Threat of substitutes

The main substitutes in the telecommunication industry are calling cards, services, satellite

internet, and satellite phones. Substitute of a product or service offers greatest threat, when it ia

able to provide better customers better and at lower cost [ CITATION MPo08 \l 1033 ]. calling cards,

VoIP (voice over IP) services, satellite internet, and satellite phones are not feasible substitutes

for the customers because these substitutes are quite expensive for the buyers and buyers usually

seek such service provider that can provide them better call and internet services at low cost.

However in future these services can be a threat for telecommunication companies if they are

available at low cost.

Moreover fixed landline services are substitutes of mobile phone services and vice versa. One of

biggest threat to cell phone usage is the use of fixed landline telephones itself which have been

traditional part of the telecommunication industry. Around 70% of Australian adults still have

fixed landlines at their homes. Moreover, the use of internet through the Fibre Optics

subscriptions has been significantly increasing and it almost doubled in year 2015.

Trend toward downloading data has also been increasing among customers via fixed line

broadband and wireless broadband. From year 2014 to year 2015 volume of data downloading

via broadband line increased 40% and over wireless broadband increased 18%.

Threat of new entrants

Capital requirements: The biggest barrier to entry into telecom industry is access to finance

because telecom industry is capital intensive and to cover fixed cost required huge amount of

capital. New entrant need to be large enough to produce sufficient cash flow to bear the cost of

expanding network services and need to have cash to continuously invest in new technology.

Big companies in Australia like Telstra, Optus and Vodafone are first tier companies therefore
they owned extensive networks and provide services directly to the customers home and

businesses and are not reliant on other companies to transfer call or data to the final destinations.

Second-tier companies like Foxtel, Vocus - M2, TPG Telecom and Macquarie Telecom needs

interconnection to finish the job[ CITATION Phi17 \l 1033 ].

Customer switching costs: Customer switching costs refers to the fixed cost that the customers

pay when they change the suppliers[ CITATION MPo08 \l 1033 ]. In many telecommunications

markets, phones are packaged with the service, this means that customers also have to change the

phone in order to change the services. However in Australia, customers can move from one

service provider to other even without changing their phone numbers and without paying

additional cost. This means customers switching cost is low in Australian telecommunication

industry.

Government regulations: Australian telecommunications industry is highly regulated. For new

entrant it would be difficult to deal with the strict rules and regulations that the Australian

Government has specified for the telecommunication sector and these rules needs to be followed

by every company within the telecom industry. Australian Competition and Consumer

Commission (ACCC) is responsible to view the performance of every company that either it has

complied with the laws specified by the government [CITATION The17 \l 1033 ]. Moreover the

government policies and regulations change on continuous basis therefore it would be difficult

for the new entrant to comply with the changing laws and regulations. The established

companies like Telstra try to develop and maintain relationships with regulatory stakeholders and

policy makers, in order to minimize the adverse effects of changing policies and regulatory

decisions.