch
24 August: Observatory Hotel, 89-113 Kent Street, Sydney
25 August: The Windsor Hotel, 103 Spring Street, Melbourne.
Booking: Call or e-mail Christine Lewis to make your booking.
Telephone: 02 4998 8144 E-mail: firstname.lastname@example.org
Online: Sydney and Melbourne
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