Optus growth driven by mobile broadband
Optus great result, especially in its growth of mobile services, is a further indication of the extent of the mobile broadband boom that is going on. However, it is important to analyse why that is happening and why that is happening now and not for example a decade ago when these services were introduced for the first time. We don’t have to look to far to see that the iPhone played a key role in setting this boom off. They were able to break the vertical integrated mobile phone model open and forced a separation between the infrastructure (mobile broadband) and the services (mobile media/Apps). However, this explosive (uncontrolled) growth is also creating serious headaches for the operators.
The fact that users are jumping onto new telecoms services at such an enormous rate as soon as they become available at an affordable price, indicates that the vertical monopolies do not have a very good understanding of the market or are unwilling to provide those services on conditions demanded by consumers. As soon as the price is right customers en masse are taking up these services in very large quantities, whether they are fixed broadband, mobile telecoms, gadgets and devices and so on.
A classic example is mobile data (now called mobile broadband). Since 1997 the mobile operators have tried to sell these services based on their own very restricted conditions. Ten years later their portals still didn’t count for much more than 2-3% of all mobile users.
Unfortunately, during the last decade, the mobile operators were unable to build the right business models around their products as they were unwilling to share the market with others (a need for commercially viable wholesale services). They only open their mobile media portals to other content providers who were willing to give them 60-80% of their revenue; this resulted in high user prices and a very limited choice in content and therefore put mobile data services out of the reach of most consumers.
The telecoms industry is very price sensitive. At the right price new products and services will attract mass markets, but at the wrong price they remain premium products for the happy few. Typically, based on the restrictive telco pricing, these ‘premium’ services attract a market share of between 3-5%. That was the case with mobile data in the past. It doesn’t mean that people don’t want the services; it means that they cannot afford them.
Such business models are not unique to the telecoms market as most markets sell new innovative products at a premium. However, because most other markets are competitive, within around six to 12 months prices are forced down by competition. This is not the case in the vertically integrated telco market, as it took 10 years before a competitor (in this case Apple) could break the mobile data market open.
However, these new developments are a mixed blessing for the telcos.
As has happened before, the telcos will lose out in the mobile media market as they are basically engineering companies, not marketers. Telecoms have to be made available as a utility to others to enable them to build their services on top. The current vertically integrated nature of the industry hampers innovation and competition, and is delaying the emerging digital economy. Rather than fighting against these changes, telcos should embrace their new role as the providers of valued-added infrastructure for the emerging digital economy market. However, that will require them to rapidly increase capacity in order to keep pace with the enormous growth in mobile broadband usage. They still operate the wrong business models as the costs of these upgrade are unlikely to be covered by the increase in revenues; in the end customers spend on mobile is limited. They should more focus on the value added infrastructure services that are required by the content providers in order for them to participate in this mobile boom.
BuddeComm estimates that major investments are required that will eventually lead to the replacement of the current 3G network by a 4G network, this will happen somewhere between 2012 and 2015. The current trend of separation between infrastructure and service will only gather in pace as these content providers become more powerful and start demanding more utilities-based services on a wholesale basis in order to build their own business models for their own products and services.
One product, the iPhone, has led to the development of almost 140,000 applications, so it’s not hard to imagine what will happen when the mobile market is opened up and wireless broadband becomes affordable for everyone.
Paul Budde
