news The nation’s number two telco Optus has signalled it is tired of losing ground in the fixed-line broadband market to fast-growing rivals like iiNet, TPG and Internode, and will take advantage of the regulatory certainty offered by the rollout of the National Broadband Market to dive back into the sector head-on.
In the late 1990’s and early in the years following, Optus was a strongly competitive player in Australia’s fixed-line broadband market, courtesy of the rollout of its HFC cable network, which offered speeds and network reliability which were hard to find and expensive on the rival copper network operated by Telstra and used by other telcos.
However, over the years since, the company’s share in fixed-line broadband has stagnated, for what appeared to be several reasons. Firstly, rival companies like iiNet and Internode moved faster than Optus in rolling out their own ADSL infrastructure in Telstra’s telephone exchanges around Australia, allowing them to claim a technology advantage over the SingTel subsidiary.
Secondly, Optus did not substantially participate in the ongoing industry consolidation that saw iiNet and fellow ISP TPG grow through merging with a number of smaller ISPs. In addition, Optus has publicly stated over that time that it had focused more strongly in the mobile market than in fixed broadband, due to the potential for higher margins and market growth, as well as a lack of problematic regulatory settings which had led Optus into constant conflict with Telstra in fixed-line broadband.
However, all that appears about to change.
In an interview with the Financial Review newspaper published this morning, Optus chief executive Paul O’Sullivan said the NBN would bring the mobile sector’s “level playing field” to the fixed-line broadband arena. “The opportunity for us in fixed-line is huge,” he said, citing the 8.5 million households which consumed fixed-line broadband (of which Optus currently serves about a million). “We think it is really important for Optus to be a leader in the broadband space at home, in the office as well as out on the mobile networks.”
The comments come despite an ongoing lack of growth in Optus’ fixed-line broadband business. In the three months to 30 June (PDF), the company made revenues of $327 million from its consumer and small business fixed-line telecommunications division, and the same from its big business fixed-line division. It made $169 million from its wholesale fixed division. That total figure — $823 million — was $10 million less than it made from the same quarter in 2010.
In comparison, iiNet said at its full-year results briefing in August that the company’s annual revenue had risen 48 percent to $699 million. The company’s revenue overwhelmingly comes from the fixed-line area, and it has recently conducted a series of advertisments highlighting the fact that it has more ADSL broadband customers than Optus, giving it the “number two” position in ADSL broadband in Australia.
Like Telstra, Optus focuses heavily on ‘bundled’ broadband offerings, where it packages mobile, fixed and entertainment services together for a higher value package. iiNet, TPG and Internode have primarily focused on the fixed-line broadband market in the past, but are also now increasingly packaging mobile and entertainment offerings together.
In August, iiNet chief Michael Malone stated the company saw a chance opening up under the NBN and otherwise for iiNet to steal customers not from Telstra — but from Optus.
Currently, Malone told journalists in a teleconference, iiNet did a lot of customer swapping with Telstra, and to a certain extent other broadband providers — but not really with cut-rate ISPs like TPG. Optus did have a large market share in fixed broadband, the iiNet chief noted, but the SingTel subsidiary had been “pretty passive” in terms of competing in that arena — due, you writer believes, to its incessant focus on its more profitable mobile operations.
However, Malone noted, there were opportunities opening up to grab some of that Optus gold.
In October or November this year, he said, a process would be finalised which would allow iiNet to more easily transition customers off the Unbundled Local Loop-based services which Optus’ wholesale network uses, and onto iiNet’s own network.
Secondly, as the NBN is rolled out, many Optus customers who have for years clung to their HFC cable connections, bundling them with other Optus services, will for the first time be using fixed broadband infrastructure which is shared with competitive providers, making it significantly easier for them to churn to other companies. Will iiNet pick up quite a few Optus customers during that process? “We’d certainly hope so,” said Malone.
O’Sullivan’s comments this morning represent a hopeful sign of life for change at Optus — change, as I have repeatedly stated over the past year, is desperately needed.
They represent an acknowledgement by the company — finally — that it has had its lunch eaten in the fixed broadband market over the past decade by the likes of iiNet, TPG and Internode, and will need to throw resources heavily in the area over the next few years if it is to avoid having its breakfast and dinner eaten too.
However, as I have also previously argued, it does not appear as if Optus chief executive Paul O’Sullivan completely understands the nature of the situation his company finds itself in.
O’Sullivan’s statements this morning spoke of growing Optus’ market share in the years ahead as the NBN is rolled out. And presumably, because the executive was speaking about regulatory settings, he was talking about stealing that market share from Telstra, which remains the largest broadband player in Australia by far.
What O’Sullivan does not appear to realise is that while Telstra customers are ripe for the picking, much more so are the million or so customers currently experiencing an inferior broadband service from Optus. As Malone acknowledged, the rollout of the NBN will create a once in a lifetime opportunity for iiNet and others to convince Optus HFC cable customers to dump the telco once and for all and migrate to smaller, more innovative and/or cheaper alternatives.
Telstra customers actually have far more incentives to stay with the big T as their primary broadband provider in an NBN world than Optus customers do. Telstra has a better mobile network (Next G) for bundled plans, a better entertainment solution (the Foxtel/T-Box knock-out combination) and increasingly, even a much higher focus on customer service than Optus does. And now so, more than ever, Telstra is becoming increasingly price-competitive.
In comparison, Optus will offer customers the same entertainment package all the other ISPs have access to (FetchTV), poorer customer service than iiNet or Internode, higher prices than TPG or Dodo, and a mobile network that iiNet and others already have wholesale access to for bundling purposes.
The value proposition for Optus right now, as I have been telling the company’s executives for a year now, is pretty bad, and has no immediate prospect of improving under the NBN. The company’s name just does not come up when most Australian fixed-line broadband customers are picking their service provider at the moment.
In the next few years, Optus’ major struggle in fixed-line broadband will not be to gain new customers. It will be to keep those which it already has from defecting to its smaller competitors.
Image credit: Delimiter