Thursday, August 28. 2008HSPA 'Wars" Hotting UpJohn Linton I saw the iPrimus HSPA announcement yesterday which interested me greatly. I thought that the mobile carriers themselves were being hyper aggressive with their offers but they all pale in to insignificance compared to what iPrimus appears to be offering on a service they are buying from Optus. I obviously did an incredibly bad job of 'negotiating' the rates Exetel will pay to Optus for HSPA connectivity and data judging by the prices iPrimus has just announced. I think my abject negotiating abilities, as proved by the iPrimus HSPA end user pricing, is one more pointer to my inadequacy in my position - where did I put that draft resignation letter? While I understand that 'smoke and mirrors' is the standard modus operandi of marketing done by companies such as iPrimus there is a core 'truth' buried somewhere beneath the disclaimers and other obfuscation which makes it difficult to see anything other than that iPrimus is prepared to take a goshalmighty loss on every HSPA service sold or that Optus are providing iPrimus with pricing at 70% less than they are providing to Exetel. Of course, there would be little doubt that iPrimus would sell a heckuvalot more services than Exetel would but......the pricing difference is so huge it makes my head spin trying to come to grips with it. $39.00 for 6 gb of included data - if that is actually what the end user gets then that means that iPrimus is selling data at a theoretical price of less than $6.50 per gb assuming that there is no 'absorbed' monthly connection charge - around $5.90 if there is an 'absorbed' monthly connection charge. So if that's a sell price then the buy price must be less than that. Of course, the reality is that an end user on a 6 gb plan will use much less than 6 gb on average - ADSL statistics would indicate an average of around 60% of a plan's included allowance is actually used - but I wonder whether that percentage holds true when you include uploads and, relatively, low usage plans? Of course there is the usual 'small print' including a modem charge of $220.00 which is a handsome mark up of over $100.00 from a Huawei delivered to your door price and then a further $10.00 if you don't also buy another mobile or wire line service........and probably other conditions that apply that weren't available at the time I looked for them (or I was too incompetent to find them). In any event, none of that is the point. The point is that iPrimus, a reseller of a carrier's service, is now offering HSPA services at below the costs the carrier's are offering them for. Not really a big deal but a very solid indication that 'true' ADSL replacement services will arrive sooner rather than later in terms of the lower end of the ADSL market. There is little doubt that 3, Optus themselves and Vodafone will all continue to 'sweeten' the HSPA cost per gb pricing equations as well as ramping up speeds. 4 gb down would account for well over 65% of Exetel's ADSL1 and ADSL2 users and I think it would be a much higher percentage of all Australian ADSL users. You have to wonder what this will do to the 'planned' migrations of dial up users and the ROIs for ADSL2 roll outs? At the price and download levels being offered now for HSPA services, let alone what will happen in the near future, makes it difficult to predict the same take up of ADSL2 as would have been the case when those companies that decided to roll out their own networks made those brave decisions. I would imagine that all ADSL2 future expansion roll outs are on hold at the moment because of NBN but HSPA has made the future even more uncertain. I haven't looked at what the other HSPA carriers and resellers are now offering in any detail as I want to leave it to 'the last minute' before making the 'first HSPA offers' availble so that we have as clear a picture as possible about what will be offered in mid September and then the 'Christmas Specials'. It seems to me, if I had to make a decision today, that the only way to compete with the current and likely near future offers is to use a price point of $A40.00 (or $A39.99) and beat whatever the 'included' allowances are at the time. The only way I can see of doing this is to bundle HSPA with a mobile service and use the profit on the mobile calls to subsidise the cost of the HSPA service. That would make a $40.00 for 4 gb of HSPA possible (you could say 6 gb if the 'market' was at that level but the reality is that most users know their usage and 4 gb takes care of more marketshare than Exetel could ever service). You would then have to say that the customer must buy a mobile service from you at an additional $30.00 minimum monthly spend with call costs of 25 cents per minute (mobiles and land lines) with a 25 cent flag fall. This would have to be on a 24 month contract and you could make the modem available either 'free' or at a small monthly cost. I doubt that such a 'bundle' would actually work out very well in terms of sales volumes but it is easy enough to see what lead to the sort of offer that iPrimus has just made - or at least I can see one way that would make such offers possible without losing too much money. A 'naked' HSPA offer is going to be much easier to 'sell' but it is not going to be saleable to the majority of the market when 'head line' offers of "6 gb for $A39.00" are going to be the norm. 6 gb would cost Exetel a great deal more than $A39.00 and we can't survive selling services below cost. I can see that we have got a lot more work to do than I anticipated to discuss and finalise HSPA pricing and 'bundling'. Lucky there's so much time available at the moment.
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I would think that there 12GB offer might make a market statement but is likely to attract just the kind of user you don't want that is going to have unreasonable expectations of the service, concentrate on the other end of the spectrum and let them have the leeches all to themselves
Comments (2)
I don't think, at this stage of development, that HSPA is capable of making a 12 gb user happy.
Just my very personal opinion. Comments (4)
I agree with both of these posts.
12 GB with shaping is bound to get too much P2P type of traffic. And if the network congestion and 'over selling' of HSPA services is going to continue to be a problem, then anybody needing a good reliable service that offers reasonable speeds is never going to be happy. Comments (2)
I would agree and I think their marketing department must not have listened to the advice they should have received from their technical department
Some people live and learn, some people just live Comments (2)
The Exetel offering with only $5 monthly commitment, pay as you use and no contract will have far more appeal to a huge market sector. I have sold your plan to heaps of friends already.
Comment (1)
I think you're right for a large percentage of inteligent users.
Comments (4)
I am also hanging out for the PAYU plan as is the company I work for. Its a good way to go and should win you some business from the big rip off player(s)
Comment (1)
I like your old proposed HSPA plans and I am considering signing up when available but there is one thing I do not like which may stop me.
It is the increased cost once you go past 1 Gig up and down. Why is that? Should be the other way round. 1 Gig should be enough but once you count uploads it probably is only 800meg usable. Comment (1)
Because we see, at this stage, HSPA to be a 'light' user service and we therefore negotiated pricing from Optus on that basis.
Comments (4)
Could you negotiate again for the addition of some of the higher use options such as the iPrimus ones (6GB and 12GB plans I mean). If this is done, you could cover both the low end and the current mid to high end as well giving new customers a choice between the three levels.
Comments (2)
Our 'negotiating' position is not very strong (in other words it's quite weak).
We can't/won't make promises of thousands of sign ups a month and therefore we can't begin to be looked upon as an 'important' customer. I negotiated for what I believed to be a sensible set of prices for the target markets we have in mind for the first 4 - 6 months of providing HSPA services. The LAST thing we want is to attract P2P down loaders and streaming video (porn) users at this stage of our entry in to the HSPA service space. Personally, from what I know of HSPA costs both here and in the UK, 6 and 12 gb plans are completely unsustainable at the prices iPrimus is charging. The pricing is a gamble on the users not getting anywhere close to those inclusions and also relying on 'commissions' to get anywhere near break even. I am not that much of a gambler and, almost undoubtedly, don't buy at the prices iPrimus buys at. Comments (4)
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