Telstra results under pressure from all sides
Of course it was a total coincidence that Google announced its FttH plans on the day Telstra announced its quarterly results, but it does show what is happening in the telecommunications arena.
The telcos have clearly lost their leading position. They have been stifling competition for so long that when the floodgates are finally opened up by companies such as Google and Apple there is such a pent-up demand that the carriers are scrambling to keep pace.
We are seeing the results of this in various elements of the market.
In the fixed broadband market competition is really biting. In late 2007, after delaying the provision of broadband wholesale services since 1999, Telstra was finally forced to open up this market with local loop unbundling and line-sharing services. It is these products that are now allowing companies like iiNet and Internode – as well as, of course, Optus, Primus and others – to compete with Telstra on a more equal footing. The result is that all of these players are ‘going gangbusters’; some are operating from a low base but they all offer competition, and this affects the prices and limits the amount of profit Telstra can make.
We certainly applauded Telstra’s NEXT G mobile broadband network, but right from the start we did say that you can only offer services at premium prices for so long. Eventually, when the top end of the market is filled, you need to go deeper and those people are not prepared to pay much extra on top of their mobile phone bill for the broadband facility.
Similarly for a decade, since 1998, the mobile operators had prevented any innovation in mobile media services by charging extraordinarily high fees to content providers (they demanded 80% of the revenues of these content providers and 40% for e-payment services). Then the market was opened up by iPhone and the operators are now scrambling here as well, due to the enormous pent-up demand that has to be filled.
For all those years the incumbent telcos claimed that there was no business case for these open models, and that it would not be in their shareholders’ interest. Their financial and economic advisers supported this approach and therefore they also should take some of the blame. A further downside of these strategies has been that, by failing to develop a viable mobile media market for themselves, they are now relegated to the network – and the question is whether they will be able to earn a decent ROI on their new mobile broadband infrastructure investments.
As we have been predicting for a long time, better wholesale services need to be provided and carriers should start looking at offering the valued-added infrastructure services those content players need in order to operate efficiently and effectively in the digital economy.
If the telcos fail to do this, and if they fail to accept the need for business models for such strategies, once again others will step in and do it for them.
Wherever one looks in the market the telcos are losing their leadership (dominance) and are now being forced to follow companies such a Google and Apple – which companies enjoy enormous support from their customers, unlike the telcos, who are experiencing a consistent rise in customer complaints.
It is these overarching developments that are going to create more trouble for companies like Telstra, but other telcos will also be affected.
Possibly the NBN will prove to be a godsend for Telstra. It can then blame the government for any negative outcomes from the process, and at the same time it can truly prepare for this new telco world where open systems rule and where gadgets and services not controlled by the telcos will actually establish the pace of new developments.
The good thing is that Telstra management has now, at least conceptually, accepted the new world, and under the right circumstances I am convinced that they can deliver on that.
Whether they like it or not telcos will have to follow the business models that are now being implemented by companies such as Cisco, HP, Google, e-Bay, Amazon, Walt Disney, Canon, and others who are placing their customers ahead of financial results. These companies believe that profits will come from making customers their priority.
Unless the telcos also get that message they will increasingly be relegated to the commodity market, as we can already see happening before our eyes. Google’s latest FttH developments further underline this trend.
Paul Budde
PS: To add insult to injury, Apple announced today that it will start offering TV programs for $1 per show.
For further information please see:
- Telstra Corporation Limited – Company Overview and Operating Statistics
- Telstra Corporation Limited – Financial Statistics
- Australia – National Broadband Network – Competition and Regulations
- Australia – National Broadband Network – Deployment Strategies
- Australia – National Broadband Network – Early Projects
- Australia – National Broadband Network – Government’s Trans-Sector Conference
- Australia – National Broadband Network – Industry at crossroads
- Australia – National Broadband Network – NBN Co and Infrastructure
- Australia – National Broadband Network – Overview and Analysis
- Australia – National Broadband Network – Telstra
- Australia – National Broadband Network based on Trans-sector model
- Australia – National Broadband Network Municipal Networks
- Australia – National Broadband Network Trans-sector projects
Tagged in: Australia, Telstra
