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Can Telstra win the low-cost mobile wars?

  • Pre-paid wholesale now available
  • Boost mobile a strategic partner
  • Optus and Vodafone may have to rely on 4G to compete
Written by Adam Wajnberg
26/11/2012

Last week, Telstra announced that they had implemented a real-time billing platform allowing them to wholesale pre-paid access to their 3G Network. This should open up the huge potential market for Mobile Virtual Network Operators(MVNOs) using Telstra’s superior network in favor of Optus, which has traditionally been the main wholesaler to the cheap resellers.

 

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What’s an MVNO?

An MVNO is a mobile phone operator that owns no towers or infrastructure. They buy a connection, wholesale from either Optus or Vodafone, and re-sell the connection with a retail mark-up to consumers. This allows for some heated competition in the mobile market, and it also allows for network owners to enter the low-cost market without cheapening their own brands.

Thanks to a range of technologies and agreements, MVNOs have been steadily undercutting the ‘premium’ market, where the network operator typically sells services themselves with bundled handsets, internet, Pay TV and other services. Meanwhile, and MVNO targets people who just need a cheap, good value SIM to stick into their existing phones.

In this, they’ve been successful. Operators like Amaysim have been offering gob-smacking plans, like $39.90 a month for unlimited calls, texts, PXT and 4GB of data. Dodo offers a similar pack with 5GB of data. Meanwhile, other providers like TPG and Primus offer traditional cap plans, but with a much better price-to-value ratio than what you would get buying directly from the network operator.

As for the network operator, it’s almost always Optus. Optus has a network that’s ‘good enough’, with good coverage in metro and large regional areas, but patchy in rural areas. Vodafone, meanwhile, has a small band of MVNOs in its stable, including Crazy John’s and Red Bull, but is still in a network re-building phase which will limit their viability to metro customers.

Optus over-congestion

Even with a decent effort to shore up their resources, Optus have fallen behind in the infrastructure race with Telstra. Telstra have been putting their eggs in the mobile basket for a decade now, with a ramp-up thanks to the approaching National Broadband Network, which will end their DSL broadband and home phone monopoly. As such, they’ve outbuilt their competition in mobile by nearly 50%. Telstra Mobile’s motto, that it ‘works better in more places’ isn’t just marketing speak – it’s the truth. They use better transmission equipment, they build more towers (meaning fewer black spots as more cells overlap each other) and they maintain their network more vigorously.

Meanwhile, Optus is carrying their own several million customers, plus the growing army of MVNO customers using their network.

Boost, LiveConnected and JB HiFi

Telstra actually opened up their wholesale service a year ago, but only for post-paid services. This has limited their viability. JB Hi-Fi and LiveConnected use the Telstra network, but the plans are indistinguishable from direct Telstra plans. As such, you’re paying the same amount and don’t even have Telstra’s huge (if sometimes unwieldy) retail and call centre support to fall back on.

Last week’s move will change that. Having a real-time pre-paid billing system will eliminate some financial concerns Telstra would have had in opening up their business to resellers. Their purchase last month of Boost Mobile (actually a license agreement) will give them a well-known brand to enter the cheap mobile business.

But it’s the option of pre-paid services that will entice other retailers. Pre-paid services, both wholesale and retail, are subject to less stringent credit rules. This makes them cheaper options for all involved – cheaper for Telstra to offer, cheaper for a retailer to buy services, and then cheaper for a consumer to purchase – provided everyone is paying upfront, of course.

With Telstra in the game, expect some movement. iiNet, Internode and Amaysim all have well honed ‘quality’ branding, and have likely tolerated Optus’ limping network because it was simply the best option. If Telstra plays ball and offers excellent deals like the aforementioned ‘unlimited’ plans, even with a respectable mark-up of $10 or $15, expect plenty of rural and regional customers to flock. Even city dwellers, tired of seeing their calls drop out during rush hour might be tempted to jump to any MVNO using the Telstra network.

Sporadic 4G VS Solid 3G

4g

Optus’ ace-in-the-hole here might be in how they deliver 4G. The faster wireless standard is still in its infancy on both Optus and Telstra’s network, for a few reasons. Both are still mostly restricted to select areas of major cities (and Newcastle for Optus, thanks to its role as an early test site). But both are also a little ahead of their time. What’s the point of having huge speeds if the market for actual gigabytes is stuck at an 18GB ceiling (for mobile broadband connections) and 5GB for actual data on your handset?

Of course, faster data speeds is still useful on a phone if it means faster map loading and general faster browsing and email. But even 3G can handle that for the most part. 3G doesn’t fail when it’s working – it fails when the signal is low, or there’s too many people on the network. Those problems affect 4G too.

Nevertheless, Telstra’s unwillingness to share its 4G network access might give Optus an in. Optus has offered 4G through its subsidiary Virgin since Day One, and it’s rumoured that 4G access will be granted to strategic partners before the end of the year.

Vodafone is set to release their 4G network in April 2013, and have hinted at offering immediate access to resellers.

It’s good to have land…

Eventually people will realize that MVNOs offer vastly better prices over going with the network operators directly. Even when buying a handset- it’s better to buy it outright and go with an MVNO thereafter, rather than buying on a contract. Not only do contracts lock you in and prevent you from taking up good offers as they come – they also usually come bundled with overly complex plans that will probably ‘get you’ at least some of the time – by excluding certain types of numbers from your credit, or charging you excess usage here and there.

So maybe the network owners will just become landlords, letting the sharecroppers do all the hard work while they collect a monthly rent. Who knows. But expect the market to get white hot in the next few months.

 

 

 

 

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