Telstra's price point balancing act

Telstra is trying to convince customers that its services are value for money but the telco probably shouldn't take today's price savvy consumers for granted.

Soon after David Thodey took over the reins at Telstra he announced ‘Project New’. A billion dollars was set aside to make Telstra more competitive. Until that time the company had positioned itself as a ‘premium’ company and that had allowed Vodafone, and in particular Optus, to increase their market share, especially in the mobile market. For the next 18 months Telstra had an aggressive sales and marketing campaign that paid off very well. It became the market leader in the mobile market again (based on growth). Vodafone suffered the most from this campaign and Optus flat lined during that period.

In mid-2012 Telstra basically declared the end of ‘Project New’, when it significantly increased its prices. In the end it is all about profitability and the good revenue gains that Telstra has made in the market now need to be translated into increased margins. This is a very clever move at this point in time as customers in general are slow to move and this would allow Telstra to increase prices without at least a large proportion of its customers moving over to one of the competitors.

Financial analysts have calculated that Telstra’s premium now sits at around 15 per cent in the mobile call market and 30 per cent in the mobile data market – so will that work?

At the beginning of the year Optus had already indicated that it would launch new campaigns in order to revive its growth and in the past it has demonstrated an ability to outmanoeuvre Telstra in more sophisticated marketing and sales techniques. Obviously Telstra has not been sitting still either, and both companies now have very sophisticated customer data-gathering systems in place, linked to the state-of-the-art analytics software programs. Among other things they can predict individual churn patterns before the customer actually churns. Linked to a sophisticated sales organisation this could be a very powerful tool to retain customers and maintain more profitable margins.

But the customers are not sitting still either. There is now a well-established attitude towards sorting out the best prices, despite the extra confusion that the mobile operators throw into the market via their often still incomprehensible price packages. But if the customer has the perception that prices are too high they will most certainly start shopping around. This is assisted by the fact that several MVNOs are now offering very competitive prices for both mobile calls and mobile broadband. The latest price offerings from Amaysim are a case in point, but Virgin and TPG are also increasing their activities in this market.

So it will be a battle between who can outmanoeuvre who and how willing customers are to keep on chasing the best prices.

This will become clear in another 18 months – or sooner, depending on how successful Telstra is in maintaining its increased margins. Perhaps we will see Telstra upping the competition strategy once more, which will change the dynamics yet again.

So far we have not discussed Vodafone. It is a bit of a wildcard in all of this; however, with the company’s recent $1 billion commitment it is clear that it hasn’t thrown in the towel and our interpretation of this is that Vodafone will most certainly increase its sales and marketing activities. Like Optus, Vodafone also has an advantage over Telstra. And they have shown themselves to be great innovators in the past and if they can restore some of their old glory then they most certainly will be a formidable competitor again. On top of that they have a very much loved brand that they can exploit.

Last but not least are the smartphone developments. First of all, innovative new handsets are greatly sought after by the customers and, in order to be able to package these handsets into the operators’ price packages, handset subsidies are worked into those prices. While in general this is under control and not excessive in Australia, disruptions can occur, as the developments in smartphones are not under the control of the mobile operators. New features and applications available on future smartphones can also have a negative effect on mobile operators’ revenues and again this is outside their control.

So, very interesting times are ahead in the very dynamic mobile market.

Paul Budde is the managing director of BuddeComm, an independent telecommunications research and consultancy company, which includes 45 national and international researchers in 15 countries. This article first appeared in Business Spectator on June 28. Republished with permission.




Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles