Increased competition amongst first tier telcos and consolidation between second tier telcos will continue to drive the telecommunications market. Over the longer term with the shift to IP networks for telecom services, significant changes are expected to strategies and business models that will threaten incumbent players.

The Australian telecommunication market remains dominated by Telstra which has over 60% share of the market by revenue. After losing market share in recent years, Optus and Vodafone are making gains with Optus competing heavily on price and Vodafone returning to revenue growth after losing 2.6 million customers. In the second tier market, operators are striving to increase market share and scale to remain competitive in the future NBN environment. This has driven considerable consolidation over the last 12 to 18 months.

Challenges and trends facing the sector:

  • The shift to all IP-networks is changing the definition of telecom services. Over-the-top (OTT) models threaten traditional fixed and mobile services. Consumers are seeing new applications as functional and reliable substitute products for many services including messaging, voice services and video conferencing.
  • New players that are nimble and have the product development expertise are beginning to take on incumbent telcos in their traditional service lines.
  • Incumbent players will begin to focus on product leadership as a competitive advantage, effectively moving up the value chain to remain competitive. This may drive mergers, acquisitions and JVs as operators move to acquire or share technologies and product development.
  • Investment in telecommunications infrastructure will continue with the NBN rollout, upgrading of mobile networks and increasing use of wifi hotspots. Over the long run telecom infrastructure will become a pure commodity with smaller margins and greater need for operational efficiencies.