Telecoms competition carnage in 2012?

The year 2012 will be challenging one for competition.

There was certainly a great deal of gaming played out under the previous Telstra management, but at the same time the company mostly stayed away from aggressive competition because it believed the products and services it was offering were of premium quality.

With the new management all that has changed, and Telstra has become the most aggressive competitor. With a $1 billion budget set aside for this it has created havoc among the competition during 2011.

The sheer marketing power of the company is often no match for the other players.

While the greatest impact has been on the mobile market the fixed broadband providers have also felt the brunt of the campaign, and natural growth in a saturating market is drying up. This is further hampered by the regulatory advantages that Telstra still has in relation to its broadband wholesale prices. There are alternatives (such as naked DSL) that provide much more flexibility to the retailers, but wholesale, particularly in regional areas, remains a problem area, and it is there that Telstra has created the most havoc.

There certainly is room for scrutiny from the ACCC, but at the same time this is closely linked to the transitional period – where time matters – and a far more effective way forward is for the industry to sit around the table with Telstra and try to sort it out. If that fails they would have a much better case to take to the regulator.

With Telstra’s success will come an increase in self-confidence that it can indeed compete with lower margins and that it does not need to rely on its monopolistic position in the market. This will only mean more competition going forward, so 2012 will be a very tough year for competition.

Natural subscriber growth in the fixed broadband market will be reduced to a trickle and the pressure on margins will lead to lower ARPUs.

These are all signs of a utility market where size and volume matters, but where in the end there is only room for a handful of players.

Triple-play models – with good IPTV offerings (fetchtv) – will see some spectacular growth during 2012, and if the industry can really work together here it could position itself well against Telstra’s T-Box product.

Fetchtv is still a superior product, but Telstra is already launching its T-Box 2 version, to ensure it has a competitive alternative. And the growth that will occur will be from a very low basis and it therefore will not immediately have a significant impact on the bottom line of the players. It will take several years before that happens, so it is not a miracle cure.

Nevertheless, the companies will have to find new products to sell to their customers in order to stay in the race. Specialisation is another strategy that can be pursued, but the reality at the moment is that most players offer very similar products. Customers have also become accustomed to price competition, so they will expect lower prices and will keep hunting for them. There is little loyalty when it comes to price, and churn will therefore increase during the next few years.

The competition will have to move in new directions so as not to be caught in the spiralling-down effect of the commoditisation of the current telecoms market, which is still largely based on access and call charges. The problem here is that the NBN will offer a much better basis for new value-added services, new product and service packages, and indeed innovations, and the transitional period will be a very dangerous one. Not all the current competitors will be able to survive on their own – consolidation is essential in the commodity market.

Sophistication can also been found in customer service, one of the weakest and most under-utilised parts of their businesses. New customer management software has been and is being developed that allows the companies to better target their customers and create lifelong customer relationships. This is starting to replace the need for some of the large-scale advertising campaigns, which have been a rather blunt and expensive tool to increase customer numbers. Telcos are in an ideal position to be the middlemen between the customers and the content and service providers; however they can only be successful here if they lift their game in the areas of customer management and customer care.

This is a key area where the companies can compete in a way other than just on price, and those who are the most sophisticated in harnessing these tools will most certainly be the winners.

This also applies to the telcos operating in the mobile market. While Telstra has seen a significant increase in penetration during 2011 the long-term competition will come from outside the telco industry. At the beginning of the year we alluded to Apple’s interest in opening up the mobile call market by providing a chip that will allow customers to roam to different mobile networks, with cloud applications guiding customers to the best prices and so on. Such a move would again sidestep the mobile operators, in much the same way as the company sidestepped the operators’ mobile content portals when it launched the iPhone in 2007. An LTE-based iPhone 6 could be launched as early as Christmas 2011, and such a device could have all of those features embedded.

Will the telcos be ready this time?

2012 will be a very tough year for competition and will separate the men from the boys. Customers will be the winners here as some of the products and prices on offer in Australia are below international benchmarks.

However, at the same time it is critical to ensure that this all takes place on a level playing field, and that Telstra does not possess any unfair anti-competitive advantages.

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