Sizing up Telstra's competition

Telstra's quest for growth will require it to step out of its comfort zone, and under David Thodey’s guidance the telco is showing it won't rest on its laurels anymore.

Telstra chief executive David Thodey’s latest proclamation is no grand revelation. The fact that Telstra doesn’t expect to maintain stratospheric mobile subscriber growth shouldn’t come as a surprise. However, Thodey’s statements to the Australian Financial Review do set the scene of what the local mobile game could look like in a year’s time.

Telstra has been the key beneficiary of Vodafone Hutchison Australia’s misfortunes but the ‘Vodafail' windfall is on its way out. The competition is also lifting its game, with Vodafone and Optus competing far more aggressively on device availability, customer interaction and data plans.

Optus might not be adding to its mobile subscriber base but it’s keeping a handle on churn. Meanwhile, Vodafone is also showing signs of success when it comes to stemming the bleeding. More importantly, its network performance and customer satisfaction rates are starting to improve.

Sizing up Telstra’s competition

While Telstra’s coverage plus infrastructure combo gives it an enormous advantage, customer growth in the mobile space will inevitably plateau. In fact, the market is maybe moving towards finding an equilibrium of sorts in a 4G world, with Telstra at the top but the other two finding their feet as well.

Vodafone is making slow but steady progress with regards to rehabilitating its network and at some point will be ready to make full use of the capacity on its under-utilised 4G network. What that means is that it will be able to attack price points and data allocations far more aggressively.

From a technical perspective, a Vodafone revival is quite feasible. It has spectrum; it’s building a 4G network which, unlike Telstra’s network, will be relatively free from capacity constraints; and for the time being its wealthy parents are willing to stay the course.

The big unknown is whether Vodafone can fully exorcise the ghost of Vodafail.

As for Optus, its recent stoush with Telstra over network coverage may not have panned out as planned but its intent is clear.

Optus wants to close down the coverage gap perception among consumers and could well make that a reality once the 700 MHz spectrum comes into play, with the telco expected to provide significant 4G coverage in metropolitan and selected regional areas by April.

It will be a boost for Optus and independent telco analyst Chris Coughlan says that Optus has the capability and the spectrum to become a serious threat to Telstra in the metropolitan area.

“They need to spend up and capitalise on it,” Coughlan adds.

Has ARPU lost its shine?

David Thodey’s point about the usefulness of average ­revenue per user (ARPU) as a key metric for determining the profitability of mobile customers also merits a think.

Thodey reckons ARPUs are no longer the best measure for success, telling the AFR that while it is a “very good measure when you were looking at voice and data services”, what he is looking at now is revenue, profit growth and cash generation.

Telstra isn’t writing off ARPU completely but it would seem Thodey is keen to focus on raw profitability as a key indicator of health for the telco.

In a market edging closer to saturation point, where data traffic is the becoming the dominant theme, ARPU may not be the only relevant metric available.

High data consumption, coupled with the fact that customers are now inclined to utilise multiple consumption devices (phone, tablets, potentially wearables), means that a telco like Telstra has to take a much more comprehensive approach to pricing, plans and customer interaction.

It’s a necessary complication in an industry that has been forced to redefine itself courtesy of smart devices and upstart, over-the-top (OTT) voice over IP (VoIP) solutions providers.

The era of dumb pipes is over and as telcos look beyond their traditional sources of returns, Telstra’s initiative will be worth watching.

Content is one obvious plank of Telstra's strategy to widen its product portfolio, however the machine to machine (M2M) and the wearables segment could potentially provide a significant avenue for Telstra.

Network connectivity is just one half of the equation here; for a telco like Telstra, leveraging its strength in large scale service delivery and building partnerships with software and management providers could be the key to opening new revenue channels.

This will require Telstra to step out of its comfort zone and a look beyond its telco roots, but under Thodey’s guidance the telco is at least showing that it isn’t resting on its laurels anymore.

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