Budde: Competition bites Telstra

Competition will begin to bite Telstra in the second half of this year, according to telecoms analyst Paul Budde.

While overall telecoms market revenue growth in Australia is estimated at 9.3 per cent in 1999, and will climb slightly higher in 2000, Telstra's annual growth is expected to drop from 3.4 per cent in 1999 to 1.6 per cent in 2000, Budde said.

Speaking at the launch of his Telecommunications Strategies Report 1999/2000 yesterday, Budde said Telstra's recent price cuts on international long distance calls mean the carrier will write off between $200 million and $300 million in revenue this year.

Telstra has also cut its fixed-to-mobile rates by 30 per cent as a result of the Australian Communications Authority's decision to open that market to competition.

In addition, Budde said, Telstra will be the player hardest hit by stagnation in the fixed voice market, which will exhibit negative growth from 2000.

Meanwhile, new telcos remain stuck in the low margin, voice-based services.

According to Budde, Telstra and other Australian telcos need to make the jump into the e-services and high-speed internet markets.

He criticised Telstra for focusing on e-commerce content, saying it was a market dominated by rebels and 'free spirits' in which Telstra would have difficulty succeeding.

Budde said Telstra should concentrate instead on developing its e-commerce infrastructure to offer e-services such as applications hosting, billing and directory services.

However, Telstra and other service providers will be hampered in their ability to offer high-speed internet and e-services, for which there is pent up demand, due to deficiencies in Telstra's network, he said.

Telstra's network will be ready to offer high-speed internet services from mid-2000, Budde said, giving Cable & Wireless Optus and Austar a window of opportunity to gain a six- to nine-month lead in the high-speed internet services space.

Budde believes the subscriber base for high-speed internet services priced at less than $50 a month could reach 250,000 by 2001.

Meanwhile, he predicted an increase in merger activity in the market, saying that a full merger between AAPT and Telecom New Zealand was "inevitable".

He also said mergers between IT companies and telcos were likely.