Optus opts for new strategy

As problems continue to pile up for many of Australia’s telcos, Optus has opted for a new strategy – an approach that aims to retain current customers as opposed to attracting new ones.

Various telecommunications companies have faced tough mobile market conditions in recent years, as the dominance of Telstra (ASX: TLS) in the sector has continued to expand. The introduction of Australia’s first 4G network by Telstra was a major cause for customers to switch from the services offered by Singapore Telecommunications’ (ASX: SGT) Optus brand and Vodafone – 50% owned by Hutchison Group (Australia) (ASX: HTA).

In the six months to 31 December last year, Optus added only 53,000 new customers, in comparison to Telstra’s 600,000 – roughly half of which were 4G customers.

As such, Optus has opted to take a more defensive approach, where it will aim to deliver greater service to the customers that it already has in order to retain their business. For instance, with the release of Apple’s (NASDAQ: AAPL) highly anticipated iPhone 5 last year, the company allocated roughly 80% of new stock to its existing customer base rather than attempting to entice new customers.

Furthermore, Optus’ consumer business division head, Vicki Brady, acknowledged that the telecommunications industry was recognised as having below par customer service levels — a recent survey showed consumers ranked it as the second worst out of 5 industries in terms of customer service. This is an area in which Optus will attempt to gain a competitive advantage.

Despite poor market conditions, Singapore Telecommunications’ shares have given investors a healthy return over the past 12 months, increasing from $2.45 to $3.04 – a 24.1% increase. In comparison, the S&P/ASX 200’s (Index: ^AXJO) (ASX: XJO) has risen 20.5%.

Foolish takeaway

Telstra’s dominance in the telecommunications industry has caused migraines for other smaller telcos. In order to survive, companies such as Optus and Vodafone need to explore different methods in which to retain current customers by improving service standards and thus, find new ways in which to grow revenues and profits.

With its legendary, fully franked 28-cent dividend, Telstra is the darling of Aussie investors. But with its share price skyrocketing over the past year, is Telstra past its prime? Click here for our brand-new report: “Is It Time to Sell Telstra?”

More reading

The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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