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Telcos focus on service

Gone are the days when telecommunications companies fought to win clients with innovative or cheap smartphone offerings. Now, our biggest telcos will face greater costs for smaller numbers of new customers as the domestic market begins to dry up. However they can now focus on one thing to increase market share – customer service.

Telstra (ASX: TLS), our biggest mobile provider with around half of all mobiles on the domestic market, has made customer service its number 1 priority going forward. Despite adding 1.3 million new customers over the last year, it now recognises that attracting new customers is going to be harder because Australia already has one of the highest smartphone adoption rates in the world.

Although we have one of the highest adoption rates we also have the lowest global customer rankings when compared to European, Asian and North American counterparts. Kevin Russell, the head of Optus (owned by Singapore Telecommunications (ASX: SGT)), said “The [Australian] market has gone backward in customer experience while other international markets moved forward”.

Telstra currently boasts around 15 million customers whilst Optus is slowly growing beyond its 9.5 million domestic customers. However, looking at the subscription rates of Australia’s number 3 telco, Vodafone – part owned by Hutchison Telecommunications Australia (ASX: HTA) – we can see the extent to which Australians value customer service and reliability.

Whilst Telstra added 1.3 million customers over the past year, Vodafone has dropped more than 1.5 million customers since the beginning of 2011 as a result of its poor network performance and poor customer service.

Commonwealth Bank (ASX: CBA) (and Australian banking in general) has many similarities to the telco industry. In the mid-late 1990s, bank customers were growing uneasy about the transition to phone and online banking and customer satisfaction ratings were very low, but now it’s a different story.

The big four banks currently have consumer satisfaction ratings at around 80% compared to Telstra’s 70%. Telstra CEO David Thodey has watched Australia’s biggest banks turn their ratings around and believes Telstra could learn a lot from the banking industry. CBA’s reluctance to send call centre jobs offshore has been flagged as one significant difference between the two companies’ performance, but Thodey believes it’s not so much the accent that’s important but the level of customer service.

Optus’s Russell was quoted in the Sydney Morning Herald as saying, “They [banks] had a challenge that is comparable with the telco industry in terms of being viewed very negatively”.

Foolish takeaway

Telstra’s immense size and presence in the local market will mean it needs to win over customers from rival telcos to increase its market share. Better customer service will result from all of our mobile providers as they each compete to increase and retain market share. With superior network coverage and a keen focus on customer service, this Fool thinks Telstra’s mobile market share can only get bigger as time goes on.

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?”

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.   

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