It’s been a busy and interesting couple of weeks for the Australian telecoms industry, with all major players presenting results and updates about their businesses.
Looking over a 30-year period of competition in the telecoms industry, the big picture remains largely the same. Telstra continues to be the dominant player (over 60% market share), followed by Optus and TPG/Vodafone with approx. 19% and 15%. All other players combined account for around 5% of the total market.
Interestingly, Aussie Broadband is currently one of the best-performing telcos. It offered to buy its competitor Superloop, that offer was rejected. Only a few days later Superloop reported that Aussie Broadband has bought 98 million shares in the company, good for 19.9% voting right. Yet, again a few days later Superloop announced it had pinched Aussie Broadband’s largest wholesale customer, Origin Broadband. So, it is clear the war is on between these two competitors, so watch this space for more interesting developments.
Optus was also in the news again, there are persistent reports that the company is for sale, however a rumoured bid of $16 billion was rejected by its owners Singtel. While there obviously has been a range of problems at the company, I don’t think that would be the major reason for a potential sale. As I discussed in an article in the AFR, I see two reasons, one is that the business culture between Optus and Singtel is rather different so making it an independent company makes sense. The other reason is as I will mention below is that the telecoms market has become a utilities market, with very little if any value added growth, more on that below,
Growth in the industry is mainly driven by the mobile market, fueled by migrants coming into the country and an increasing use of mobile phones among the general population. Despite a dip in mobile sales after the collapse of its network last September, Optus has largely recovered, indicating customer resilience and similarity to trends in the banking market, where people know it doesn’t make a lot of difference with company you go with.
Smaller companies are also seeing growth through acquisition. Aussie Broadband’s acquisition of IP voice company Symbio and bid for telco Superloop exemplify this trend. However, despite growth, Superloop remains loss-making. Additionally, Superloop in order to grow, had previously purchased telcos VostroNet and MyRepublic.
Mergers and acquisitions are also driven by the fact the telecoms has become a utility. Overall revenue growth in the industry remains low, growing by only 1 or 2% per annum, with some years experiencing no growth or slight dips. Profitability is maintained through cost-cutting measures enabled by new technologies. Each new mobile technology iteration (2G, 3G, 4G, 5G) brings approximately 30% more network efficiency, with cloud computing and AI further reducing costs.
However, the main financial benefits of ICT developments and innovations accrue to Big Tech companies like Google, Amazon, Facebook, Microsoft, Alibaba, Tencent, etc. which have seen exponential profit growth over the past two decades. Their profits have skyrocketing over the last two decades. These companies wield significant economic and political power in a technology-dependent society. The top five account for more than a third of the total global ICT market valued at over US$5 trillion.
Comparatively, local companies like Telstra (and other telcos around the world for that matter) pale in significance.
Back to Australia, interesting across the industry we see that the business customers of the telcos are spending less, this is a bit of a puzzle as the need for investments in cybersecurity, privacy protection and AI is very significant. I don’t have a straightforward reason for this, are business users perhaps spending less with the telcos and more with the Big Techs and others? It looks like Telstra’s acquisition last year of cloud computing company Versent has not yet delivered the outcomes the company had hoped for.
Overall, while there are minor dynamics within the industry, the telecoms market’s overall picture remains largely unchanged. Limited overall growth, ongoing cost-cutting, and little change in market share balance define the landscape. The real innovation and growth within the broader ICT market occur elsewhere, with companies leveraging telecoms and IT as utility inputs to build new businesses, revenue models, and innovative services.
However, critical infrastructure provided by telcos remains essential for emerging technologies like Mixed Reality (MR), Artificial Intelligence (AI), and quantum computing. While telcos will continue to provide and extend these (fibre) networks, the financial impact of these investments on the overall telco business remains moderate.
Paul Budde