Australia | Jun 20 2006
By Greg Peel
The telco industry is undergoing a period of transformation that has seen innovation and technological development, both in hardware and software, run a scythe through what were once stable, extraordinary profits. Attempting to prop up an out-of-date industry structure has always proven a bet to nothing as any new product or system replaces another, in any industry.
So it is with the telco industry – one that has arguably seen the most rapid acceleration of technology replacement of any sector in the market. If we divide telecommunications into three sections – fixed line, mobile and broadband – Citigroup finds that there is little good news in any of them.
Fixed line is the superseded technology that has been Telstra’s mainstay for decades. While the company holds grimly on, revenues are declining at 9-10% according to Citi’s calculations. Part of this reflects the effect of ULL (where broadband can come down your telephone line simultaneously with calls) such that the old extra internet dial-up line has become redundant. It also reflects the fact that mobile plans are so cheap now many homes are simply disconnecting the old fixed line.
And it reflects the fact that broadband substitutions for the telephone, such as Skype et al, have wiped hundreds off business phone bills and international calls. This area of technology is in overdrive.
Mobiles have become so ubiquitous in such a short time no one can remember how we ever got by without them. But this market has reached a point of competitive saturation such that Citi sees revenue growth rates falling from 10% to 3% over the next two years. If you think you’re paying too much for mobile, call your operator and tell them – they’ll sort you out straight away.
Broadband is the big growth area, and subscriptions are very strong. The problem is that what was once a luxury not so long ago has rapidly become a staple, and prices have fallen some 30%. Citi believes price pressure will only continue, particularly as ULL operators "scramble for scale".
Citi had previously forecast a flat growth curve for telco revenues. Now the analysts are predicting negative growth for at least the next two years. More pain before gain, says Citi.