Australia - Telco Company Profiles - 2nd Tier - New Market Research Report

Consolidation in the 2nd tier telco market continues

The second tier Australian telco market has seen further significant consolidation over the past year. A process that is set to continue over coming years. Moving towards a structurally separated regulatory environment with a NBN at the horizon, size really does matter. Macquarie Telecom, iiNet, M2 Telecom and TPG continue to report strong revenue growth.

Telstra's aggressive activities to increase its market share, particularly in the mobile and broadband sectors continues to have a significant impact. This has been detrimental to a number of 2nd tier players, reflected in declining revenue in sectors including fixed and mobile voice. However, there was an overall recovery in total revenue among most players in 2015. This has partly been the result of greater efficiencies gained by increased scale brought about by market consolidation. Overall revenue for these operators, of about $4 billion in 2015, still accounts for less than 10% of the total telecoms market in Australia, but the proportion is growing in the face of flagging revenue from both Vodafone and Optus.

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In late 2015 M2 accepted a merger offer from Vocus to merge. It will create Australias fourth-largest telecommunications company and the third-largest in New Zealand. The combined Vocus/M2 company is a welcome strengthening of the competitive environment in Australia following Vocus' acquisition by Amcom in mid-2015. The telecoms market has developed more and more into a utilities market, and in such markets size matters. It will allow the combined entity to be more efficient and more effective.

TPG has been growing from strength to strength and after its successful acquisition of iiNet is now in the top three of the Australian telecoms market. TPG now has the largest data network and voice network after Telstra, the largest fully converged voice, video and data IP-based access network in regional Australia, and the largest voice-enabled IP network. With an efficient and cost effective business model, TPG remains one of the most successful competitors in the competitively priced residential broadband market. Its cost structure and low exposure to legacy high-margin products allows it to be aggressive on price and thus win market share. This has resulted in consistently strong organic earnings growth and at the same times enjoys one of the highest margins in the industry.

M2 (Vocus)

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