Telstra is an Australian company which has been expanded its services to the Asian market (The Philippines and Indonesia). It’s finances have started to unravel recently which is a marked change from the last decade of conspicuous success. Many of those difficulties come as the result of the mass retails (JB HiFi, Harvey Norman and the websites like Mobilecity on device sales. Every month, an increasing proportion of us buy a handset, outright, through one of these stores and add a SIM to it. This is a trend that’s set to continue and it is not to Telstra’s advantage.
The times are changing for Telstra
Companies like Telstra have been restructuring the way they work, changing employees and strategizing around how they can adapt to the way the market is changing. Last week a Telstra made public one significant change: they dumped Andrew Vollard, director of device Management and Operations. He had been with them since 2008. This decision was taken after growth slow down in his area of the business over the previous 12 months. Like him, hundreds of Telstra employees are set to lose their jobs as the market shifts away from buying phones under contract.
JB Hi Fi and the rest are selling a broader range of phones
The fast growing alternative to a contract from Telstra comes from mass retailers. They’ve always sold handsets in small number. But new suppliers and new options for savvier consumers are changing all that. It’s this fundamental change which is influencing carrier’s profits and affecting Telstra’s bottom line.
Telstra’s only course of action is to focus their market in big brands such as Apple and Samsung. It’s these huge annual flagship device launches which drive the majority of their contract connections. The problem is, that leaves plenty of opportunities for these mass retailers to sell all the other handsets which are now available, many from mainland Asian countries.
How can Harvey Normal sell phones so much cheaper?
Phone technology is becoming cheaper too, as customer demand for low price smartphones in both rich and poor economies. JBHi fi, and the rest stack them high and sell them cheap. This fact has been taking away customers from Optus, Vodafone, and Telstra. Mass retailers also use their expertise in the field to upsell customers to buy things with their phones like batteries, charger, power bank, earphones/headphones, memory cards and the rest. This is in addition to their cut price phone offers, a better retail ‘experience’ and convenience discounts.
The expansion of mass retail sales online especially has been made possible, partly, through the expansion of online stores like Amazon and eBay. If that were not enough, there are rumors that Amazon – which plans to launch mobile phones sales in Australia when it arrives here later this year, plans to work as a phone carrier to offer connectivity, network, and handsets, in Australia, too.
The boom in the online sale of smartphones has brought with it the decline of traditional channels sales lead by carriers. It has happened in the United States and the United Kingdom. It seems evident that Australia is undergoing the same trend.
What are the cut price phone alternatives Telstra doesn’t offer?
Brands like Lenovo and HTC have benefited from the growing retail market. The former has negotiated agreements with Woolworth, Coles, and Officeworks. On the other hand, some HTC mobile phones have been sold exclusively by JB HI-FI this year. Oppo, a Chinese consumer electronic firm is another brand selling by JB Hi-Fi after the Dick Smith collapse in 2016 and Woolworths. Each of these is nibbling at part of Telstra’s market. In sum, they are making a real difference.
And that’s just the start of Telstra’s woes
In addition to the competition from retailers, Telstra faces the usual competition from Optus and Vodafone. Even this list of more core competitors is growing. TPG, Australia’s fourth mobile telephony provider is working on a go to market plan and intends to launch it’s own network in the not too distant future – Australia’s fourth. This could frustrate Telstra’s ambitions further.
And this is just the mobile category. Regulation, imposed by the NBN (National Broadband Network) will reduce the profit margins for fixed broadband. It’s another blow to Telstra’s monopoly and this too has been responsible for part of the fall in profits of the company.
What does the future hold for Telstra
Telstra was able to compensate for the decline it saw in its profits by signing a contract to provide the infrastructure necessary for the Australian government to be able to equip the nation with the broadband. In this 2017, the agreement between Telstra and the Australian government will allow 100 Mbps connection to 90% of Australian households. The operator will receive $9 billion as payment for the use of its infrastructure by NBN, the public company in charge of creating the network. That’s great but it doesn’t offset the structural deficiencies we’re starting to see.
The future for Telstra is far more competitive than it’s ever been before. The company needs to balance its focus on headline device sales with a smarter, more competitive suite of SIM Only and prepaid plan sales. The truth is that Telstra never wanted to sell phones. Telstra is in the network business. Selling devices ties up money in the company that they could use to invest in other areas, like maintaining their coverage and value add advantage.
In reality, Telstra will never be able to turn back the flood of device sales from non-Telstra channels. It needs to redouble its efforts on digital sales of SIM products and accentuate its extra value to justify the price premium it charges. Luckily, this part of the business is in good shape. Telstra only, now, needs to get the message across to customers.