If you thought that the broadband market place was competitive enough in Australia, then think again. Telstra have announced a new strategy to offer cheaper broadband packages with additional features to entice customers. It has been recognised that the new tactic may reduce the company's profits, so shareholders might not be too happy. But then again, what do we care if the price for broadband becomes more reasonable, right?
You're probably wondering when these cheaper packages will become available. Well, Telstra actually began selling their new broadband bundles on Tuesday, June 30th, offering cheaper Internet deals, Foxtel TV and larger data plans. This tactical movement doesn’t come unaccompanied either, as the telecoms giant also intends on launching a commercial version of its Wi-Fi hotspot network as well.
To kick things off with a bang, Telstra are going straight for the jugular with other companies. For example, their general 200GB package costing $130 per month for a two-year contract (including Foxtel services) has now been reduced to $109. The decrease in price is an impressive 16% discount that should leave most customers with a smile on their faces.
Telstra will also be rebranding its Wi-Fi hotspot network to 'Telstra Air', which will provide a hotspot network across the country for paying customers. Free access to this network will be granted to those customers who opt in to offer their own broadband as a hotspot within the network. It sounds like a win-win situation to me if you spend a lot of time out of the house during the week. By opting to share your broadband on the network in this way, you'll receive a reduction in your data costs for helping increase the number of free Wi-Fi hotspots accessible across the country.
Smaller profit margins may have shareholders grumbling, but ultimately, if the move helps Telstra dominate more of the market place, then that should give them increased bargaining power and a more influential position. Increased competition within the market to date may in the short term reduce revenues per user and generate smaller profit margins, but in the end a stronger brand will surely pay dividends over the long term.
Telstra will also be introducing for the first time their new 1TB (1,000GB) data package for $149 per month. In turn, they will also be eliminating their 100GB bundle, which will force customers to pay slightly more for the 200GB package or downgrade to the 50GB option.
I believe that this aggressive move from Telstra has been triggered by the recent Singtel-Optus shift that included their prices being reduced and an alliance formed with TV provider Fetch to offer free subscriptions and Netflix streaming.
As a result, Optus managed to U-turn it’s failing broadband division and begin generating more business. It grew from 1.14 million users in December 2014 up to 1.32 million users as of March 2015. Telstra’s mobile phone department on the other hand, has experienced market strains due to the company’s competitors (Optus and Vodafone Australia) becoming more price competitive as of recently.
Although Telstra’s newly reduced prices are still higher than competitors such as Optus and TPG Telecom, Telstra’s managing director Karsten Wildberger said:
“I’m personally very, very confident that our customers will like it.”
“We hope with these new offers… we will get even more new customers and our existing customers will stay longer with us.”
The company’s aim with its hotspot division is to have two million hotspots established across the country within the next five years. Non-Telstra customers will have the opportunity of purchasing access to the network through its Spanish based partner, Fon.
At the end of the day, Telstra having shown signs that competition was challenging it's position has benefited customers in the form of price decreases. Its previous dominance was fuelled by its ownership of copper phone networks and infrastructure investments which enabled Telstra to dominate the mobile and fixed-line marketplace. In light of this, its competitors spent much of their time behind the scenes investing billions of dollars, $41 billion to be more precise, in efforts to swing things back into their favour.
It’s not all profit-margin-squeezes for Telstra however, as did you know that the Australian government paid taxes on our behalf to Telstra as compensation to enable the company to lease its copper network? Yes, the government paid Telstra $11.2 billion in compensation to make the company play more fairly.