Mobile Phone Networks in Australia - Case Study Example

Mobile phone networks in Australia Your name Subject: Economics Tutor Institution 30, April, 2011 Mobile phone networks in Australia Introduction Australia is a large sparsely populated country making the cell phone coverage and service considerably good. In Australia, GSM service as a mobile phone network is used as it is in most of the other countries globally. GSM is used in order to provide mobile phone users with cellular capability. It’s a standard that allows one to travel virtually seamlessly throughout the world with one phone, offering fantastic reception and other advanced cell phone capabilities such as internet access and GPRS (Cellular Abroad 2008). What is the concentration ratio of the Mobile phone networks industry in Australia The mobile phone market is made up of business organizations known as mobile phone service providers or carriage service providers. In the Australian market, there are about a dozen and a half mobile phone service providers who sell that own the network or infrastructure or networks on which mobile phone communication takes place. These mobile phone service providers (also known as carriage servicer providers or mobile network operators) allow the use of their wireless networks by customer - either directly or indirectly – for a fee. According to AMTA (Australian Mobile Telecommunications Association) 2005, the mobile telecommunication industry in Australian has been very strong in performance over the past last ten years. It’s an ongoing innovation which is proving to be a serious platform for continued success. According to AMTA 2005, in the year 2005, the industry had more than 16 million subscribers. This represented a margin of 81 per cent of the Australian population. It’s being foreseen that mobile penetration rate (the number of mobile phone services per 100 people) is growing and it will near 100 % in future. Mobile communication is a must for the growing population in its day to day life, business and the community at large. Consider the nature of competition in the industry-is there evidence of linked demand curves, non price competition, branding and so on? According to Organisation for Economic Co-operation and Developemnt (OECD), Australia has experienced a significant growth in mobile telephone services (oecd: 1995). This shows continuity in the growth of the mobile services. Today, more than 2.3 million mobile telephone handsets are now in use, consequently, new handsets having been added. It’s therefore notable that mobile calls t account for a significant and rapidly growing share of total calls including local calls in Australia. This has created mobile services competition with the fixed line service. Mobile services are provided in a competitive market by the licensed carriers and a range of service providers. There are more than two million mobiles customers connected to the Telstra analogue network with Optus, which operates as a reseller of airtime on the network. The level of competition in the market has increased as a result of Telstra analogue network closed down by the year 2000. Competition for customers transferring to the digital networks is already felt with heavy discounting of handsets and customer tariffs. The regulatory authorities have addressed the practices of market participants including in relation to the migrating of customers from one carrier or service provider to another. In addition to that, the increasing total number of mobile users and continued rapid technological improvement provides reduced unit costs. This in the face of competitive pressure, leads to significantly lower market prices. According to AMTA (Australian Mobile Telecommunications Association), the measures of economic significance of the mobile telecommunications industry underscore the strong growth that the industry has experienced over the years. In addition to that, they make clear that the industry has evolved substantially over this period. The current communication trends suggest that telecommunication industry development continues to be driven by competition, innovation and a strong focus on satisfying customer needs. On the part of the Subscribers, the numbers have shown strong growth since the early 1990s. This has been expressed by the estimated annual growth rate in the mobile subscriber numbers from 2004-05 to 2005-06 which has been at 13.4 per cent. The subscriber growth has been associated with the introduction of new network and the impact on growth rates of the new 3G network. The new 3G network commenced operation in 2003. This will be observed over the coming years to see its full impact. It has been recorded that Australia’s mobile penetration rate grew from 58 per cent in 2001-02 to 81 per cent in 2004-05, and it is forecasted to exceed 94 per cent in 2005-06.4 Although it may seem surprising, a penetration rate exceeding 100 per cent has been achieved in a number of countries and research suggests that it has been achieved in Australia. Prepaid customers are driving the continued growth in subscriber numbers (see figure below). In 2005, 43 per cent of all mobile phone services were prepaid. Prepaid services offer an inexpensive way to enter the mobile market. This is by allowing customers to better manage their mobile phone expenditure. The increasing preference for prepaid services suggests that customers value choice and flexibility. Economic Significance Boston 2005, p. 38. What barriers to entry can you identify in the industry? Mobile telephony market regulation falls under the Australian Communications and Media Authority which is mandated to license carriers, to ensure their compliance to the rules of the industry, and setting up customer protection policies as well. The fact Australia is a large and considerably sparsely populated country not withstanding, the mobile phone market is considered an oligopolistic market. This is because only a few of the service providers in the market dominate then market beside the fact there are huge barriers to entry of new firms; the major one being entry cost. Also, the firms in the industry are dependent to one another such that a move in the market by any of the dominating firms, more so one with the effect of altering either their output or prices, produces a ripple effect across the market; the other players in the market are forced to make a counter-move either in the direction of the first mover or in the opposite direction. Yet another feature of the Australian mobile phone service market which - just like any other mobile phone service market anywhere around the world – is typically characteristic of an oligopolistic market is standardized products. With regard to only a few large players dominating the mobile telephony market in Australia, Telstra, Optus, and VHA are the major players in the market, with Telstra leading the pack with a subscriber base of about ten million. Optus follows closely with eight million subscribers, and VHA boasts of around six million subscribers in its books. The rest share between them the remaining portion of the 22.5 million mobile telephony subscribers. Clearly, the mobile telephony industry is heavily dominated by a few large corporations (ACMA, 2010 p. 23). However, this scenario is not typical of the Australian market for mobile telephony. Mobile telephony markets the world over are characteristically dominated by only a few big operators. As a matter of fact, the Australian market has quite a large number of service providers compared to some developed countries. For instance, considering that the mobile phone telephony market has a potential subscriber base of nearly 300 million compared to Australia’s fewer than 23 million, and that the two countries have a equal number of operators dominating their mobile telephony markets, the Australian market can correctly be described as being “overcrowded”. On their part, the strong barriers that exist for new entrants into the market are due to the nature of the mobile phone industry as well as “manipulations” or artificially placed obstacles engineered by the existing players mostly acting in unison. Natural factors, though, play the largest role in preventing new firms from establishing operations in the lucrative telecommunication sector. The cost of acquiring the telecommunication infrastructure is exorbitant, as is the cost of rolling it over a large geographical area – which Australia certainly is. Licenses to run operations do not come cheap either, and the process of obtaining one is quite long and cumbersome. Artificial barriers placed for new entrants come in the form of already established players, either acting individually or colluding as a group, deliberately putting in place mechanisms that increase the difficulty of Is there evidence of collusion in the industry There have been several collusions in the mobile phone industry in Australia. This has ranged from improvements on the part of the system on the networks. A case in point was between Orange, T-Mobile and Vodafone which colluded in consumer switching of networks (OUT-LAW News, 2008). The service providers had a legal battle. There was a clam that the mobile phones operators were behaving anti-competitively by blocking or slowing the process of change in the rules governing subscriber switching from one network to another (OUT-LAW News, 2008). The operators wanted to introduce Mobile number portability (MNP). Mobile number portability system is a system where an individual phone user moves their number and account from one network to another. Though the process is cumbersome and lengthy, it could entice clients who wanted to move to better services. Recommendations and conclusion For many Australians, mobile telecommunications is more than a tool to make voice calls. The extensive coverage, array of services and information available means that the mobile phone has been an important tool in every person. The benefits of mobile telecommunications continue to be the accessibility and freedom for people on the move to maintain contact with other people. This has allowed more people to benefit from the connectivity of mobile telecommunications services. With the ever growing need for mobile usage, there is a need for healthier competition, relaxed entry of other mobile companies in the industry and minimized collusion in the companies operations. By regulating all these, mobile phone networks in Australia will grow profitably as the users will be comfortable with the services provided. List of references Acma, 2010. Key indicators – At a glance [online] 23 [Accessed 2.05.2011] AMTA, 2005. Australian Mobile Telecommunication industry, economic significance [online] AMTA Industry Report Ecec Summayy 2005. Pdf [Accessed 2.05.2011] Cellular Abroad, 2008. Cell phone Service and Coverage in Australia [online] available from Boston 2005, Australian Telecommunications 2005, Equity Research, p. 38. OUT-LAW News, (2008) 3 fails in court bid to uncover evidence of alleged collusion [online] Available from < http://www.out-law.com/page-8816> oecd, (1995) Competition in Telecommunications [online] < http://www.oecd.org/dataoecd/34/50/1920287.pdf> [Accessed 2.05.2011] Paul B. (2009) ‘2009 Australia - Telecoms Market Analyses - Australia leading telecoms beyond the crisis’ [online ] Available from Read More