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Analysis, Featured, Telecommunications - Written by Renai LeMay on Monday, September 3, 2012 10:58 - 129 Comments
Why a 4G iPhone will spell doom for Vodafone
analysis The local launch of a new Apple iPhone supporting 4G mobile speeds will spell disaster for ailing mobile carrier Vodafone — the only major mobile telco in Australia not to have launched or even started constructing a 4G network to deliver improved speeds to customers.
Australia has seen an almost unprecedented level of announcements over the past few weeks with respect to the new class of fourth generation (4G) mobile infrastructure being constructed in Australia. 4G is a term which in Australia broadly means mobile phone services based on the Long-Term Evolution (LTE) standard, which allows dramatically improved mobile data speeds over the previous 3G generation of services, used by most Australians.
Firstly, on July 31, the nation’s number two telco Optus revealed it had upgraded some 500 of its mobile towers across Australia to support 4G speeds (the telco’s 4G towers will now do up to 60Mbps). The telco has already launched commercial 4G services to business customers in Sydney, Perth and Newcastle, with a Melbourne launch and a wider consumer push planned shortly.
Secondly, last week Telstra — which had heretofore been the only telco to have launched 4G services locally — returned fire, announcing that it had some 500,000 4G customers following its own launch in May 2011 and would be expanding its 4G network to two-thirds of Australia’s population by mid-2013, with an additional 1,000 4G towers to be deployed to make a total of 2,000.
Over the weekend, I sat down to consider what all of this meant for Australia’s mobile telecommunications ecosystem. And I came to one conclusion: Although 4G growth is already strong in Telstra’s network, it will take the launch of a strongly attractive 4G consumer device to act as a ‘catalyst’ for the rest of the market, especially the non-early adopter mainstream to adopt 4G services.
Australian consumers usually don’t sign up to a new mobile carrier for the network access, after all — they do so to gain access to a hot new mobile phone handset, as they get close to the end of their handset repayment cycle.
Consider this: So far, most of those who have adopted 4G services over Telstra’s network (340,000 of its 500,000 4G customers) have been those using mobile broadband devices. Only 160,000 of Telstra’s 500,000 total have been customers using 4G smartphones.
This has likely been because the smartphones which Telstra has made available over its 4G network have in general been pretty mediocre models. Almost uniformly, they have been previous generation smartphones such as Samsung’s Galaxy S II which have had 4G support hastily added to their chipset, or they have been custom models produced for Telstra with a lot of corners cut — such as HTC’s Velocity 4G or Titan 4G.
The sole world-class 4G handset to have launched on Telstra’s network so far has been HTC’s One XL, which is a very strong model and has likely sold very well, but which hasn’t had as strong a profile in consumers’ minds as Samsung’s Galaxy S III handset, which launched shortly afterwards without 4G speeds. Then, too, it is possible that the simultaneous launch of a number of other models without 4G in the One series (the One X and One S, for example), has clouded demand for the One XL.
Into this mix in the next several months, if the rumors and Apple’s annual iPhone release timing are to be trusted, will come Cupertino’s next iPhone. It seems inconceivable at this point that the carrier would launch a new iPhone model in Australia without support for 4G speeds, and it also seems very likely that the company will launch it with a redesigned form factor, to differentiate it from the previous iPhone 4 and iPhone 4S models.
To Telstra and Optus, this launch will be like sweet, sweet honey spread over their already juicy and succulent 4G network infrastructure.
Telstra will instantly use the launch of a new iPhone to (accurately) point out that it has far and away the best 4G network in Australia, and if you want the best experience on your new Apple gadget, you had better pony up for its premium prices. Optus, for its own part, will be congratulating itself for having (just) gotten its 4G network infrastructure to a state where the new iPhone will be usuable on it. To be honest, Optus doesn’t have that much 4G infrastructure, especially compared to Telstra, but it has enough so that travelling to work in Australia’s major CBDs each day will see the satisfying ’4G’ label in their iPhone’s menu bar throughout most of their work day.
But Vodafone? Well, Vodafone is screwed.
Historically, Vodafone has done fairly well from the launch of new iPhones in Australia. For the last few iPhone launches, the company has typically been able to offer customers deals to upgrade their handsets which have significantly undercut Telstra and slightly undercut Optus; allowing customers to feel that they’re getting a decent price for their new iPhone while still getting access to a mobile network which more or less (sometimes, emphasis on the less).
But this time around, the game is likely to change dramatically.
If Apple, as almost everyone expects at this point, does launch its new iPhone in Australia supporting 4G speeds on the 1800MHz spectrum band which both Telstra and Optus use for their 4G networks, Vodafone will be in the disastrous position of having to tell its customers that it just doesn’t have a 4G network to support the new iPhone’s capabilities.
In fact, with Vodafone recently announcing that it would only be starting construction on its own 4G network in 2013, there exists a possibility that the besieged mobile telco might not realistically be able to offer new iPhone owners 4G speeds for the better part of a year. The next iPhone may even be close to being launched in late 2013 by the time Vodafone has substantial 4G coverage in Australia. By that time, Telstra will have blanketed the nation with 4G speeds and be sitting on top of a new mobile cash pile picking its teeth with hundred dollar bills.
In the meantime, Telstra and Optus will be making hay while the sun shines. There is absolutely no doubt that a huge number (perhaps the majority) of customers who buy a new 4G-supporting iPhone would switch to Telstra’s network when they did so. Functionally, it will be obvious to many people that there will be no point buying a new iPhone with 4G speeds unless they can actually use those 4G speeds. And, as the only other carrier with a 4G network, Optus will soak up most of the rest of the new iPhone customers.
Amongst these customers will be many Vodafone customers — especially those who bought an iPhone 4 in late 2010 and are now looking to upgrade as their contracts come to an end. They will poke their head up above their desk, realise that Vodafone doesn’t have a 4G network, and then instantly switch to either Telstra or Optus in the search for a carrier which can fully support their 4G iPhone. For many of these customers, Optus’ low-cost Virgin Mobile brand will become a replacement for Vodafone — hell, they even use the same red as their marketing colour.
And don’t get me wrong: Telstra and Optus won’t screw this launch up.
Both have learnt their lessons from iPhone launches in the past. In 2008, Optus used moderate discounts and high data quotas to scoop the iPhone pool when the Apple smartphone first launched in Australia, with Vodafone cleaning up much of the rest of the Apple market. But Telstra has since used the strength of its network and marketing clout to lure many of the Apple faithful back into its arms. Optus now has to fight for every Apple customer tooth and claw with Telstra. In this competition, if a 4G iPhone launches in Australia, Vodafone will essentially be bringing a knife to a gun fight.
The loss of a substantial number of its iPhone customers will also be a substantial issue for Vodafone financially. Following its 2010/2011 ‘Vodafail’ series of network disasters, the carrier has largely stopped the customer bleed in terms of customers on post-paid plans, although it is still losing customers hand over fist in the fickle prepaid segment. When you consider the hundreds of millions of dollars it is simultaneously ploughing into its 3G network to bring it up to scratch, there is no doubt that Vodafone is currently gushing financial blood all over its balance sheet continuously.
The launch of a 4G iPhone in Australia will only accelerate that ongoing slow disaster for Vodafone. How many iPhone 3G, 3GS, 4 and 4S customers does Vodafone currently have? Surely a great deal. And surely many of these customers will very quickly switch to Telstra or Optus when they buy a new iPhone with 4G speeds.
That trend will only accelerate if Apple itself openly uses its marketing clout to blanket the nation with advertisements proclaiming its new iPhone is capable of “4G’ speeds in Australia; as it surely will do. Every launch of an iPhone comes with a substantial new feature which Apple wants to push, which Apple then spends substantial efforts to educate the local population about. And there is every reason to suspect that 4G speeds may be one of the key new benefits to arrive with its latest smartphone opus, a fact every media outlet in existence will trumpet to the world.
“After the Vodafail episode, Vodafone doubled down on its network and customer service investment. It was a risky bet, but probably worth it – you don’t simply walk away from a multi-billion dollar investment such as a national mobile phone network at the first sign of trouble. But as time goes on and the customer bleed shows no sign of abating at Vodafone, one does have to wonder what timeframe that investment was made on. At what point will its owners put Vodafone up for sale, or substantially restructure it so that it’s no longer a viable competitor to Telstra and Optus? If the customer bleed continues, will it be in a year? Two years? Three? Because I don’t think it will be in five.”
“The next six months to a year may prove to be the decisive time that will set up Vodafone Australia for the next decade. Because if it doesn’t show some positive signs with respect to its customer numbers in that period, the entire industry will be very publicly questioning whether it has a long-term future at all.”
I believe industry analysts and commentators will be watching very closely to see how well Vodafone survives the launch of a 4G iPhone in Australia. Because personally, I suspect such a launch has the potential to force the company to stumble even further to its knees than it already is. How low can Vodafone go? No doubt Telstra and Optus are even now planning to force Vodafone’s face into the dirt by the end of this year.
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