Abstract
In an effort to increase revenue communication firms have rapidly expanded as they seek to provide more services in a saturated and highly competitive market (Asoka 1997, 102-104) This proposal seeks to give an in depth examination on the aspect of competition among the major players in the communication industry a case study of the Australian communication industry (Asoka 1997).
Optus communication Pty limited; rated as the second largest telecommunication company in Australia formerly known as Aussat Pty Limited before its privatization, is the company under scrutiny as an attempt to critically analyze how it’s being affected by competition in the communication industry is made (statistics, 1979). The business topic: competition in the communication industry is first clearly defined and analyzed, and then using data resources information on this topic is gathered, findings discovered and recommendations put forth in an attempt to find a lasting solution to the problem of competition faced by Optus in the communication industry (Hans-Werner 2003).
Telstra Corporation limited, the largest and most dominant telecommunication company is the greatest competitor of Optus in the communication industry (Hans-Werner, 2003). Its mere aspect of being the largest mobile telephone service provider in Australia, both in subscription and coverage poses a great problem to its rivals in the communication industry (James, 2008). This problem is analyzed by the clear and consistence application of a theoretical framework to help understand the competition in the industry and therein find a solid solution to the Optus competition problem (Jay 2000).
It is clear that this is a problem because of the financial dents evident in the profits accrued by Optus. The problem is unfair competition and has been caused by financial muscles by Telstra (Joseph 1997).
Problem statement
Competition
Telstra as a player in the communication industry in Australia has a lot of arsenal in its amour to ensure it remains afloat in the competition (Michael 2008). Formerly a government owned parastatal, Telstra has a huge financial muscle to manipulate the prices within the industry almost single handedly. The financial muscle enables Telstra to enjoy the large economies of scale within the industry galvanizing itself of competition (Mireille 2004). This, to a large extent makes Telstra a monopoly pushing the other players within the industry into financial oblivion. It uses unethical practices to compete against the other players in the industry such as going against the ACCC rules, a practice that has seen the company successfully sued in court severally (Joseph 1997).
In view of the above, Optus as a player in the industry finds itself in an awkward position to compete fairly. Optus came into the market sometime after Telstra’s privatization, at this point; Telstra had already established an en masse clientele base with a good capital thus claiming monopoly (Jay 2000). Formerly a government parastatal, Telstra enjoys huge government support in most of the policies enacted to shape the communication industry; this again leaves Optus an orphan which has to face experienced and rich players (James 2008).
With the little capital base, as compared to Telstra, Optus is susceptible to manipulation by Telstra’s flexing of its financial powers. It is left to adhere to the rates put by Telstra in order to survive (Milena 2008). On the other hand, Telstra is keen to ensure that the prices it fixes fall below the steady point/equilibrium point of Optus but above its steady point due to the huge financial base they have (Scott, 2000). As would be expected, due to disparity in capital base of the two firms, their equilibrium states vary from each (Massimo 2004). This puts Telstra at an advantageous level to reduce the prices (calling rates), in a manner to manipulate the other players in the industry implying a cut throat competition designed to eliminate others players from the industry (Mireille 2004).
Literature review
Michael. E Porter in his book competition views unfair competition as unhealthy in an industry (Michael, 2008). He uses the model to analyze the competition in an industry which he terms the porter five models. This also adds on the problem of low standards, Optus offers low standard services due to the low capital and the large and very expectant market considering the kind of services they receive from Telstra (Mireille 2004).
The successful business plan: secrets & strategies - Page 103 “But in business it is imperative to see who's gaining on you. It is far better to know what you're up against than to be surprised when your sales suddenly disappear to an unexpected competitor.” (Robert, 2009).
This, in the situation of Optus, applies in the sense that Optus should be able to know the kind of competition they are up against as Telstra is a well established fir in the industry (Michael, 2008). They should therefore identify market gaps not filled by Telstra and exploit these areas to ensure a substantive number of clientele (Joseph, 1997). As such, Optus will have an opportunity to offer unique services or maybe improve on the services poorly offered by Telstra e.g. the messaging and phone internet services. “Others simply argued less regulation would serve to promote local competition (Ashoka, M, 1997). A little more than half the respondent said cable company entry into the telecommunications business would benefit their companies, with nearly 40%.” (Network World 1993 64-72)
In the Optus case, they may consider having improved infrastructure to ensure faster services and investing in this network infrastructure to avoid paying for the network leased to it by Telstra (Network World 1993).
In the analysis of various competitions in the telecommunication industry, the case of Telstra and Optus doesn’t stand out as unique since as the mobile telephony industry was in offing, few people could afford the needed capital base to erect the needed infrastructure and thus the government came in to provide the necessary resources and later privatized the various companies as was done in Australia (Network World 1993).
Situation analysis
Optus, using the gap model above, has a gap between the company and their clients to fill (Massimo 2004). If the company is to auger with the market, it ought to deliver services similar to or even better than the service standards being witnessed in the country or being offered by Telstra.
PORTER FIVE FORCES MODEL
Considering the porters Five Forces of Competition model, Optus is threatened by the new entrants into the industry since they will lose more clients to them and this will also raise the stakes as the new firm in its bid to acquire market may opt to lower prices (Michael 2008).
There is also a threat of substitute products provided by landline providers who also give similar products as the mobile providers e.g. optus.
The bargaining power of suppliers is to charge as high prices as possible while that of buyers is to charge as low prices as possible, this should meet at a poin(Michael 2008).
The above factors are influenced by the players in the industry with the competing firms.
FISH BONE MODEL
In the fish bone above, competition leads to staff retrenchment, need for promotion, reduced interfirm cooperation, reduced clients and the offloading of clients to other firms and among others high advertisement costs (Milena, 2008).
Using the SWOT analysis to analyze the situation, Optus pales in comparison
Strength
Optus’ strength includes the need for an alternative player in the industry or the market being bored with Telstra. Most people though love the low prices being charged by Telstra, would wish to have an alternative option in the industry (statistics, 1979). Optus could take this as an advantage and provide the needed alternative.
Weakness
The weakness that Optus faces in the industry in Australia is the fact that it is not well established but is facing Telstra which has already established in the industry with huge financial muscles on its side (statistics, 1979).
Opportunity
The opportunity is to assess the market gap left out by Telstra and exploit this to its advantage.
Threat
The threat that glares at Optus is the need to meet the expectations of, in terms of price and quality of services in comparison to what is currently offered by Telstra (statistics, 1979).
The market is of 45 million mobile users with a steady growth rate, a high cost of network infrastructure and long and expensive distribution channels (Jacob 2008).
In customer, company and competitor analysis, Optus is faced with a huge competition from Telstra coming some years after the establishment of Telstra, the company was inducted into the market to check on the competition by Telstra and as such it’s facing clients’ share with Telstra (Milena 2008). This impacts negatively on both companies but majorly on Optus since it’s lagging behind in network coverage considering its infancy in the market (statistics, 1979).
Data resources
Here we use data mostly from the stock exchange of Australia and from the company’s websites, including details involving price charged for calling among others.
The economic indications show that Optus is has ability to do well in the industry considering the kind of financial giants on its back (James 2008). These include the UK telecommunications, US Telecommunications Company, the insurance and investment company National Mutual and AIDC.
The share price is also not doing badly though there is a slight decline but it is being received well by the market.
Findings
This proposal is meant to analyze the consequences accruing to Optus due to the competition with Telstra and to recommend possible solutions to make it more competitive in the market (statistics, 1979).
It was found that in the provision of its services Optus was employing the services of other service providers, most notably Telstra which happens to be one of its biggest competitors in the industry (Michael 2008). This to a greater extend limits Optus independence in the industry which is an essential ingredient in a competitive telecommunication industry as such (Scott, 2000). This concept of .relying on other service providers in the industry for network infrastructure has crippled Optus ability to claim its rightful position in the industry since Telstra charges them unfairly consequently increasing their expenditure cost which has adverse effects on their investment on customer service (Mireille 2004).
Telstra’s high financial capability permits them to fund massive advertisement campaigns which cannot be sustained by the infant Optus. As result Telstra gets the upper hand in terms of consumers of their services (Mireille 2004). Optus on the other hand finds itself in a destabilized position in the industry unable to counter the massive advertising from rival Telstra due to its mean financial base (Joseph 1997). With no advertising, to increase sell of services to consumers Optus end up making very low profits that further weaken their stability in the industry.
Conceptual tool(s)
On the matter of service provision to consumers, Optus too is at a disadvantaged state as its rival who rolled into the industry earlier and established itself is better placed to provide user friendly and economic efficient services to its subscribers, something Optus struggles to do with a lot of pinch on its already constrained budget (Jay 2000). As a result, they lose their grip on the market which is more attracted to the more lucrative services offered by its competitor Telstra. Using the porter’s five model of competition, Optus thus fails to meet the bargaining power of the buyers as opposed to their competitors who definitely get an overhand in terms of buyers bargaining power (Jay, 2000).
SWOT as an analysis model, helps us identify how the company is being affected by the situation it currently is in and as such is an appropriate way to find out the problem a company is undergoing and also recommend possible solutions to the same (Hans-Werner 2003).
Recommendations
To cut down on avoidable costs, it is recommended that Optus Company makes an effort to own a large percentage of the network infrastructure it uses in provision of its services (Hans-Werner, 2003). This will to a great extent assist Optus budget as fees charged by other service providers in the use of their infrastructure will be avoided and invested in other sectors such as advertisement and upgrading of services provided to subscribers (Hans-Werner, 2003). Though costly in its initial stage of implementation, its great rewards to the company’s budget cannot be overestimated. It surely is worth the cost and all needs to be done to implement it (Asoka 1997).
Optus need to apply a more critical approach on the issue of advertising to avoid a phenomenon where advertising contributes to losses as opposed to profits, since the cost incurred in advertising does not match the rate of service consumption and consequently the profits made from them; which ought to compensate expenditure directed to advertising fail to do so (Milena, 2008). The company hence has to opt for much cheaper advertising options that are still effective in reaching the masses and try as much as they can to avoid expensive mediums of advertisement until they are very well positioned to economically fund adverts like their counterparts’ in the industry (Robert, 2009). Optus could also identify market gaps left by Telstra in the industry e.g. provision of fast internet (Mireille 2004). Creativity and innovation is very critical in the telecommunication industry and Optus has an obligation to encourage innovation and creativity on the part of its staff as well as support and implement proposals that are geared to improvement of services in the telecommunication industry (Asoka 1997). This will aid the company also come up with great services that will attempt to counter the lucrative services of rival companies in the industry and consequently meet the buyers bargaining power according to “the porter’s five model of competition” (Michael, 2008)
References
Ashoka, M. 1997. Infrastructure strategies in Asia: the untold strory, Worlg Bank Publications, London.
Hans-Werner, S. 2003. The new systems competitio, Wiley-Blackwell, Hoboken.
Jacob, W. 2008. The finances: panics and specie-payments, J. Campbell & sons, Chicago.
James, W. 2008. Competition: The Birth of a New Science, Farrar, Straus and Giroux, New York.
Massimo, M. 2004. Competition policy: theory and practic, Cambridge University Press, Cambridge.
Michael, E. 2008. On competition, Harvard Business Press, Boston.
Milena, S. 2008. Competition problems in liberalized telecommunications: regulatory solutions to promote effective competitio, Kluwer Law International, Alphen aan den Rijn.
