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In this report, a critical evaluation of the Australian mobile market is performed and the performance of analysis of such mobile market has resulted into significant findings. As for instance, it has been identified that the mobile communication has completely replaced the landline mode of communication in case of Australian mobile market. The introduction of highly technological mobile phones such as iPhone has further allowed the Australia people to consider the mobile phones in performing communication over the landlines. Email, SMS and instant messaging services as provided with the mobile phones have also significantly contributed towards the replacement of landline phones from the entire mobile market. Another major contributing factor towards the decline of landline is the price-capped mobile phone plans as provided by the major Australia mobile phone companies such as Telstra, Optus, Vodafone and Virgin. The findings from the analysis of mobile phone market also revealed that competition among the existing players is significantly higher and as such, they distinguishes themselves by undertaking initiatives in the form of providing bundle of benefits to customers and by undertaking brand management which is highly visible in the areas of sponsorship and community involvement. The findings from the analysis also revealed that networks, service providers, retailers and call plans are the major determining factor of success of mobile phone operators within the country. The findings suggest that the entire mobile phone market in Australia is dominated by Telstra which is followed by Optus occupying the second position. Vodafone and Virgin Mobile also have dominant position in the mobile phone market in Australia. The analysis leads to conclusion that the mobile phone industry in Australia is highly concentrated among these four major players and they compete on a wide range of basis in order to attract higher market share.

Introduction.

This business report is aimed at performing an analysis of Australian mobile market with a view to compare the major service providers and the services as offered by them. The report begins with a discussion on the growth in the mobile market in Australia by highlighting the significance of mobile phone communication over the landline communication and the ways in which the landline phones have disappeared from the telecommunication industry within the Australian economy. The reasons leading to the adoption of mobile phones over the landline are indicated and the various service providers of mobile phone services are analysed in brief. As for instance, the Australian mobile phone market is mainly dominated by four largest players including Telstra, Optus, Vodafone and Virgin Mobile. An analysis of the various service offering by these mobile providers would allow for a complete analysis about the Australian mobile market. The mobile plans with specific calling rates as provided by these mobile service providers become the core areas of discussion within the given report. The impact that Apple iPhone has on the market is also critically analysed including the various offerings made by the Apple to the Australian consumers. The analysis of all these aspects in detail would lead to a better understanding of the Australian mobile market

AUSTRALIA’S MOBILE MARKET

PRICING STRATEGIES

On 10 March 1876 the American inventor Alexander Graham Bell, having realised that the sound waves of the human voice could be reproduced in a continuous, undulating current, called from one room to another on his new device that would launch the telephone age: ‘Mr Watson, please come here.’ Apple’s new iPhone builds on Bell’s legacy, offering the convergence of telephone, wi-fi internet and iPod storage.

Mobile phone saturation in Australia reached over 90% by mid 2005, with more than 18 million customers. By mid 2006, the number was up 20% to almost 20 million. Fixed landlines have been in decline, disappearing at the rate of over 100,000 per year in recent times, or 3%, according to a recent Choice magazine report¹, to number just over 11 million by mid 2007. Payphone numbers on our streets are also in decline, reflecting mobile take-up rates. The land line is becoming an increasingly redundant technology. Email, SMS and instant messaging have replaced the home phone for connectivity, particularly for the young. ‘We’re seeing the young adult generation (18-35) using a mobile phone as their primary form of communication, because they need their mobile more than a landline,’ says IOC Australia,² a telecommunication and technology research company. ‘This is especially true for social and economic reasons – much of this age group can’t afford to have both a mobile and fixed line.’

Price-capped mobile packages can deliver cheaper calling options than landlines, particularly for mobile-to-mobile calls with the same provider. Mobile-broadband packages accompanying rapidly expanding 3G networks offer further reasons to opt for a mobile network over a landline. While the landline has been valued as a conduit to the internet, this too is going by the board with the introduction of naked OSL services by broadband suppliers such as Engin and iiNet, offering ADSL packages to consumers without dependency on a landline.

Telecommunications saw little change in the century after 1876, but the industry is now undergoing a phenomenal rate of change. The iPhone reflects this dynamism, delivering consumers a bundle of benefits unimagined a decade ago through the convergence of different communication and entertainment technologies. But a monopoly over offering such benefits is as fleeting as the popularity of a ring-tone, and, as with many product categories, marketers must be creative to distinguish their brands in the face of encroaching product homogeneity. Some of this brand management is taking place off the phone, in the high-visibility domains of sponsorship and community involvement. Telstra, for example, is linked to major sports events and entertainments, such as Australian Idol, and a backer of numerous community charities. Optus sponsorships include the arts, sports and business-government initiatives in the Northern Territory, while Vodafone is associated with rugby union, AFL and motorsport, and holds the naming rights to a mixed-sports venue in Melbourne.

The most noticeable point of difference to be discerned between mobile service providers is price. In most metropolitan areas, the concentration of consumers makes distribution, or getting access to the service, and product differences, expressed as network coverage quality, almost immaterial. But reliance on this one main marketing variable doesn’t diminish the complexity of the consumer’s information search and evaluation of alternatives. Mobile pricing is a complicated business, made so not just to camouflage offer homogeneity, but also because there may be several different companies, or providers, involved in one brand’s market offer; or the same one may provide the network, customer service, retailing and billing.

The moving parts of the mobile phone market are the networks, service providers, retailers and call plans.

Australia’s mobile telephone networks are provided by Telstra, Optus, Vodafone and 3 (Hutchison). Service providers supplement and compete with the carriers by buying services from them wholesale and repackaging them for resale. Retail mobile phone shops sell a range of phones and plans, and may be dedicated to one of the major network brands, or more independent. The call plan forms the contract with the service provider, or carrier, and details how the consumer connects to the network, which services he or she has access to, and at what price.

Telstra dominates the telecommunications market, offering landline and mobile services, broadband cable modem, satellite and AOSL services under the BigPond brand, business data services and cable television. Telstra operates the largest GSM and 3G mobile telephony networks in Australia. Call plans are available in post- and prepaid payment types. In spite of competition from both foreign and domestic challengers, the company retains many of the country’s most profitable customers. Telstra plans to switch off its CDMA network in 2008, replacing it with a new high-speed 3G network, Next G, based on HSDPA (High-Speed Downlink Packet Access) technology that is designed to increase data-transfer speeds and network capacity. The Next G network can cover much larger geographical distances, allowing Telstra to cover approximately 98% of the Australian population.

Optus, a wholly owned subsidiary of Singapore Telecommunications, ranks second in Australia’s telecommunications industry. Optus owns and operates its own network infrastructure, as well as using the services of other network service providers, such as Telstra Wholesale. It owns several subsidiary brands, such as Virgin Mobile Australia, and also acts as a wholesaler to other service providers.

Vodafone is the largest mobile telecommunications network company in the world, with equity interests in 25 countries and Partner Networks in a further 40 countries, and almost 210 million customers as at mid 2007. The company’s integrated satellite/digital service covers 100% of the Australian continent and up to 200 nautical miles from the mainland. Vodafone Australia is considered a challenger brand in the mobile market and aims to bring social networking capabilities into consumers’ hands through innovative new products and services, such as Vodafone 123. This is a ‘premium rate’ service, with call prices varying according to the customer’s plan or connection type, which allows customers to ask a Vodafone employee anything they need to know, such as football scores, snow reports, or how to find their way home from where they are. With more than 3 million customers, Vodafone has around 17% of the Australian mobile market.

3’s (Hutchison) 3G network covered approximately 56% of Australia’s population by 2006. In areas not covered by 3’s network, customers roam on the Telstra network, allowing near saturation coverage. 3’s sponsorship of Big Brother, the Australian cricket team and Essendon Football Club helped the company attract almost 1.5 million Australian subscribers by mid 2007.

Virgin Mobile Australia (VMA), a wholly owned subsidiary of Optus, uses the Optus network but Virgin manages all aspects of the customer experience, including branding of products, customer service and billing. VMA sells prepaid, standard monthly plans and CAP plans through over 3500 retail outlets, as well as its own branded retail stores in Sydney, Melbourne and Brisbane, and via telesales and web-based stores to more than 0.5 million customers.

With the mobile market’s complex interrelationships between network providers, more than a dozen service providers using the network capacity of rival carriers and retailers, cost structures in the industry are equally complex. This cost framework is reflected in a marketplace with a dizzying number of call plans that typically bundle different levels of service at different price points. Call plans must be evaluated on the basis of the level of access to such services as local calls (up to 165 kilometres from where you are calling, and whether peak/off-peak), long-distance calls (peak/off-peak), mobile-to-mobile (whether the same network, peak/off-peak), number of voicemails deposited and retrieved, and number of SMS sent. These bundled call plans are so complex that some industry insiders have difficulty keeping up with competitors’ offers. To assist consumers work through the maze, Choice magazine has instigated an interactive web-based calculator³ for working out the optimal plan for their mobile habits, including terms and conditions for the different plans.

Other factors affecting call plan-plan pricing are the term of the contract and whether the plan is tailored for a business or end-consumer. Service providers typically offer a choice of fixed-period terms, pre- and post-paid plans for consumers and an additional variety for business needs. There has been strong growth in prepaid services to date, with this pricing approach estimated to grow in consumer appeal to around 55% by 2008. Network upgrades, such as Telstra’s $1 billion Next G network rollout and the extension of other carriers’ 3G networks, will require compatible handset updates, allowing service providers continued flexibility by adding different handsets to call-plan bundles. For consumers, this means additional complexity; for marketers of mobile service brands, it offers the opportunity for creative design of product offers for different mobile user segments at different price levels.

Apple’s iPhone is set to hit the Australian market as this book goes to press, but its pricing plans in the US, linked to the AT& T network, provide insights into what bundles are likely here. Three iPhone data plans provide three different access levels of visual voicemail. SMS text messaging and email/web data. Plans start at US$59.99 per month and include 450 minutes, unlimited email/web data, visual voicemail, 200 SMS text messages, 5000 nights and weekends, the possibility of ‘rollover minutes’ and unlimited mobile-to-mobile. Another $20 will add another 450 minutes and unlimited nights and weekends.

What an iPhone plan might look like in Australia will be influenced to some extent by the network support partner. While it is difficult to impossible to make comparisons between the US market and Australia, a scan of several of the local service providers hints at where iPhone might enter the market. Optus’s $79 per month BlackBerry Cap Plan, for example, offers $300 of value, including BlackBerry email and internet, 35 cents call rate per 30 seconds, 30 cents flag fall and national SMS 25 cents over a 24-month term. Call types include local, national, mobile and international, local and international SMS, voicemail, national photo messaging, ‘push to talk’, 124YES(937) and national video calling. Vodafone Australia’s Hot Plan offers four price points per month, $30, $50, $70 and $100. The $70 plan offers $70 of service credit, with calls charged at 25 cents for 30 seconds (charged in 30-second blocks), SMS texts at 25 cents, connection fee of 25 cents, 200 standard texts or 200 Vodafone-to-Vodafone minutes, or 200 night-time minutes (8pm to 8am).

Just prior to publication there were rumours that a 3G iPhone would be launched in the last week of June 2008, across multiple carriers and with no contracts. It was also rumoured that, while the launch is expected to coincide with the opening of Apple’s flagship Sydney store, current resellers will also be able to sell the new iPhone – an approach different from that elsewhere around the world. If true, these moves should give a boost to the iPhone’s adoption and market penetration.

Industry research specialist IDC Australia’s study, ‘Australia Cellular 2005-2010 Forecast and Analysis: Hopelessly Addicted’ ⁴ forecasts that by 2010 the Australian mobile market will number around 22 million services in operation, generating $A11 billion in service revenues. More than one third of these will be attributable to non-voice services, led by SMS, mobile data, MMS, video/TV and music services. IDC warns mobile providers to manage customers carefully when migrating them between platforms, to advance 3G networks sooner rather than later, and to maintain pricing predictability in the market. Brands should be clearly defined and service consistent to win and maintain customer satisfaction.

While the mobile market is unlikely to return to the rigid inconvenience of fixed landlines, it is not without competitive threats. Voice-over Internet Protocol (VolP) lets consumers make and receive free or very cheap calls over broad band internet and there are signs it is growing in popularity. The convergence offered by new handsets such as the iPhone and networks such as Next G is a far cry from Bell’s call for the assistance of Mr Watson in 1876, but it must come at a price. With industry complexity increasing rather than diminishing, it looks like price bundling is here to stay.

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AUSTRALIA’S MOBILE MARKET

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