Telecommunication Industry in Australia: An Economic Analysis

This essay analyses the oligopolistic market structure of the telecommunication industry in Australia and the lack of competition due to the dominance of three big companies. It also discusses the formation of Commpete, an alliance of small and medium service providers, to increase competition and welfare of consumers. The essay refers to the article named, “8 ‘challenger’ telcos make calls to shake up the big 3’s market share”, by Patrick Martlew (Channellife.com.au 2018).

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author Note

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Introduction
The conceptual and theoretical frameworks of economics have evolved considerably
with time and has incorporated new theories and modifications much of which can be
attributed to the increasing dynamics of the global economic scenario. With time, the global
economy has become more integrated and inclusive, thereby facilitating the business
organizations in becoming more complex and multi-dimensional (Kalecki 2013).
The businesses in the global framework operates in different types of market, as per
the conceptual framework of economics. These markets are mainly named as perfectly
competitive market, oligopolistic market, monopoly, monopolistic competition, depending
upon the nature of the commodities or services, the number of buyers and sellers, market
power distribution as well as the entry and exit barriers in the market.
Keeping this into consideration the essay tries to analyse the market in which the
telecommunication companies in Australia operate (Bilbao-Osorio, Dutta and Lanvin 2013).
To analyse the current dynamics and the type of market in which these companies operate as
well as to interpret the same in terms of the different economic concepts the essay refers to
the article named, “8 ‘challenger’ telcos make calls to shake up the big 3’s market share”,
by Patrick Martlew (Channellife.com.au 2018).
Article Summary
The article taken into consideration reflects the view of the Competitive Carriers’
Coalition, which has been relaunched in the name of “Commpete”. The main purpose of the
same is to make an alliance of eight small and medium companies in the telecommunication
industry of the country, in order to address to the problem of the lack of competition in the
concerned sector of the country. The article attributes the lack of competition to the presence

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of three big companies, namely the Telstra, Singtel Optus and Vodafone Hutchinson, each of
which enjoy considerable market share in the industry (Corones 2014).
Commpete has set a target of attaining 30% of the market share to increase
competition, not achieving which can be detrimental for both the new and small businesses as
well as for the consumers, while the increase in the competition can lead to fall in the prices
(Walden 2012). The article also highlights the recommendation put forward by the
Commpete in order to understand the factors which have been benefiting the big companies
and to address the situation so as to make it easier for the small companies for venturing in
the telecommunication industry and making it more competitive.
Economic Interpretation of the issue of concern
From the above discussion and from the assertions of the concerned article it can be
seen that the current market structure in which the telecom industry of Australia has been
operating is oligopolistic in nature. This is primarily because of the fact that in spite of the
presence of many small and medium sized companies, the market is primarily dominated by
three big companies, with the market share of the companies being shown in the following
figure:
Figure 1: Market share of the companies in the telecommunication industry in
Australia

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(Source: Theaustralian.com.au 2018)
This oligopolistic structure of the market, leads to the creation of distorted power
distribution, with each of these providers indulging in price competition and enjoying a fair
share of profit owing to the gap between the price and the cost of production of the services,
which can be shown with the help of the following figure (Dunne et al. 2013).
Figure 2: Price war and kinked demand curve in Oligopoly
(Source: As created by the author)
Of these companies, Telstra alone enjoys 45.2% (almost half the share) of
telecommunication market and behaves like an almost monopolistic producer with higher
profit share as well as higher cost advantages and economies of scale which arises due to
their expansion of market operations.

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Figure 3: Higher profit of monopolists due to bigger gap between price and cost
margins
(Source: As created by the authors)
In spite of Telstra ruling the market, the other two providers, Optus and Vodafone
also enjoys significant shares, thereby giving the market an oligopolistic trend. In this context
the primary advantage which these companies enjoy is the fact that telecommunication is
treated as a necessary service in the contemporary world and thus, the demand for the same is
not highly elastic (Cubbin 2013). There also remains the aspect of high brand loyalty in this
industry as the customers, once satisfied with the service of one of the providers do not tend
to shift to other providers very easily. Thus, when the price of the packages is slightly
increased by some company, especially the three big companies, it does not lead to loss of
much customers or demand of these companies, which can be shown as follows:

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Figure 4: Less elastic demand in the telecommunication market
(Source: As created by the author)
Given this scenario, the big companies in the telecommunication market enjoy
considerable market power and pricing-decision making abilities, which in turn poses a threat
to the welfare of the customers as well as to the new entrants as well as existing small and
medium supply side providers (Baumol and Blinder 2015).
This has induced the formation of Commpete in the telecommunication market of the
country, with the main objective of the same being creation of an alliance of 8 companies in
order to increase the competition in the market. The idea comes from the economic concept
of a perfectly competitive market. In economic framework, a perfectly competitive market
can be characterized by many buyers as well as many sellers, with each of the buyers and
sellers being a price taker and not a price maker.

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Figure 5: Perfectly competitive market
(Source: As created by the author)
As is evident from the above figure, due to the presence of many sellers in the
perfectly competitive market, each of the sellers enjoy normal profit (no profit no loss) and
the market power is evenly distributed. Keeping this into consideration, the decision of the
formation of Commpete and its target of capturing 30% of the market seems a potential one
from the perspective of increased welfare (Hall and Lieberman 2012).
Conclusion
From the above discussion, it can be asserted that the telecommunication industry in
Australia has been operating in an oligopolistic framework in the contemporary period with
three big players, with Telstra being the biggest one. This in turn shows a lack of competition
in the market, which in turn makes the customers vulnerable and less well off. Keeping this
into consideration Commpete has been formed as an alliance of 8 small and medium service
providers in the market, which in turn is expected to increase the competition in the market
thereby making the consumers comparatively well off.

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References
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Bilbao-Osorio, B., Dutta, S. and Lanvin, B., 2013, April. The global information technology
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challenger-telcos-make-calls-shake-big-3s-market-share/ [Accessed 11 Apr. 2018].
Corones, S.G., 2014. Competition law in Australia. Thomson Reuters Australia, Limited.
Cubbin, J., 2013. Market structure and performance: the empirical research. Taylor &
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Dunne, T., Klimek, S.D., Roberts, M.J. and Xu, D.Y., 2013. Entry, exit, and the determinants
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https://www.theaustralian.com.au/business/companies/cashed-up-vodafone-looks-for-
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