John 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.