Using Porter’s five forces to analyse Telstra Australia

Business Structure

Telstra is Australia’s leading fully integrated telecommunications and information services company. Telstra’s organizational structure consists of Telstra Retail, Telstra Mobile, Telstra Country Wide, Telstra Wholesale, Telstra International infrastructure Services and Network and Technology Group. They offer a range of services from landline telephony, to complex mobile services, to high speed broadband. As required by the legislation, the Federal government remains 50.1% majority shareholders. However, the majority of the market shares are concentrated on several key market competitors.

Rivalry among existing firms

The telecommunication market is growing in a decreasing rate in the last few years due to competition increment after the industry’s deregulation in July 1997. Major competitors of Telstra are Optus, Primus, AAPT, Orange and Vodafone, but Telstra still maintains its dominant position in the telecommunication market. With the diminishing growth in the Australia’s telecommunication industry, Telstra has expanded its business in other potential market in Asia-Pacific regions, particularly in Hong Kong.

The national long distance and international call, and mobile telephony service are the segments most intensively compete in the market. However, Telstra still capture a market share greatly over the competitors. Telstra, Optus and Vodafone each operate separate GSM mobile networks, capturing the market share of around 57 %, 31% and 11% respectively as of 2002 .

Bargain power of supplier

Telstra is the largest network and services supplier in the market, as well as a supplier to its, because its control of network capacity and large share of customer base. It has overwhelming dominance across the telecommunications market and in almost every segment of that market. Its wholesale share of land-based market is 94.1%, including basic access lines resold by its competitors (ACCC report). Telstra’s dominant market position remains stable, as most of carriers are generally reliant upon leasing network capacity from Telstra. Other service provider’s dependecy allows Telstra to have significant influence over the cost of its competitors in all markets where access to the network is necessary.

Bargain power of consumers

There is not much product differentiation among all the other service providers and Telstra. The switching costs across different service providers are relative lower than before the deregulation in 1997. The pressure has been added to the industry on the provision the quality and coverage of the service network which consumer are most concern about.

Threat of substitutes

Competition and development of technology have resulted in diminished profit margin in the industry. Prices have reduced most obviously in the markets for international long distance and mobile calls. The price of a full range of telecommunications services has declined by 21.4% in real terms between 1997-98 and 2000-01 and there have been further falls since then ( ACCC report).

Entry barriers/ Exit barriers

Even with the deregulation of the market, entry barriers still exist for new entrants. Telstra has gained a strong reputation in the telecommunication industry for its new technology and R&D projects. Therefore in order to compete with the Telstra, new entrant will have to suffer large set-up cost in. On the other hand, since Telstra consists of many highly specialized assets, it may be impossible to sell when facing overcapacity, hence extremely difficult to exit the industry.

Competitive Strategy Of Telstra

Apparently, Telstra’s competitive advantages are derived from its quality network capacity and its providing of integrated telecommunications services. Its local call service market has absolutely dominant power in the market and it also capture a leading market share in other business segment, which enable it yield the advantageous profit to sustain its R&D and network maintenance.

As the figures shown in table 1, its retail and wholesale segments contribute most part to its overall revenue and profit. Other segments also lead the competitors although its market share has dropped recently years due to new entrants.

However, Telstra competitive advantage would never. As the market deregulates and the industrial profit declines, Telstra would suffer from a profit decrease. Following a cost leadership competitive strategy would be critical for Telstra to sustain its profit and to maintain its market share. To achieve this strategy, the following key elements are most critical factors to succeed:

1. Enhancement of retail and wholesales segments. Most of Telstra’s profit comes from these two segments. Maintaining its market power in the segments by taking the advantage of its current network capacity would set Telstra in a favourable competitive position. Therefore, enhancement of network infrastructure and operation transparent to business customers are necessary measure to attract new entrants to use its network.

2. Productive corporate structure. By rationalizing the business segments, Telstra can effectively reduce cost of operation, raise the productivity lessen the impact of industry environment, and improve stakeholders’ value.

3. Common vision of staff, which involve enhancement of staff commitment and customer services, providing customers value-added and integrated services at lower price.

4. Focused investment in R&D and new profit-potential project.

Low debt financial position and adequate cash reserve. Low debt to asset ratio and adequate cash enable it