1.0 Overview
Telstra Corporation Ltd is Australia’s leading telecommunications and information services provider and owner of a large proportion of Australia’s fixed-line copper network. A publicly listed company operating out of its’ Melbourne headquarters, Telstra services individuals, small businesses, larger corporations and enterprises as well as the Australian Government. The company operates primarily in Australia, however also provides international roaming services across over 300 networks to approximately 140 countries worldwide. The company CEO, Andrew Penn, has held his role since 2015, and under his leadership it has produced sound financial results. Over the fiscal year ending June 2018, the company recorded revenues of $26.011B, of which 95% was the result of domestic operations, with the other 5% international based revenue (Harrison, 2018). They further possess a market share figure of 41.3%, which is far greater than their next largest competitor in Optus (19.3%). With the growing importance of telecommunications infrastructure in today’s business world, Telstra is seen as a pivotal driving force behind the movement toward a globally connected communications environment. Hence, the company is still positioned as the market leader in Australia.
1.1 Mission, Vision and Values
The mission, vision and values of a business provide reason as to why corporations exist, and act as a mechanism for providing context to business decision making. Telstra’s primary vision is “To create a brilliant connected future for everyone”. The company further breaks this statement into three components:
- “To Create”: Responsibility to deliver the desired ‘connected future’.
- “A brilliant connected future”: The firm’s aspiration. All operating activities are designed with this mission in mind.
- “For Everyone”: The recognition that the company has the ability to service everyone, and be an active promoter of economic, cultural and social change
This mission acts as the prominent framework from which the company’s core values are derived:
- “Show we care”
- “Work better, together”
- “Trust each other to deliver”
- “Make the complex simple”
- “Find our courage”
Being a telecommunications company, face to face contact with consumers is limited and as such Telstra are forced to find other ways to demonstrate these values in action. That being said, it is evident that Telstra have attempted to act in strong accordance with their given mission, purpose and values often. Their commitment to ‘Showing we care’ can be seen through their ongoing support of the Telstra Business Awards, a mechanism of creating shared value. Further, Telstra’s 4G network is now accessible by 99.4% of Australians, and as such demonstrates how investment in telecommunications infrastructure acts in strong accordance with the ‘For everyone’ aspect of their mission. Amongst this positive outlook however, Telstra has also failed in recent times to ‘Make the complex simple’ through its constant struggle to uphold its promises to consumers regarding the NBN. In saying this, CEO Andrew Penn has claimed it will repair such losses through investing in other forms of high speed telecommunications as when speaking to ABC, Penn claimed “Thanks to our new partnership arrangements with a series of leading manufacturers, 5G devices will be available exclusively through Telstra before any other Australian mobile operators” (Penn, 2018). From this, it is clear that Telstra acts largely in accordance with its stringent mission, vision and values despite cited shortfalls.
2.0 Strategy Evaluation
2.1 Internal Analysis
In order to analyse the internal factors associated with the competitive position of Telstra, the Resource Based View framework will be applied. This framework is based off that fact that “The firm holds certain assets with certain characteristics that will lead to a competitive advantage. All the traits are required to be present to result in a sustainable competitive advantage” (Black and Gould, 1994, p. 131). The key resources identified in Telstra’s case are their brand image and telecommunications infrastructure. These resources will be dissected using the VRIN and Dynamic Capability frameworks to determine their impact upon Telstra’s competitive position.
2.1.1 Brand Image
Telstra has a long-standing reputation of being Australia’s largest telecommunications service provider. This has led to the firm adopting a brand image associated with superiority and familiarity across Australian, seen through the company possessing the highest brand value ($14.7bn) among Australian businesses (Redrup, 2018). In saying this however, recent failures regarding the NBN as well as customer dissatisfaction with the outsourcing of call centres have partially tarnished Telstra’s corporate branding.
- Valuable: Branding is a critical layer of the internal business environment and is imperative in improving competitive position. Telstra’s brand image is a primary factor influencing its position as a market leader within the Australian telecommunications industry. Its marketing strategy has created such image, and as such consumers are likely to opt to consider utilising Telstra’s network and services prior to considering other alternatives. In doing so, this generates a competitive advantage for the business through situating the brand in a position of superiority, seen in the 2018 Australian Brand Value Rankings, where competitors Optus ranked 9th and Vodafone remained unranked (Pash, 2018), demonstrating its value.
- Rare: Telstra, being Australia’s most valuable brand (Redrup, 2018), has been able to develop a resource in its brand that is currently possessed by virtually none of other industry players. However, there is future concern surrounding the rarity of Telstra’s market dominance and superior brand image due to rising opportunities for competitors regarding the NBN, as well as competitors generating complementary products aimed at luring market share from Telstra, a glaring example being Optus Sport.
- Imperfectly Imitable: Despite such strong branding, Telstra’s brand image somewhat fails to fit the definition of an imperfectly imitable resource. As with market share, a company’s image can fluctuate highly due to numerous factors. The strategies Telstra have used to create this brand value, namely being network coverage, widespread advertising and sponsorship of iconic Australian events (Telstra Premiership), are largely imitable by competitors. This poses a risk to Telstra’s competitive positioning, thus providing a drawback on the value of this resource.
- Non-substitutable: When deciphering the substitutability of a resource, it must be taken into account that ‘There must be no strategically equivalent valuable resources that are themselves either not rare or imitable’ (Black and Boal, 1994). Thus, Telstra’s brand image is seen to be non-substitutable. The firm has been seen to rely on its branding and reputation to generate a competitive advantage in the past, and all signs point to this being the case in the future. This is due to its overwhelming presence within the Australian market, and if removed would tarnish Telstra’s competitive position.
In summation, the VRIN analysis conducted here is seen to prove how Telstra’s branding has, to a degree, assisted in generating competitive advantage.
2.1.2 Infrastructure
In order to assess the value of Telstra’s infrastructure using the Resource Based View guidelines, the Dynamic Capability framework will be applied. This evaluates a resource/capability on its ability to establish, maintain and appropriate a competitive advantage (Grant, 2016). Telstra essentially holds a monopoly over telecommunications infrastructure in Australia, with its fixed copper line network being “available to 99.4% of all Australians” (Penn, 2018). Hence, the value of this resource can be dissected as follows.
- Establishing Competitive Advantage: Telstra’s communications infrastructure is without question the single biggest factor leading to its competitive position. The scarcity of similar copper line network’s in Australia is high, and as such competitors are often having to run their unique network services using Telstra’s infrastructure. This capability is highly relevant to Telstra’s competitive position, and is proven to be scarce as telecommunications infrastructure is limited in Australia, and as such is a successful resource in establishing competitive advantage.
- Maintaining and Appropriating Competitive Advantage: Grant (2016) claims that for a resource/capability to have the ability to maintain a competitive advantage, three factors must be taken into account: durability, transferability and replicability. Telstra’s infrastructure is proven to be durable over the long term, and with the slow yet constant development of the National Broadband Network (NBN), Telstra’s infrastructure will remain durable for the foreseeable future. In regard to transferability and replicability however, Telstra’s infrastructure shows volatility regarding the definition of a dynamic capability. As competitors are all progressing to the same network (the NBN), Telstra may need to find other sources of competitive advantage in the near future in order to maintain their competitive position.
From this analysis, it is clear that Telstra’s infrastructure, when looked at from a Resource Based View, is critical in achieving a competitive advantage in the telecommunications industry.
2.2 External Analysis
An analysis of the telecommunications industry environment is critical in order to gain insight into the competitive position of Telstra. In order to do so, the manifestation of Porter’s Five Forces (Porter, 1979) within the telecommunications industry will be analysed. This framework is built on the hypothesis that “To understand industry competition and profitability, one must analyse the industry’s underlying structure” (Porter, 2008).
2.2.1 Threat of New Entry
The threat of new entry in the telecommunications industry, historically, has been low due to government regulation. However, since telecommunications were privatised in 2011, there have been a lowering in barriers to entry within the industry. This has posed threat to Telstra, with competing firms growing rapidly, and numerous small firms beginning to enter the industry in recent years, namely iiNet and TPG Telecom. In saying this however, due to Telstra’s superior copper line network (a form of technology protection) and its ability to take advantage of supply side economies of scale, firms entering the industry are often forced to operate using this network at a cost to the business, acting as a cost deterrent.
2.2.2 Supplier Power
Due to the nature of the telecommunications industry and the absence of traditional ‘suppliers’ barring raw materials, this aspect of Porter’s model proves to have limited impact upon the competitive position of Telstra. This demonstrates a prominent criticism of Porter’s framework, in that, in most industry environments, it is rare that all five forces are holistically applicable (Merchant, 2012).
2.2.3 Buyer Power
The telecommunications industry is currently subject to a rapid surge in consumer influence. Due to the rolling out of the National Broadband Network (NBN), consumers now possess the ability to choose between a range of largely undifferentiated services, with low switching costs and high collective bargaining power. In saying this however, Telstra, in accordance with the SWOT framework, have turned this essential threat into an opportunity. By investing in complementary goods (Streaming rights to all NRL and AFL games), the firm aims to nullify the effects of buyer power through a greater degree of industry differentiation, improving competitive position.
2.2.4 Threat of Substitutes
The threat of substitute goods/services can pose serious harm on industry profitability. Not only this, however the growth of substitutes within the telecommunications industry poses serious risk to Telstra’s profitability, and in turn its competitive position. There are no close substitutes to the telecommunications industry, however there are significant close substitutes to Telstra’s services. This has seen a moderate weakening in Telstra’s competitive position in recent years, with market share down 2% between the years of 2014 and 2018 (42% – 40%).
2.2.5 Competitive Rivalry
Telstra operates in a highly competitive industry, whereby competition threatens to drive industry prices down, hindering Telstra’s profitability. Thus, Telstra finds itself in a critical position whereby they must find a diverse, differentiated approach if they wish to remain an industry leader. This process has already begun, as Telstra was the first telecommunications firm in Australia to offer commercial 5G network across its operating grid (Penn, 2018). Whether this plan is successful is yet to be determined, however as the market continues to expand, it is critical Telstra finds a means of sustainable differentiation to take advantage of present industry growth.
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