opinion The level of real competition in Australia’s mobile telecommunications sector is declining every day, with Telstra the only player showing vigorous signs of growth and its rivals falling further and further behind it.
Over the past two weeks, several new major slices of information have been released about the various rivals in Australia’s mobile telecommunications sector which should give anyone concerned about the state of competition in the industry real cause for worry.
The first piece of information — which landed several weeks ago, buried deep in the financial results of Vodafone’s UK head office — is that despite all of its efforts to the contrary, Vodafone Australia is facing a customer exodus that does not appear to be slowing down. The financial results revealed that Vodafone Australia lost 128,000 customers in the three months to 31 March 2012, putting the company’s total local customer numbers at about 6.7 million. Those losses come as the company revealed in February that it had lost another 200,000 customers in the six months to the end of December last year, and 375,000 in the first six months of 2011.
To say that this is disturbing is an understatement.
What it means is that despite replacing its chief executive, despite implementing an extensive internal restructuring program, despite ploughing a huge investment into its mobile network that will see it replace almost its entire radio network infrastructure, despite expanding the network rapidly at the same time, despite conducting a huge marketing campaign guaranteeing customers that its network is of an acceptable quality or they can exit their contracts with no consequences and despite launching a slew of hot handsets such as the HTC Sensation and the iPhone 4S, Vodafone does not seem like it is able to stop or even slow the huge customer exodus from its network spurred by its rolling series of outages and technical glitches in late 2010 and early 2011.
In real terms, this ongoing exodus is also having a nightmarish effect on Vodafone Australia’s revenue. The company revealed recently that its Australian operation had recently lost 8.8 percent of its overall revenues, due to the customer departures. In an industry where margins are traditionally quite slim, you can imagine that this headline figure has the company’s new local chief executive Bill Morrow awaking in a cold sweat at 2am every night, wondering how he’s going to stop the rot.
At the same time, we must ask ourselves, where are all those Vodafone customers going?
Well, for starters, we know most of them aren’t going to Optus. In mid-May, Optus announced its financial results for the three months to the end of March, and it’s clear that Vodafone’s problems are having very little effect on the SingTel subsidiary, which continues to see only modest growth in its mobile business. Optus is growing about the same rate it usually has in mobile, adding on some 82,000 new postpaid customers and actually losing some prepaid customers. The telco currently has some 9.49 million mobile customers in total.
We also know that those customers aren’t really going to the mobile services offered by the various ‘brands’ sitting on top of other mobile networks. Companies like Red Bull, Amaysim, iiNet, TPG, Virgin Mobile, Dodo and so on all use the mobile network infrastructure of companies like Optus and Vodafone to offer their own mobile services on top of the infrastructure of, primarily, Vodafone and Optus. While most of these companies are likely to be seeing modest growth, we know they’re not seeing strong growth because neither Vodafone or Optus are seeing strong growth; ultimately these brands’ growth would show up on the balance sheets of these two telcos as well. Telstra has only just started wholesaling its Next G network and wouldn’t be expected to have significant wholesale customers at this point.
That just leaves one player, Telstra.
And coincidentally, we do have a lot of data recently released which shows a huge — and I mean colossal — amount of growth in Telstra’s mobile business. To really understand how big this growth is, let’s look at this chart from Telstra’s financial results for the six months to the end of 2011. These results were released in January.
Do you get the picture? While Vodafone is losing hundreds of thousands of customers in every six month period, Telstra is adding them on — more than 300,000 postpaid mobile phone contracts in every half-year, plus usually around 400,000 mobile broadband customers, and even a significant number of ‘machine to machine’ connections (where companies deploy infrastructure in the field which uses Telstra’s infrastructure).
It looks, from the information available, as if Telstra has usually been adding on some 900,000 or so new mobile connections in total in every six month period, at a time in which Vodafone is losing hundreds of thousands of customers in the same period, and Optus is remaining quite stable. What’s more, Telstra is also entrenching its dominance. The company just this week revealed that it now had more than 300,000 customers using its 4G mobile broadband network, which now extends to some 1,000 base stations around Australia. The network was switched on in September 2011.
Let’s put this in context for a second. We can say at this point that Telstra is now signing up more customers for its 4G network alone, than the net number of customers which Optus and Vodafone are signing up in combination for their 3G networks. And that’s not even counting the extra hundreds of thousands of customers which Telstra is signing up to its 3G networks as well.
Think about it. Many of those 4G customers which Telstra is signing up are coming from its own customer base — the telco is cannibalising 3G customers and turning them into 4G customers. And yet it is also still signing up 3G customers at a rate of knots. We’re not quite sure how many extra 3G customers the company is signing up at this stage, as it’s not the end of this financial year yet, and Telstra hasn’t released its six monthly results to the end of June. But judging by its previous three halves, I would bet the number is somewhere between 700,000 and 900,000.
So Telstra is currently soaking up almost every new mobile customer available in Australia’s marketplace at the moment, including stealing a huge number of customers from Vodafone and keeping Optus more or less stable, while also rapidly upgrading its own customers to a 4G network which its rivals can’t match. Because that’s the real nature of Telstra’s 4G network. Once you’re on Telstra’s 4G infrastructure, you’re very unlikely to be willing to migrate off. The network offers dramatically faster speeds and less congestion than any other mobile broadband network in Australia. And migrating to another carrier will mean going back to 3G speeds, as Optus has only just started slowly upgrading its own infrastructure to 4G in a very small number of locations, while Vodafone hasn’t started at all.
Let me point one further thing out.
Telstra is also signing up this huge number of customers to its 4G network with what has been pretty pathetic 4G smartphone offerings. For most of the time the telco has had its 4G network, it’s only had a couple of handsets compatible with it — the HTC Velocity 4G, and the Samsung Galaxy S II 4G. Both are a little bit behind the curve when it comes to the latest features, and yet Telstra has been signing up customers at a rate of knots to its 4G network anyway — that’s how desperate people are to get on the infrastructure. A lot of this growth will have come from the company’s mobile broadband dongles and Wi-Fi units, but I’m sure there are also a lot of 4G smartphone users.
Now, however, things are changing. Telstra has just added several flagship 4G handsets to its arsenal — the HTC Titan 4G and the HTC One XL — and it looks like there are more 4G models in the wings, with Samsung hinting at a 4G version of the Galaxy S III. You can also bet that Apple, when it eventually releases the next iPhone, will have a 4G version finally ready for Australia, and at that stage it is likely that Telstra’s is the only network which will be able to fully support it. In short, Telstra’s advantages are only going to increase as time goes on — and the disadvantages of its rivals will also multiply.
Can you see what’s happening here? Right now, when it comes to mobile, Telstra holds all the cards in Australia, and it is playing those cards for all it is worth; rapidly soaking up hundreds of thousands of customers, destroying Vodafone’s revenue stream wholesale, and holding Optus back with one hand while it’s raking in cash with the other. It has the best handsets, the best network, the most marketing clout, the best reputation for network quality and a colossal lead in 4G infrastructure.
Now, from a customer viewpoint, there is no doubt this is fantastic — for now. Telstra is bending over to make customers like myself happy, and I’m happy to admit I’m a Telstra mobile customer. There is simply no point for someone like myself (who needs access to the Internet pretty much 24×7, anywhere I am), to sign up with Vodafone or Optus, when I know I’m going to get reduced coverage and speed from the alternative networks for only a slightly cheaper cost. And Telstra has been the only mobile carrier I recommend to anyone who asks for years now.
But long-term, what Telstra is doing right now represents a troubling sign for Australia’s mobile industry. Just as it did in fixed broadband, Telstra is now winding back competition in the mobile telecommunications space. One really has to wonder how long multinationals like SingTel and Vodafone will continue to be committed to piling hundreds of millions of dollars into mobile phone infrastructure in Australia, when it is clear they are only going to see very moderate levels of growth in return — and are even going to have to struggle to keep what customers they have. And who will keep Telstra honest with strong competitive offerings, when the company gets too far ahead for its own good?
In five years’ time, just how much market share will Telstra have in Australia’s mobile phone industry? If it keeps on adding 900,000 new mobile connections every six months and converting its customers to 4G while its rivals do diddly squat, I would have to say the answer will be: Most of it.