The longevity and profitability of Vodafone Australia is reliant on the industry’s competitiveness, emerging issues and lifecycle. Using Porter’s Model of Competitive forces (see appendix 1) to view industry competitiveness, it can be said that the threat of new entrants is relatively low. This is due to the many entry barriers such as the need for high capital expenditures to establish network infrastructure and facilities. In the case of Vodafone, an investment of $2.
7 billion was required to setup its operations.Furthermore, there are high overhead costs like administration and customer service staff. Finally, competitors need a global presence to generate synergies and provide extensive coverage for consumers. The second competitive force looks at industry rivalry. At present, the industry is dominated by a few firms (Telstra, Optus and Vodafone).
These firms are all large in terms of cash flow, global presence and customer base. Moreover, the technologies and services they offer are comparable. Hence, all three are intensely competitive in a bid to increase market share.
Indeed, price wars have become commonplace with the high handset subsidization and the continued repackaging of services at cheaper rates reaching unsustainable levels19. As seen in appendix 2, there are three main services, which act as telecommunications substitutes. Vodafone operates predominantly in the mobile sector with some dealings in data services, while both Telstra and Optus operate in all three areas. Another threat from substitutes arises as competitors provide consumers with mobile phone plans as a service offering while Vodafone offers a “no plan” alternative.The bargaining power of customers is relatively high due to the availability of similar products and services from other major carriers. In addition, the telecommunications consumer market in known to be price sensitive, being easily swayed by lowering prices and increasing handset subsidies while also being hesitant to adopt new services and products given the higher cost of new technology20.
Meanwhile, the bargaining power of suppliers is low given the fact that the major carriers own their own network infrastructure and supply their own services.Finally, there is a medium influence from regulators. Since 1997, telecommunications became a deregulated industry. However, carriers are still held accountable by groups like the Australian Competition and Consumer Commission (ACCC) which has been concerned over monopolistic behaviour21, and the Australian Communications Authority which has the authority to fine carriers $1 million a day for system breakdowns22. Finally, the government continues to intervene on issues such as the role of carriers in the fight against mobile phone crime23.Consequently, the industry faces a medium level of regulation from many interest groups.
The culmination of these six factors suggests that the industry is highly competitive. These also indicate that the industry is in the mature stage of its lifecycle (as depicted in appendix 3) with this explaining two observed trends. The first is its consolidated state, meaning it is dominated by a few firms who struggle to differentiate their offerings24. The latter is evident given the already stated similarities between Telstra, Optus and Vodafone.The second trend is the declining rate of sales growth, a probable plateau effect from the industry’s high market penetration with 63% of all Australians owning a mobile phone25. Thus, the industry’s high competitiveness and mature state has possible negative implications on Vodafone’s profitability and market share.
In order to combat this, an assessment of emerging issues must be made to ensure that Vodafone’s corrective actions are concentrated on important areas. The issues priority matrix (appendix 4) shows that Vodafone and the telecommunications industry face several major issues.The increasing use of wireless applications is of particular importance to Vodafone given the fact that the company specialises in this field. As one article states, wireless services appeal more to business clients who can use it as a faster and more convenient solution to business operations26.
However, Telstra currently targets large business clients and as such the small to medium business market is a source of opportunity for Vodafone27. Other important issues include the high turnover of customers due to their price sensitivity and the emergence of 3G technologies, which may cause existing network infrastructure to become obsolete.