Smartphone shipments were just below 8.2 million for the year, IDC said.
It said there had been fluctuations in recent years with data showing a 6.6% year-on-year fall in shipments in 2016, followed by growth of 6.5 in 2017, the latter mainly due to uptake of the iPhone X.
Alcatel said its success had been due to the affordable, high-quality options it offered.
“This is in line with the trend seen in other developed markets, where many consumers are holding off on upgrading to the latest device.
"At a local level, economic factors also drove this decline, with falling consumer sentiment indicating lower demand and minimal real wage growth limiting household disposable income."
However, Alcatel vice-president and regional managing director for South East Asia & Pacific, Sam Skontos, said the fall in sales had nothing to do with innovation and everything to do with sky-high pricing.
“The pricing on smartphone devices is simply getting ridiculous and consumers are now clearly seeing that highly-featured phones do not need to cost the same as a large screen 4K television or a round-the-world airfare," he said.
"This is only reinforced by the fact that while the market overall decreased significantly, we experienced a record year off the back of bringing affordable innovation to Australians.”
Alcatel is recognised by IDC as the number three smartphone vendor by volume in the Australian market, a position it has held 3-1/2 years, or 14 consecutive quarters.