Thursday, March 11. 2010The Long Predicted 'Clone Wars' Begin To Escalate....John Linton ......with TPG being forced to offer "unlimited" ADSL2 as AAPT's "Unlimited" begins to make TPG's future forecasts subject to revision. You can always tell when a company has been 'caught out' by a competitor - it announces that it will announce in the future some product/plan that will meet the characteristics of some competitor's already released plan. I guess in TPG's case it has to arrange to replace all those bus posters and bill boards it just put up with new ones - is that the 4th time in nine months? Who said the current saturation of the ADSL market wouldn't create a blood bath? The ABS statistics on the state of the Australian ADSL marketplace are not due out until 31st March but the recent price cuts by AAPT and now TPG and the increasing use of 'unlimited' around the marketplaces are pretty indicative that all is not well in ISP prediction land. Apart from the various publicly listed company half year results there have been many other less obvious indications that the sales predictions/revenues/profits of a number of Australian communications companies are far from what they predicted when this financial year began. As I said back in October 2009 (and several times since) the lack of 'natural' growth in the ADSL2 market could only lead to one thing - fierce competition characterised by price cutting. Only Telstra has some sort of protection because its competitors don't have the coverage that Telstra does - although, of course, coverage by AAPT and TPG et alia are in the 'most popular' exchanges in terms of the majority of ADSL users. The most obvious result of AAPT/TPG's unlimited plans will be that it effectively puts a new, much lower, 'cap' on what the high end spenders will be prepared to pay for an internet service - there will be no more plans above $A100.00 per month once the 'dust settles'. Not that that user demographic is very large in the first place and even at the current high prices for those plans they seldom if ever make much or any profit. So AAPT and, when they join the fray, TPG have begun to change the ADSSL market for the better by reducing the cost of ADSL generally. However, even at $A85.00 a month it is still well beyond the budget of the vast majority of ADSL buyers in Australia - I have no way of knowing what that might be but I doubt that it exceeds $A50.00 a month and is much more likely to be $A40.00 a month. I could be totally wrong......I often am. I suppose that TPG is assuming that the shareholder vote tomorrow approves its takeover of Pipe and TPG would then have access to large quantities of 'free' international IP (just as AAPT already has). That would depend on how many of Pipes current users continue to be happy with buying IP and other services from a competitor who is using their purchase monies to destroy their businesses. I wouldn't have thought that too many would do that.....but, as PTB remarked about a different demographic, you can never under estimate the lack of business acumen of Australian communications business managers. It will now be interesting to see what Telstra does - and to a lesser extent what Optus does. Telstra will be the least directly affected of any ISP by these particular events as they would have very few customers who fall into the demographics of 'unlimited usage' customers. However they already have been and will continue to be negatively affected by the repercussions of the 'unlimited' plans on offer because it more starkly contrasts just how massively overpriced Telstra's ADSL offerings are. Similarly Optus plans are now exposed as being far too expensive for far too little. It will depend on whether both those companies 'market guidance' that they both expected to see 'improved results' for the second half of FY2010 are a reality or just wishful thinking.....and, I would imagine, what they are seeing in their new applications and churn aways right now. Not a pretty sight? It isn't all downside though for other communications companies - at least not yet. Firstly, $A85.00 is not going to do all that much apart from costing any company (irrespective of how low cost their IP and connectivity bandwidth is) more than they receive for such plans on average and moving any of their own customers currently paying more than that down to that level. Secondly the percentage of the 'total market' willing to pay $A85.00 per month is likely to be less than 10% (at the very most) and more likely to be somewhere South of 5%. Thirdly, and quite possibly you might think perversely, it will benefit other ISPs who will lose some very small percentage of their heavy users to TPG/AAPT but in doing so will reduce their own operating costs. The problem for other ISPs is a future one, and quite possibly in the very near future, when AAPT/TPG try and make similar offerings at the $A50.00 per month mark. I, on behalf of Exetel, have a very different concern which has nothing to do with 'unlimited' residential ADSL. I am wondering what price changes AAPT/TPG will bring to the business marketplace now they are saying that unlimited IP and connectivity band width costs less than $A85.00? Both of those companies have many thousands of business customers who, I would have thought, would be ringing their account manager putting pressure on those companies to reduce their now massively over charged monthly business services.....and there is no doubt that will begin to happen if it hasn't already. The trouble for AAPT/TPG now is that they have told the world how little it costs to deliver IP to an end user and their business users will now want the same deal - except that would mean a reduction in business revenue of something like 75% - not something share holders would be happy about unless TPG/AAPT could treble or quadruple their take up of new customers. My 'concerns' are purely based on how those companies will 're-position' their business internet plans. Times will, undoubtedly, get tougher in communications land over the coming months and we will have to find some way of providing unlimited plans to our customers without going broke - it needs some 180 degree different way of looking at it as all the ways we've looked at it so far have been un 'doable'.
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My personal opinion is that AAPT & now TPG with their reactive response to Unlimited offers is the game changer that will re-set customer views on Internet costing.
John, you think $40 or $50 is the standard benchmark for Internet, however this type of marketing approach from AAPT & TPG WILL change the market and what people expect from their providers. Customers see a DEAL, they see - I can roll my Phone & ADSL2 UNLIMITED along with $50 Music to support my favourite artist for just $99. It's a very good deal in anyones eyes, even to those only wanting to spend $50 a month for internet and have no plans on downloading everything in sight. It's also a good deal for anyone burnt due to over-quota fees due to their son/daughter/friends downloading too much. Then TPG come along and offer $75 Unlimited with $10 phone rental, phew, these plans spell a very dangerous situation for all other ISP companies. How do you create loyalty in the day and age of competitve pricing, I don't know, it's tough and will only get tougher from here on. Comment (1)
These deals by AAPT & TPG are marketing hype that are about propping up revenue by including stuff that people think would be nice but they don't use. It's the free steak knives.
The problem for communications companies is more and more they are selling data pipes. Whether an ISP, a mobile or a landline provider, all of these are moving to providing data pipes. Some companies just don't realise it yet. There will be some margin in this, but not much. Third parties will sell value added services that undermine traditional products. Wise communication companies will embrace this and provide a one stop shop with data pipe and services. Others will try to create the illusion of value by bundling. It seems Exetel is heading down the first path. It sells a pipe. It sells services that use the pipe, such as VOIP. As a side effect, it shows how much of a rip off the "bundlers" are. And back to John's post. It seems to me I'd be worried if I held shares in either of these ISPs. When companies resort to bundling like this, the underlying message is the core product is not profitable on its own. Comment (1)
Perhaps you should read my comments/predictions on the future directions of the ADSL markets/services over the past six months?
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With regard to the price changes AAPT/TPG will bring to the business marketplace:
TPG had an 'unlimited'* business plan before AAPT's 24/7 unlimited plan. It's cost is currently $80/month. *Connection speeds capped to 1Mbps between 7pm and 7am. Comment (1)
I was referring to their SHDSL and above business services.
As for their 'business' plan at $80.00 with 12 hours restricted access - I guess they just all got replaced by the new plan when it hits the street. Comments (3)
Currently have a TPG SHDSL plan for my business & it certainly hasn't changed with the new releases (in fact I kick myself for not being more aware of what their current business plans are ).
It is unlimited 24/7 but at a ridiculous cost. Even though it is vital that I have continual connection at a reasonably fast speed, I find that it comes down to reliability vs speed for the cost of their business plans. This cannot be good long term. Without really adding to the comments - thank you Lukian & John for making me hit them hard with a business plan review. If nothing else, TPG have a good business relationship team that are open to dictating to..... (oops did I mean negotiating with.. ;p) Comments (2)
Not to date - but it'll be part of the process!
Comments (2)
In Australia, ISPs seem to be going the way of PC assemblers in the mid 90s - first there were giants (IBM, Compaq) then there were pretenders (Including David and John - remember TP and Osbourne), then the pretenders had their margins clipped by new pretenders (Edge and others) and then suddenly there was no margin and only the giants left.
If I was an ISP I would at this point seriously consider consolidation - see iiNet and Netspace - http://www.arnnet.com.au/article/339257/iinet_confirms_netspace_talks/?eid=-4152 Comment (1)
That's right, it shall be putting an end to all this 100AUD+ pie-in-the-sky- Garbage, and by pushing that out AUstralians we can progress.
"The most obvious result of AAPT/TPG's unlimited plans will be that it effectively puts a new, much lower, 'cap' on what the high end spenders will be prepared to pay for an internet service - there will be no more plans above $A100.00 per month once the 'dust settles'." Oohhh, btw We're over priced.. but here's a bundle for 269.95A 'just in case' -- bye bye ....... While this all comes as VERY welcome news backhaul and IP-wise for the market/pricing-in general, AAPT/tPG as you suggest, still hold no solution, no hope for those _un_popular exchanges; the rims-connected; and sub-exchanges people. (Of which is your safe customerbase) In the future I fear ADSL1' only hope^ for Speed =faster than '1.5-0.25'mbps, may actually be resold-wireless. But not the stuff Optus so kindly provides (Offpeak=nil; +$15gb)...no I am sensing something more deja vu... something more 'circa August 2004' - when Exetel was a tiny 5,000 customers in number, 80% in Sydney, metro - should such a technology/venture re-emerge, in stronger shape, be perhaps synergizable through Exetel. As at least the 'five years ago j.Linton' would say, “What matters is not the size of the dog in the fight, but the size of the fight in the dog.” ...Nah actually, but Bear Bryant might have made a solid point. Comment (1)
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