Optus Strategy Analysis: Australian Telecom Industry
This paper analyzes the strategic position of Optus, Australia's second-largest telecommunications provider, within the broader Australian telecommunications industry. Using PEST analysis and Porter's Five Forces framework, the paper examines the political, economic, social, and technological forces shaping the industry, as well as competitive dynamics including supplier power, buyer power, barriers to entry, and rivalry intensity. The analysis finds that Optus relies heavily on government regulation and brand differentiation rather than an independent competitive strategy. The paper concludes with recommendations that Optus improve its customer service and pursue first-mover advantage through early rollout of next-generation LTE mobile technology.
- Introduction: Optus history, ownership, and market position
- General Environmental Analysis: PEST analysis of Australian telecom environment
- Task Environment Analysis: Marketing, technology, and customer service drivers
- Competitive Environment Analysis: Porter's Five Forces applied to Australian telecoms
- Strategy Analysis and Recommendations: Optus strategy critique and LTE, service recommendations
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What makes this paper effective
- The paper applies two well-established strategic frameworks — PEST analysis and Porter's Five Forces — systematically and in sequence, building a layered picture of Optus's competitive environment before drawing strategic conclusions.
- Claims are consistently supported by cited industry data (e.g., specific market share figures for Telstra and Optus) and named regulatory decisions, lending credibility to the analysis.
- The recommendations section flows logically from identified weaknesses uncovered in the environmental and competitive analyses, giving the paper strong internal coherence.
Key academic technique demonstrated
This paper demonstrates the technique of framework-driven industry analysis. Rather than describing the industry descriptively, the author deploys recognized business strategy tools to organize evidence and generate defensible conclusions. The transition from environmental scanning (PEST) to competitive structure (Five Forces) to firm-level strategy is a textbook approach in strategic management writing, showing how analytical scaffolding can guide argumentation.
Structure breakdown
The paper opens with an executive-style summary before moving into a formal introduction covering Optus's history and market position. It then progresses through a general environmental analysis (PEST), a task environment analysis covering marketing, technology, and customer service, and a competitive environment analysis using Porter's Five Forces. The final section synthesizes findings into a strategy critique and actionable recommendations. This five-part structure mirrors a standard business strategy report format.
Introduction
Optus was the first company to benefit from the deregulation of the Australian telecommunications market. The government created Optus as Aussat in 1981 and then privatized the entity by selling it to a consortium of private firms. Thus, Optus was one of the first government initiatives aimed at introducing and promoting competition in the Australian telecommunications market. Optus began in fixed-line long distance but has since expanded its offerings to include other forms of fixed telephony, mobile telephony, Internet access, cable television, and other services (Optus, 2009).
Today, Optus is a wholly-owned subsidiary of Singapore-based SingTel. It is the second-largest telecommunications company in Australia, after Telstra. The eponymous main brand is the core of the business, but other brands exist as well, including Virgin Mobile and Boost Mobile. While Telstra remains the industry leader with a large installed base and significant brand loyalty, Optus has benefited from consolidation in the industry in recent years, absorbing market share from smaller competitors (Best, 2007).
The government has continued to push for competition in the industry, resulting in policies that provide some advantage for private firms at the expense of government-owned Telstra (Morgan, 2007). This is expected to continue in the future, as Telstra still holds a dominant 70% market share in fixed telephony (Morgan, 2007) and a 40% share in mobile (Oakes, 2009). Optus is the second-ranked firm in mobile with a 33% share (Oakes, 2009).
The focus of this report is on the Australian telecommunications industry as a whole, followed by a company analysis of Optus. Optus's strategy is then analyzed against the industry environment to determine its effectiveness, and a recommendation is made with respect to how that strategy may be improved.
General Environmental Analysis
A number of tools have been developed to assist in general environmental analysis. One that has proven useful is the PEST analysis, which focuses on the political, economic, social, and technological factors shaping an industry (QuickMBA, 2007). These four environmental factors are the main drivers of the telecommunications industry in Australia. The industry is heavily regulated, demand fluctuates with the state of the economy, social trends drive demand in certain segments, and the industry has been subject to a high degree of technological innovation in recent years. Understanding how these four factors are shaping the industry helps to evaluate the potential effectiveness of Optus's strategy.
The political environment is generally favorable to Optus. The main driver of change in the industry at present is the Australian Communications and Competition Commission (ACCC). The ACCC has been responsible for guiding competition in the industry since the deregulation process began. Its policy is heavily influenced by the ruling political party of the time. In recent years, politicians of all stripes appear oriented towards increasing competition in the industry. ACCC chief Graham Samuels and the government-run Telstra have been at odds for several years. There appear to be strong personal and political stakes in that conflict between public entities, and this has resulted in regulation favorable to the development of private enterprise. At present, this has manifested itself in opportunities for Optus to not only grow, but to have a substantial portion of its risk buffered by government pricing policies. Going forward, regulation appears to still favor private enterprise competition over Telstra. Given that public opinion on the issue is not strong, it is unlikely that regulators' views on competition will change. Optus can therefore count on continued political support in the future, including on key issues such as bandwidth auctions in mobile and pricing controls across the industry (Oakes, 2009).
The economic environment affects telecommunications in that it can influence demand. Demand is characterized not only by price elasticities but also by cross-price elasticities (Bannerjee, 2007). There is evidence to suggest that mobile and fixed telephony are complementary products in Australia, indicating a relatively low level of cross-price elasticity. The long-term trend, however, is towards increasing cross-price elasticity. Evidence from more developed telecommunications markets shows that consumers have begun to drop fixed-line telephony in favor of mobile, and that this change is in part related to price. As fixed-line communications become less useful to consumers, the value proposition is reduced, increasing the degree of cross-price elasticity between mobile and fixed services (Bannerjee, 2007).
While the Australian economy weathered the global economic downturn better than most, due to robust banking regulations, the country still suffered as a result of reduced global trade, particularly in the Asia-Pacific region (Barrowclough, 2009). The result was stagnant telecommunications demand — though this was expected to change with economic recovery.
The social environment in Australia has resulted in increasing emphasis on mobile services. Both the mobile and fixed markets are relatively saturated. As consumers currently view the two as complementary, they substitute usage based on convenience and robustness of service rather than price. Consumers are increasing their use of mobile services including downloads, photos, and other bandwidth-intensive applications. This trend is expected to intensify, representing a growing focus on broadband. Furthermore, the satellite market in Australia — estimated at 1–2% of the total telecommunications market — is decreasing as broadband service is expanded to rural areas previously served only by satellite companies (Collins, 2009).
The technological environment is subject to rapid change. The current trend is towards increasing the functionality of broadband mobile devices, driving consumer demand for broadband service. Optus is not well-positioned in this regard. Bandwidth is controlled by the ACCC and is subject to auction. Bandwidth is considered a finite resource, and it is possible that available capacity will be entirely saturated in the future. Vodafone/3 has significantly more bandwidth than its market share warrants, whereas Optus has less bandwidth than its market share would require. The company therefore needs to find ways to gain more bandwidth. It already experienced a bandwidth shortage scandal in 2004, which damaged customer satisfaction and harmed the brand's image (Dinham, 2004).
The other major technological trend is the effort to move the Australian telecommunications industry beyond current 3G technology. While the industry had long been at a stalemate — complete with public political bickering (Sutton, 2007) over the development of faster networks — Optus recently announced a trial of next-generation LTE technology. The trial will run for several months and will help SingTel better understand the technology and set its strategy for a full national rollout (Bingemann, 2009).
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