The telecommunication industry in Australia and Optus

INTRODUCTION

The telecommunication industry in Australia has experienced strong growth over the past decade as a result of deregulation in the industry since 1991 and 1997 and the development of new technology with a stronger consumer demand. (C van der Vlies 1996) Currently the market in telecommunication industry is dominated by three companies: Telstra, Optus and Vodafone Australia. Telstra has the most dominant position in the current market in particular the regional areas through the advantage of owning most of the infrastructures such as the copper network and coaxial cable network in Australia. Optus is the second largest telecommunication network carrier and most competitive with Telstra who previously monopolized the telecommunication industry. It was the first private company which provided most of the metropolitan areas that rivalled Telstra’s fixed line, wireless, broadband, mobile phone, cable TV products and services at a competitive price. Vodafone Australia is the third largest mobile carrier in Australia which provides digital wireless services in competition against both Telstra and Optus.

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Optus is entirely owned by Singapore Telecommunication (SingTel) after SingTel took over Cable & Wireless Optus Pty Limited since 2001. Recently, Optus has owned subsidiary brands such as Virgin Mobile Australia and Boost Mobile. Optus owns and operates its own network infrastructure as well as reselling the services from its main supplier – Telstra. Optus provides services both directly to end users which are residential customers, small to medium business, corporate as well as wholesaler to other service providers. During recent times Optus has tried to introduce new technologies to keep being competitive with Telstra and the telecommunication industry. Recently this has backfired as customer satisfaction has decreased due to the new technologies frustrating customers and is also acting as a repellent to prospects.

This report will provide an analysis and overview of the success of Optus and the current issues in telecommunication industry.

SINGTEL’S IMPACT ON OPTUS

Optus is a wholly owned subsidiary of SingTel Group who is a monopoly telecommunication giant in Singapore. SingTel Group is owned by Temasek Holdings, which is a financial investment branch of Singapore Government and hence Optus which is directed by SingTel has an extremely closed relationship with Singapore government as the relationships are illustrated on the diagram. (Appendix 2.1) With the influence of the parent’s company (SingTel) Optus operates under a centralised and hierarchy structure as depicted in its clear level of separation in management roles. (Appendix 2.2)

“To be Asia Pacific’s best multimedia solutions group” – Optus & SingTel Vision

“Breaking Barriers, Building Bonds” – Optus & SingTel Mission

2.1 Optus Management Direction and Potential Problems

SingTel has an extremely high influence in management direction of Optus as illustrated in Optus’ code of conduct where “Optus shares the vision, core purpose and values of the SingTel Group” and the same ‘five core values’ depicted in Appendix 2.3. Despite the powerful control of SingTel on Optus, Optus is sharing the advantages the parent’s company is providing such as finance, infrastructure and knowledge as Optus is one of the few internet service providers (ISP) who provides ADSL2+ in 2005. (Corner 2006) Nevertheless, the strong level of management influence and investment controls has raise concerns for Australian government and regulatory authorities which are evident from the initial takeover bid of Optus in 2001. The strong power and aggressiveness for expansion control in foreign market is seen through the takeover bid were SingTel paid $16 billion for Optus which at the time have a market value of around $12 billion. (Ling 2010) This has raised concern such as foreign government ownership and control of an Australian company in an important industry i.e. telecommunication industry which has suggested issues such as security of the nation in terms of delivery of intelligence information and data transmission. Further, Optus’ continuous expansion through acquisition of ‘Virgin Mobile’, ‘Uecomm’ and ownership such as the ‘Southern Cross Cable’ has raised concern on possible threat of Australian resources being sold off as there is no control over management activities of the company. This concern is also visible in current SingTel acquisition of Australian Stock Exchange on more than 15% share holding. However this acquisition bid has been knocked back due to the Australian government unwilling to let go Australia’s powerful financial arm to foreign company/ foreign government. (Ling 2010)

2.2 Optus Culture

SingTel has a high influence on corporate culture of Optus; nevertheless the two countries have different cultural values as suggested by Hofstede’s cultural dimension model comparing Singapore, Australia and India. (Appendix 2.4) Singapore values long term orientation where Australia has a short term oriented cultural values, Optus corporate governance is to “ensure long-term success which enhances corporate performance and accountability.” The controversial difference between Australian and Singaporean culture have expose problems for Optus, such as the takeover bid with television Foxtel in 2002 where ACCC steps in to disallow the takeover due to the worry of anti-competition nature of SingTel which is the hail of Optus and the possibility of Optus’ strong market position that can create an oligopoly situation. Furthermore, the monopolistic nature of SingTel has further brought employment relations conducts into Optus such as the anti-unionism. (CEPU) Nevertheless, Australia industrial relation legislation lead to Optus’ regulation approach i.e. following the minimum requirement for occupational health and safety requirements and union involvements. (Cooper, Ellem, Briggs and Broek 2009)

To adapt with the cultural differences in Australia which have a low power distance and high individualism, Paul O’Sullivan the CEO of Optus, acts as the mediator and a spokesman who tries very hard to present Optus core competencies as promoting ‘flexibility’, ‘innovation’, ‘entrepreneurship’ and with an attitude of ‘reinvention’ i.e. continuous growth.

2.3 Optus Future

The powerful influence of the parent’s company will continue to affect the performance and future direction of Optus. Recent infrastructure development of Optus i.e. the “Open Network” which has built 1000 new mobile sites across states of Australia, not only it can provide better service for customers but also enhance infrastructure connections in the Asian Pacific which can assist the global network for SingTel. Comparing the past ten years of financial data it is believed that Optus is securing its position in the SingTel group with steady growth and increasing revenue on around 60% of group revenue which also evident Optus as a successful company. (Appendix 2.5) exchange rate…..

Disclose of information due to SingTel impact as the parent’s company ƒ  control~~

OPTUS’ SUCCESS & STRATEGY IN

Optus is successful as a competitor – market position – ability to improve and say so… such as the “Open Network” increases its coverage to up to 96% of the Australian population. The expectations from consumers from Optus comparing to Telstra is different as Telstra is the leading company and hence it is under assumption that Telstra will provide 100% coverage all around Australia.

Despite the financial, infrastructure and knowledge SingTel has provided to Optus to move it to its current market position. The success of Optus came from its focus on strategic CSR approach in positive public relation, rapidly response to customer need and pre-emptive strike in response to competitors’ moves and aggressive strategies to gain competitors’ market shares. Also the strong financial background, knowledge and infrastructure support from its parent’s company SingTel.

3.1 Optus’ Market Position

Optus is the second largest company in the telecommunication industry with revenue profit of $440million in 2010. (XXXXX) Prepaid mobile service is a potential profitable market although revenue per user was generally lower compared to post-paid service. Carriers received higher margin because the nature of the service did not have to provide a handset, billing or customer care. However, revenue in relation in this service was less predictable because customers switching cost is low allowed easily switch between carriers. Optus has shown to be highly responsive to customer need and the competitors’ action and has obtained numerous shares in the prepaid market compare to other competitors. Optus has a prepaid customer base was about 4.2 million in 2009. (XXXX) Telstra has been lag in the prepaid service market. Telstra’s prepaid customer base declined by 76,000 to 3.5 million in 2009. Telstra revealed that prepaid was one of three battlegrounds on which it would fight for market share. The other two were contract mobile plans and fixed telecommunications. ” The head of Telstra consumer, Gordon Ballantyne, told investors, “We have been a laggard in our prepaid business. It has been the poor cousin for too long within our Telstra portfolio.” and ”We have ambition to take share in this market place and be the challenger to grow.” (Broughall 2010) In response to the action of Telstra, Optus has taken up a defensive position to protect its shares with a new pricing strategy offering calls for $1 a day. When customers recharge their prepaid options they are given a selection of choose to fit their financial needs each day for the ‘$1, $2 or 3 plan’. (Appendix 3.1) (Nick Broughall 2010) Optus can be classified as a pre-emptive organisation as it reacts quickly to competitors’ moves. However, Optus denied that it was a pre-emptive measure, said the dollar-day plans had been under development for five months.

3.2 Strong Optus’ Alliances

Optus aggressive approach in its acquisition and rapid expansion of strategic alliance has suggested its urgent motives in sustaining its current market position and expansion of market shares.

Optus acquired 74.15% of Virgin Mobile Australia Pty Limited (VMA) from the Virgin Group for $30 million on 26th January 2006, increased the Optus shareholding in VMA to 100 per cent. Virgin Enterprises Limited granted Optus a 15-year licence for ongoing use of the Virgin Mobile brand in Australia. This allowed Optus to increased range of products to consumers in the market using the Virgin brand.

Furthermore, Optus has acquire Alphawest during 2005 to expand its business customer base through new development of ‘Cloud Computing’………..

Uecomm 2004 and Southern Cross Network 2006… expansion in alliance and partnership!! IBM!!

Alpawest – Cloud Computing

3.3 Strategic Corporate Social Responsibility & Hidden Agenda

Optus is using a strategic CSR approach emphasis on respond to social demands in the interest of organisation’s long term profitability to paint its brand as having high conducts in its business responsibility and being transparent and accountable to key stakeholders about its customer, employee, community and environmental impacts.

Optus’ 2010 Corporate Responsibility report highlighted its commitment to customers to improve customer experience by bringing its products and services to market in a responsible and transparent manner. Optus reported two per cent increase in overall satisfaction with Customer Care representatives of 87 per cent and decline in complaints to the Telecommunications Industry Ombudsman (TIO) by 14% in the second half of 2009. TIO is a non-profit independent dispute resolution scheme for small business and residential consumers with unresolved complaints about telecommunication service established in 1993 under a Federal Act of Parliament. From January to June the TIO received 19,914 complaints from Optus customers and from July to December 2009 we received 17,112. Complaints made against Vodafone have been slightly decreased in 2009, with 6,049 received from January to June and 6,233 from July to December. TIO received 62,541complaints from Telstra customers in the first half of 2009 compared with 58,597 in the second part of the year. (Telecommunications Industry Ombudsman, 2010) The number of complaints of Optus is almost three times the complaints of Vodafone. However, the Optus’ CSR report alleged that “We saw complaints to the Telecommunications Industry Ombudsman decline by 14 per cent year-on-year, placing Optus in an industry-leading position”, (Optus Corporate Responsibility Report 2010) strategically shifted the public focus on the decline of complaints rather than the actual number of complaint and Optus position itself as leading organisation of customer service. Optus radically cut Australian call centre staff and moved its call centre operations in India resulted in the staff regularly put the caller on-hold for upwards of one hour when customers seeking technical assistance from Optus. Overseas-based Optus employees are poorly trained unable to provide any actual assistance to the caller. (Schwab 2009) Optus’ complaint issues relating to incorrect and inadequate advice consists of 62.4% of overall complaints as well as a failure to act on requests consists of 25.9% of overall complaints. (Telecommunications Industry Ombudsman, 2010) Strategic CSR used in a company can be seen as “Greenwashing” when firms who generate positive publicity through apparently ‘socially responsible’ actions which has the effect of distracting public awareness from unethical practices in other areas of business. (NEED EVIDENCE TO SUPPORT THAT OPTUS IS SUCESSFUL IN TERMS OF STRTIC CSR)

The CSR report set out Optus’ commitment to the community in fostering the connections to the public. Optus positively contributing to community development invested a total of $8.24 million. Optus is currently in partnership with Starlight Children’s Foundation, rolled-out Livewire Hospital program, an online community for young people living with a serious illness, to hospital wards by providing portable laptops with 3G mobile broadband accesses. Optus also donated close to 6,000 pieces of computer equipment to not-for-profit WorkVentures Connect IT. Moreover, Optus is committed to contribute to challenge climate change by reducing its environmental impact in relation to the business. Optus reduced greenhouse gas emissions by 1.8 per cent and decreased electricity consumption by a further 1.3 per cent by implementing energy-efficiency initiatives. Optus encouraged customers to online billing, resulting in savings of 76,800 reams of paper a year. Optus also introduced more onsite recycling facilities, which collectively abstracted an extra 19 tonnes of recyclable material from landfill. (Optus Corporate Responsibility Report 2010)

FAILURE

Despite its success as a second largest telecommunication company in Australia telecommunication industry, Optus has faced critics and problems which raise negative awareness for Optus such as the commercial ‘supersonic deer’ and the true level of customer satisfaction.

4.1 ACCC – supersonic deer

Optus has been noticed and claimed by the Australian Competition and Customer Commission (ACCC) due to the misleading and deceptive conduct arisen from the recent advertising campaign of the broadband offers. Specifically, the ACCC alleged that because the ad’s parts such as “faster…even faster” and “there’s no limit you can achieve”. The whole advertisement did not describe clearly the plan’s offer to customers and somehow created misunderstanding of the quota limit and connection speed (Grubb 2010). The ACCC explained that Optus did not mention the specified data allowance that customers would receive due to the specified monthly sum. That specified amount of quota would be divided into peak and off-peak periods. Once the customers exceed their limit of data allowance, the connection speed would be restricted to approximately 64Kbps (Grubb 2010). Those qualifications, according to the ACCC complaints, should have been included within Optus’ ad in order to clarify all details and avoid misunderstanding as well as complaints of customers. The commission also announced that it would look for injunctions including civil penalties, corrective advertising and costs from Optus on purpose of preventing the re-occurring problem. In order to deal with the claim, Optus spokesman confirmed that “Optus acknowledges the claims made by the ACCC and looks forward to working with the ACCC to resolve any concerns they may have” (Taylor 2010). However, ACCC barrister Neil William argued that the company’s replacement advertisement was not suitable either since the clarifier of “up to” in the describing part of the connection speed was designed by a different font size compared to the rest of the ad (Taylor 2010). As a result, due to the most recent news released, the federal court is considering and deciding whether the five year or three year injunction would be placed with a fine on the company in this case.

4.2 Customer Satisfaction – Delay in answering time

According to the Ombudsman Statistics, there was about 54% rise in complaints against the companies within the telecommunication industry in 2008-2009 financial years. Customer service via telephone was the most emergent area dissatisfying customers with more than 118% increase in complaints followed by billing, payment of telephone and quality of internet services. Statistics also showed that the highest increase in complaints was among mobile phone users, internet, landline and mobile premium services with 79%, 57%, 40% and 13% rises respectively. (Heraldson 2009) As the market leader Telstra has been claimed as the worst service provider with 80,983 complaints involving 174,123 issues (Heraldson 2009) by far of the most carriers, Optus has stepped on the leader’s pathway since it has received heaps of complaints and dissatisfaction, especially on the customer service. Most of complaints all about the holding time customers spend on waiting for assistance or reply from the call centre. Since 2004, Optus placed its call centre operation in India since SingTel owns 32% of India communication. The set-up aimed to obtain the lower labour cost and acquire the advanced infrastructure in overseas (Adam 2009). This movement was on purpose to follow the offshore strategy of the company in order to save up the costs of operations.

Optus has at least ten different contact numbers for customers to contact in case of dealing with any kind of problems from billing to technical support to new connections (Adam 2009). Moreover, Optus employees specialise in specific areas; therefore, it would be a disaster in terms of waiting time if customer is transferred through the person who does not specialise in the problem which needs to be managed. Furthermore, in order to accomplish the inquiry, customer has to be put on hold while they are passed around to look for the appropriate service representatives that are able to function, assist and resolve the query.

In addition, customers who call up the call centre for seeking technical assistance; Optus regularly leaves them for about one hour on hold even if the call is related to a problem caused by Optus (Adam 2009). Passing the waiting time, customer is transferred to a representative based overseas who is unable to assist customer’s need. Probably placing the call centre would help the company save the significant cost of operation, however, this strategy results in so many weaknesses against the company itself. Staffs overseas are poorly trained, due to different culture and working environmental context, those staffs in the Indian call centre seems to lack of skills and knowledge to clear up and resolve customer’s query.

Besides the most significant problem on customer service, Optus has been also attacked by complaints of internet connection drop out, slow and fluctuated speed, lack of dedicated behaviour and functional skills of sellers in stores. Dissatisfaction towards Optus’ call centre and quality of the products and services offered has impacted on customers’ consideration and evaluation on the company’s image and reputation. This could negatively and dramatically influence the company’s sales, create obstacles against the aim on sustaining customers and expand the market share. Hence, to sustain the increasing revenue and expand their market share Optus are undertaking strategic plans and action towards to the upcoming National Broadband Network to ensure its sustainability of market position in telecommunication industry.

NATIONAL BROADBAND NETWORK

5.1 National Broadband Network (NBN)

Federal Labour has established NBN Co Limited (NBN Co.) to build and operate the NBN. NBN Co. will invest up to $43 billion to fund the rollout and ongoing operations of the network. The NBN will extend optical fibre to 93 per cent of premises, with speeds of 100 megabits per second. Other communities will be served by next generation wireless and satellite technologies. (Julia Gillard and Labour, 2010)

The structural separation of Telstra has become a key tenet of the Gillard Government’s telecommunications policy, Minister for Broadband, Communications and the Digital Economy Senator Stephen Conroy (2009) claims that the NBN will enable a “fundamental micro-economic reform in the structural separation of Telstra”, which will ensure Australia finally has a genuinely competitive telecommunications industry after 20 years of market dominance by Telstra.

As a wholesale only, open access network operator, NBN Co. will provide the underlying broadband capability to all players on equivalent terms. Equitable pricing and access to the network will lower the barrier to entering the market. This implies that customer retention and attraction will have to be based on service differentiation and the relative level of personalised service that each customer demands, it is therefore vital to build upon the range of value added services that Optus already delivers to exploit this opportunity.

5.2 Pre NBN – Broadband Take-Up

Australia is one of only two developed countries in the Organisation for Economic Co-operation and Development (OECD) where the take-up of broadband internet connections went backwards last year. The number of broadband subscribers per 100 people slipped 0.55 last year in Australia, leaving Australia in 17th place for overall broadband take-up, with the 23.3 connections per 100 people matching the average for the countries in the study. (Sharp, 2010)

Communications director for the Internet Industry Association, John Hilvert, said that this is a reflection of consumers opting for wireless internet services, such as through their mobile phone, which is consistent with earlier OECD research findings that revealed Australia had the third highest use of mobile internet devices. He addresses the cause of low broadband take-up by emphasising that “people in Australia love competition and at the moment wireless is better value for money and more flexible”

The Labour Government will structurally separate Telstra as part of its NBN policy; Telstra will then no longer have commercial incentives to use its market dominance to hinder competition in the retail side of the broadband business. “[It] will be back in the game as a fierce retail competitor, driving serious price competition in the retail end of the market.”(Eltham, 2010), this will allow price, innovation and choice benefits to flow to end users, consequently leading to a higher broadband take up, which is favourable for Optus to excel in the broadband market.

The structural separation of BT appears to have had an immediate beneficial effect on broadband uptake (figure 2). Assuming similar effects will hold true, the vertically separated company’s market share will declined after separation; however, the overall broadband market will expand with a substantial growth in market share for competitors of the separated company – i.e. Optus.

Ofcom’s Strategic Review of Telecommunications (2004) also concluded that changes by BT leading to “real equality of access” for its competitors were necessary to support the growth of greater competition, innovation and investment certainty in the UK telecommunications sector. (Ofcom 2004)

5.3 Possible Intruders – then link to future of telco with NBN

Retailer of technology and entertainment products such as JB Hi-Fi and Harvey Norman may follow U.S. giant retailer Best Buy’s strategy to form a “strategic wholesale relationship” with wireless broadband service provider Clearwire “in which Best Buy will use Clearwire’s 4G network to offer mobile Internet service to customers under the Best Buy Connect service.” (Clearwire Corporation, 2010). By buying wholesale access from NBN to sell retailer’s own branded broadband service directly to their broad customer base will remove traditional telecommunications players’ intermediary role.

NBN Co.’s open wholesale model together with uniform access pricing for all retail service providers will also lower the barrier to entering the broadband market for upstream suppliers and downstream buyers, thus providing the platform for a new breed of competitors in the retail broadband market and further raising competitive pressure for Optus.

CONCLUSION

In conclusion, Optus should utilise this report to direct future strategies and references…… Optus should invest more in market research to update new information about customer trends to understand more about their needs, what issues are important to the customers and what do they expect from Optus. So Optus will be able to response quickly to the market and stay one step ahead to their competitors.

Furthermore, Optus should usually maintain their cable and network in order to provide reliable and quality service with affordable price to retain their current customers and attract new customers. It is quite difficult to compete in the saturated market of telecommunication industry now as technology continues to move forward. In addition, when the new National Broadband Network is rolled out, it will attract more new entrants. In order to survive in the market, Optus needs to negotiate and upgrade their technologies to be able to provide products and services that will keep in line with the future National Broadband Network.

APPENDIXES

Appendix 2.1

Relationship Diagram of Singapore Government, SingTel and Optus

Brothers

Post 2007 CEO:

Chua Sook Koong

Pre 2007 CEO:

Lee Hsien Yang

CEO:

Paul O’Sullivan

Prime Minister:

Lee Hsien Loong

Singapore Government

Married

Financial Arm

Temasek Holding

CEO:

Ho Ching

SingTel Group

Wholly Owned Subsidiary

Optus

Appendix 2.2

Paul O’Sullivan – Chief Executive

Murray King – Chief Financial Officer

John Simon – Managing Director, Enterprise and Business Group

Michael Smith – Managing Director, Optus Consumer

Andrew Buay – Managing Director, Optus, Technology & Products

Vicki Brady – Managing Director, Optus Wholesale and Satellite

Glenn Lukey – Acting Managing Director, Optus Networks

Maha Krishnapillai – Director of Government and Corporate Affairs

Vaughan Paul – Director of Human Resources

Ben White – Director, Strategy & Corporate Development

Appendix 2.3

Customer Focus – Our success is based upon our customer focus. We listen to, and connect with, customers and treat them with dignity and respect. By understanding and anticipating their needs, we make it easy for our customers to do business with us. We aim to offer them value and quality services to enrich lives and enhance business success.

Challenger Spirit – The creativity and innovation of our people set us apart. We look for better ways of doing business and share a passion for making a difference. When faced with challenges and opportunities, we do not say “Cannot” but ask “Why not?”.  We are tenacious and we compete fairly.

Teamwork – By working as one team with shared goals, we believe we can achieve great things. We value ideas and contributions from everyone. We recognise, respect and value diversity in the team. We develop strong bonds by communicating and sharing knowledge. We encourage open discussion and commit to an agreed position. All of us have a part to play.

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Integrity – Our reputation is based upon our ability to fulfill promises to shareholders, customers and employees. We do so by being honest in our dealings, taking responsibility and being accountable for our actions. We treat everyone the way we would like to be treated. We are proactive in identifying issues and coming up with solutions. We ensure that the highest ethical standards guide us in making decisions.

Personal Excellence – Leadership and superior performance are achieved through the pursuit of personal excellence. We are committed to doing and being the best. We seek continuous improvement and take pride in what we do. We do things to the highest possible standards. We acknowledge the potential of the individual and create opportunities for all to grow and excel. Together, we celebrate our success and achievements.

Appendix 2.4

AUSTRALIA

SINGAPORE

INDIA

Power Distance

36

74

77

Uncertainty Avoidance

51

8

40

Individualism

90

20

48

Masculinity (competition)

61

48

56

Long Term Orientation

31

48

61

Australia – http://www.geert-hofstede.com/hofstede_australia.shtml

Singapore – http://www.geert-hofstede.com/hofstede_singapore.shtml

India – http://www.geert-hofstede.com/hofstede_india.shtml

Appendix 2.5

C:UsersWONGAppDataLocalMicrosoftWindowsTemporary Internet FilesContent.Wordsingtel30.jpg

http://www.businesstimes.com.sg/sub/premiumstory/0,4574,410965,00.html

Appendix 3.1

Different value a customer chosen would result in a different level of inclusions, $1 a day includes unlimited calls, SMS and MMS messages to Optus mobiles, unlimited standard calls to Australian fixed line numbers and unlimited access to Facebook, Twitter, MySpace, eBay, LinkedIn and Foursquare. $2 a day includes all benefit of $1 plus unlimited calls, SMS and MMS messages to all Australian mobile numbers. $3 a day includes all the benefit form $2 plus “unlimited” mobile data, plus free weekends when customer pay $3 a day from Monday to Friday.