John Linton Over the weekend I looked at the various HSPA offerings by the Australian carriers and their resellers as well as updating the research we have been doing on EU SPA offerings for the past two years. The EU is far in advance of Australia in terms of numbers of offerings and methods of deliveries and it is very hard to actually track the changes that occur in terms of determining overall trends so all we have been able to do over the last 3 months as been to get an overall trend of pricing per gb and the overall trend of sustainable speeds.
In Australia it has been much simpler because there are only four carriers and the technology has barely changed over the time we have tracked it. The fierce discounting 'war' so evident 24 to 18 months ago has fought itself to a standstill and become a sort of sullen stand off with Optus/Vodafone/3 all settling on pretty identical offerings with Telstra sitting well above the other three on price based on continuing extensive advertising pushing the 'value' of the faster speed and claimed greater coverage.
So currently in Australia there are four carriers plus their resellers plus a very small but slowly growing number of Layer 2 wholesale HSPA customers vying for a rapidly growing but still quite small set of markets. The pricing to the end user has settled at a level which is below our costs and I doubt makes much money for any of the carriers but does make money for the carrier resellers who get a negotiated fixed commission from the carrier set end user buy prices.
There is no chance for a small company like Exetel (a Layer 2 wholesale customer of Optus) of making a profit either now or in the immediate future as the carriers continue to do their usual "free" modems, "free" activation and various other "free" offerings together with their saturation advertising and promotions. We are going to be lucky if we hold our monthly losses to an acceptable level over whatever period of time it takes us to build some sort of 'presence' which will take at least nine to twelve months and maybe longer - or until we can no longer sustain the losses.
We decided to use advertising for the first time in our 5+ year existence to help us get through the coming twelve months of extreme difficulties but we have absolutely no knowledge of how to accomplish that other than the 'suck it and see' approach we are currently pursuing. One of the principle attractions of setting up an HSPA operation in the UK is to get access to much lower cost hardware for Australia - specifically the basic HSPA modem and the elusive 'magic box'. We are hoping that a combination of being able to source the base hardware at even lower cost than the carriers (which will give us an advantage over the carrier resellers if not the carriers themselves) and our ability (being a Level 2 HSPA provider) to add functionality that a simple re-sell of a carrier retail service can't provide.
The decision to use advertising has instantly added $A500,000 of non-recoverable expense to the first six months of the HSPA business plan and we doubt it will provide very much in terms of additional numbers of new customers for many months and probably not very much at all for the first campaign. We understood that very real risk when we made the decision but reasoned that we would have to try and even if we almost certainly failed we would hopefully learn from our initial mistakes and do better the second time (assuming there is a second time of course).
Looking at the ABS figures for HSPA take up the trend, already fast, is getting faster and that simply tracks what has happened in the EU which, from what I can see, is around two years in advance of Australia. If the trends evidenced from the ABS figures are truly indicative and continue along the same trend lines over the 24 months to June 2011 then there will be as many HSPA users as ADSL users by that time (I'm assuming there will be no impact from the 'NBN2' in the coming 24 months). If that is going to be the case then the challenges will become extreme post July 2010 and we really only have this brief time frame to establish our small place in the provision of this technology in the markets we choose to operate in. I can see little 'evidence' that any other small provider is making any progress at all and, unless I'm going blind, many of the larger ISPs have yet to make any progress in defining an HSPA offering.
Our challenge is to increase our customer numbers quickly enough to allow us to 're-negotiate' ongoing base data rates that are at least as good enough to allow us to remain on a par or better with all other Optus wholesale customers and to source the other aspects of the HSPA service (non-Optus) at better prices than any of our competitors. If we can do this then our very low overheads and our willingness to accept very, very low margins should allow us to out-perform companies that can't do all of these things without us having to take the very high risk option of having to sell at a loss for any longer than is absolutely essential.
I could obviously be wrong but, as I've said before, I think the future 'NBN2' is unlikely to be priced low enough to appeal to up to 50% of current broadband users (and certainly not the remnants of the dial up and satellite users) so that leaves a total market of perhaps as many as 3,000,000 users around Australia out of the current 6,000,000 ADSL users. So the current ADSL providers will, almost certainly, lose approximately 50% of their current (most profitable users) to their own and someone else's HSPA service and it should be realised that all but the mobile carriers haven't even got as far as Exetel has in putting in place a realistic (in most cases they have put in place no HSPA program at all) HSPA and HSPA is already bigger today than ADSL was only 3 years ago.
Very difficult times ahead - and almost certainly not only for us.
As Johnny Horton once sang - "....the rush is on"
http://www.itwire.com/content/view/26512/127/