Telco sector stall

Over the past five years the mobile telecommunications sector has reached maturity, with subscriber numbers surpassing the size of the total population, the rate of product and technological innovation slowing and prices falling rapidly. This has seen a general deceleration in revenue growth. IBISWorld estimates that over the five years to 2008-09 industry revenue increased at an average annualised real rate of 6.8% per annum.

The saturation in subscriber numbers and solid productivity gains have alleviated human resource requirements and led to annualised declines in employment and wages. Combined with slowing depreciation growth and greater profitability pressures, the industry’s contribution to the economy has expanded only slightly.

The market consists of 12 enterprises, but is dominated by four national mobile service providers that collectively account for over 99% of industry revenue. Over the last five years there has been a halving in enterprise numbers, which has represented the exiting of small paging and radio dispatch businesses from the market.

Competition within the mobile telecommunications industry has intensified in recent years as witnessed by declining airtime charges, falling handset prices, a vast array of promotional offerings, continued product innovations, high customer churn rates and most recently “bucket plans”. The commoditisation of mobile telecommunications services has been highlighted by intense competition between four national network providers and has led to a steady decline in prices.

IBISWorld forecasts the mobile telecommunications industry to achieve 5.0% per annum revenue growth over the five years to 2013-14. Only the Internet Service Providers industry will exhibit more rapid gains within the telecommunications sector. Solid revenue increases will be driven by further subscriber growth, particularly data card numbers. The rate of mobile telephone customer growth will slow and will be made up of price reducing cap subscribers.

Carriers’ margins will depend on the service. Data rates on a dollar per megabyte basis are also expected to fall due to competition with wireless broadband providers and intense internal competition.

Australians are now firmly dependant on various communication services in their daily lives. The current performance period saw considerable year-on-year gains in industry revenue, driven by more and more subscribers using mobile communications as a substitute to fixed telecommunication services. It has been the fixed to mobile substitution trend that has characterised the growth of this industry and the decline of the industry in recent years. The industry will remain in the mature stage of its life cycle during much of the outlook period. This means that for much of this time, the industry will no longer outperform the broader economy.

But the roll out of 4G services in 2012 and beyond will instigate an upswing in subscribers and revenue pushing the industry back into growth in subsequent years.

Key Success factors for operators in the industry:

• Development of a symbiotic relationship with another industry. Developing strategic alliances with strong operators in related service industries such as computing, banking, multi-media and retailing in line with trends favouring convergence.
• Ready access to investment funding. Due to the capital intensity of this industry, access to funding for infrastructure development, research and development and subscriber growth is essential. This is particularly important in markets that can deliver significant economies of scale.
• Ability to quickly adopt new technology. Given the continued emergence of new technologies within the wireless telecommunications field, the ability to embrace these new technologies is essential.
• Having a high profile in the market. Given the increasingly competitive nature of the industry, this is very important.
• Having links with suppliers. Operators should develop strategic alliances with manufacturers that can be first to market in delivering new technologies that enhance product offerings.
• Use of production techniques that add value to base product(s). Operators should seek to reduce reliance on traditional low growth, low margin services, by developing and introducing value added services to gain market acceptance and bolster profit margins.
• Establishment of brand names. This is an important factor in winning and retaining customers.
• Having a wide and expanding product range. This is important given the increasingly sophisticated nature of the consumer.

Robert Bryant is the general manager of business information firm IBISWorld.