Economics (MB113): Telecommunications Industry Report Analysis

This report analyzes the market concentration within the telecommunications industries of Australia, the UK, and New Zealand, focusing on fixed broadband and mobile phone services. It calculates the Herfindahl-Hirschman Index (HHI) to assess market concentration levels in each country, revealing varying degrees of competition. The report examines the impact of market concentration on economic profits, potential violations of market competition laws, and the influence of major players. It also explores the effects on related industries and discusses government measures, such as pro-competitive safeguards and price controls, aimed at promoting fair competition and controlling prices within the telecommunication sector. The report concludes by considering the limitations and consequences of government intervention, offering a comprehensive overview of the economic dynamics within these key telecommunication markets.

Running head: ECONOMICS
Economics
Name of the student
Name of the University
Author note

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EXECUTIVE SUMMARY
The paper intends to analyse the market concentration of the telecommunication industries of
Australia, UK and New Zealand. It also emphasizes on the other markets, which are affected due
to telecommunication industry. This paper also examines the measures government may take to
control high prices and lower competition. Moreover, it discusses the consequences of these
measures.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Evaluate and analyse the market structure of the telecommunications industry in the UK,
Australia and New Zealand.........................................................................................................3
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

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Introduction
There are various telecom operators in the market of the New Zealand, Australia and UK.
The market structure of the telecommunication industry of the UK, New Zealand and Australia
are taken into consideration in order to analyse the market concentration. They are privileged to
avail the premiums in pricing due to greater market concentration (McLaren, 2014). There would
impact on the other markets of the economy. Government of Australia planned to take initiate in
order to make the market competitive and lower the higher prices in the telecom industry of the
country.
Discussion
Evaluate and analyse the market structure of the telecommunications industry in the UK,
Australia and New Zealand
Telecommunication is one of the major industry of the Australia. There are two means of
communication in Australia (Australia.gov.au, 2020). One is electronic means and another one is
services. The communication under the services includes broadband networks and telephony. On
the other hand, the communication under the electronic means include television, computer,
telephone and radio. To maintain the communication between the vast populations of the
country, the telecommunication sector plays a vital role. Thus, government also took various
initiatives in order to develop the sector. In addition, the regulations of the government is
essential for the development of the sector. The major players of this market include Optus,
Vodafone and Telstra. There are other small players as well. The highest market share is
captured by the Telstar in Australia. There were some significant industry alliances and
acquisitions in the telecommunication sector of the Australia. As the usage of the data continues

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to grow, it encouraged the service providers to rise the scale. However, the market of the fixed
broadband of the Australia is relatively concentrated. Therefore, increasing consolidation would
make the competition lower Moreover, there exists barriers to entry in the telecommunication
market of the Australia due to increased consolidation. The demand induced in both segments of
the Australian telecommunication sector such as wireless networks and fixed broadband market.
One of the largest industrialized country, New Zealand is largely depends on the
telecommunication industry. The copper-based networks are used to provide services such as
telephone and fixed-line broadband services. However, the use of the fibre-based services are on
rising trend (Govt.nz, 2020). The majority of the service is provided by the 2degrees, Vodafone
and Spark New Zealand. Moreover, 42% market share is owned by the Vodafone in New
Zealand. Though, the telecommunication industry of the New Zealand was a government owned
monopoly. Later, it was corporatized by the government. However, the market is regulated by
the government. Moreover, the telecommunication industry is neither truly contestable nor truly
competitive in nature (Affeldt & Nitsche, 2014). As a result, the existing operators get the
privilege to continue dominate the market and restrict the entry of new operators. Therefore, the
overall market is competitive, concentrated and underpinned by robust economic fundamentals.
The telecommunication industry of the UK witnessed a major evolution from its early
days. There are several telecommunication companies in the UK market. These are Vodafone,
o2, EE and Virgin (Gov.uk, 2020). In addition, 18% of the market share belongs to the other
small companies. The majority of the market share is possessed by the EE. The
telecommunication sector of the UK is regulated and controlled by the government of the
country. The market concentration in the UK is also scaled up. The market is consolidated with
the help of mergers.

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The concentrated market of the telecommunication in three countries enjoy the power of
oligopoly (Papandrea & Tiffen, 2016). Therefore, it leads to potential violation of the market
competition laws. They try to influence the market with their huge market share. Therefore, the
degree of competition in the market is denoted by the market concentration. As the concentration
is high in the market, it would influence the market significantly. They also manipulates the price
of the product. The index used to represent the concentration of the market is Herfindahl-
Hirschman Index (HHI). When the revenue collected from the total sale of the output is greater
than the opportunity costs and costs of all inputs involved, is known as the economic profits
(Wagner & Alexander, 2014). The companies under the telecommunication industry enjoyed
economic profits. Therefore, the explicit costs and opportunity costs are deducted from the total
profit of the telecom operators from three countries. In addition, the oligopolistic nature of the
telecommunication industry may able to set prices. Thus, they are price setters and able to
influence the market with the help of price. Furthermore, telecommunication companies tend to
compete in terms of price with other market players. They also try to influence the market with
the factors other than price (Corfe & Gicheva, 2017).
The Herfindahl-Hirschman index can be calculated on the basis of market shares of the
companies of the telecommunication industries of three different countries. The maximum value
of the Herfindahl index is 1.
In case of fixed broadband in Australia,
The market share of Telstra = 41 (0.41)
The market share of Optus = 14 (0.14)
The market share of iiNet = 15 (0.15)

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The market share of TPG = 12 (0.12)
The market share of others = 18 (0.18)
The Herfindahl index = 0.41*0.41 + 0.14* 0.14 + 0.15* 0.15 + 0.12* 0.12 + 0.18 * 0.18
= 0.257
As there are five brands in the market including other, the minimum Herfindahl index = 1/5 =
0.20
In case of fixed broadband in the New Zealand,
The market share of Spark = 49 (0.49)
The market share of Vodafone = 32 (0.32)
The market share of Calipus = 8 (0.08)
The market share of Orcon = 5 (0.05)
The market share of other = 6 (0.06)
The Herfindahl index = 0.49*0.49 + 0.32 *0.32 + 0.08* 0.08 + 0.05 * 0.05 + 0.06 * 0.06
= 0.355
As there are five brands in the market including other, the minimum Herfindahl index = 1/5 =
0.20
In case of fixed broadband in UK,
The market share of BT = 31 (0.31)
The market share of Virgin Media = 20 (0.20)

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The market share of Sky = 20 (0.20)
The market share of Talk Talk = 15 (0.15)
The market share of other = 13 (0.13)
The Herfindahl index = 0.31 *0.31 + 0.20 *0.20 + 0.15 * 0.15 + 0.13 * 0.13 + 0.20 * 0.20
= 0.2155
As there are five brands in the market including other, the minimum Herfindahl index = 1/5 =
0.20
In case of fixed broadband services the market of New Zealand is more concentrated than the
UK and Australia.
In case of mobile phone services in Australia,
The market share of Telstra = 15 (0.45)
The market share of Optus = 27 (0.27)
The market share of Vodafone = 18 (0.18)
The market share of other = 10 (0.10)
The Herfindahl Index = 0.45* 0.45 + 0.27 *0.27 + 0.18 * 0.18 + 0.10 * 0.10
= 0.3178
As there are four brands in the market including other, the minimum Herfindahl index = ¼ =
0.25
The market of the Australia is highly concentrated.

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In case of mobile phone services in the New Zealand,
The market share of Vodafone = 42 (0.42)
The market share of Spark = 33 (0.33)
The market share of 2 Degree = 25 (0.25)
The Herfindahl index = 0.42 *0.42 + 0.33 * 0.33 + 0.25 *0.25
= 0.3478
The telecommunication market of the New Zealand is concentrated.
As there are three brands in the market, the minimum Herfindahl index = 1/3 = 0.33
In case of mobile phone services in UK,
The market share of EE = 32 (0.32)
The market share of o2 = 24 (0.24)
The market share of Vodafone =17 (0.17)
The market share of Virgin = 8 (0.08)
The market share of other = 18 (0.18)
The Herfindahl Index = 0.32 *0.32 + 0.24 * 0.24 + 0.17 * 0.17 + 0.08 * 0.08 + 0.18 * 0.18
= 0.2277
As there are five brands in the market including other, the minimum Herfindahl index = 1/5 = 0.2
The market of the UK is not highly concentrated.

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The industries those are related with the telecommunication industry, would be affected
due to the economic profits earned by the telecom operators (Pearcy & Savage, 2015). On the
contrary, the markets those who are not linked with the telecommunication industry would not be
affected by premiums in pricing (Daubs, 2014). Here, premiums in pricing would provide
competitive advantage. Premium pricing would be applicable for the goods or services, which
are improved and upgraded. Moreover, it also maintains the brand value of the product.
Therefore, new brands would be the losers due to comparatively high concentration. The new
brands always prefers a low concentrated market. On the other hand, gainers would be the
existing brands with high market share.
The competition in the telecommunication sector of the Australia is controlled by the
Australian Competition and Consumer Commission (ACCC). Moreover, if there exists any
malpractice related to the competition, then strict action is taken by the ACCC in order to keep
the system regulated (Douglas, 2014). To keep the pricing system in control, government of
Australia took several steps. However, there should be adoption of other measures by the
government of Australia to reduce the prices. Fair competition in the telecommunication sector
of the Australia would bring further development for the sector. At present, the market of the
telecommunication in Australia is being non-competitive, which in turns increase the price for
the product and services (Thompson, 2014). Therefore, the measures which would help the
government to promote competition include other pro-competitive safeguards. One such measure
is pre-selection of service providers. It gives the control to the ACCC to limit the anti-
competitive practices. The government may adopt the process of call-by-call override of
presentation. Another way to handle the anti-competitive practice is independent management
(Winseck, 2014).

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The system of independent management is important in controlling the anti-competitive
practices. In addition, it may also reduce the cost of the products and services. Proper allocation
of telephone numbers also significant for the pro-competitive safeguards. The price determines
the condition of the market. Therefore, price controlling process of the telecommunication
industry would maintain the competition of the market (Barry, 2018). The portability of the
numbers are required for smooth functioning of the system. Thus, it would help to keep the price
lower in the telecom market of the Australia. Another way that may boost the competition in the
market is the regulation of the networks and interfaces should be neutral, technical and
competitive in general.
The intervention of the government to control the higher price in the telecommunication
market is called price control. There are some limitations of the price control. To control the
prices, government put a price cap on the goods and services of the telecommunication industry
(Gregory, 2018). Thus, it enable to protect the interest of the consumers. However, sometimes it
brings losses for the producers due to lower prices. It may also force some producers to supply
less products in the market (Sung, 2014). Furthermore, this situation may also lead to gain for
some consumers. Some producers may also force to stay out of the market. Thus, there is a
probability of cresting a back marketing situation. Under this situation, the telecom operator may
sell products above the minimum price cap mandated by the government.
Conclusion
The telecommunication industry of the UK, Australia and New Zealand is dominated by
various market players. There exists several limitations of the premiums in pricing in the
telecommunication industry of the UK, Australian and New Zealand. The market concentration
of these three countries calculated on the basis of Herfindahl index (Bakhtiari, 2019). Moreover,

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the Australian government may impose some measures to curtail the prices. To control the
pricing system the government may adopt price cap regulations. However, there are certain
limitations of these measures. Sometimes, it leads to huge loss for the existing firms. Moreover,
they may also force to leave the market.