Virtual networks grow as wired phones wither

Mobile virtual network operators, and a wider variety of offerings, are likely to drive phone reseller growth for the next few years. By JASON BAKER.

Australia’s $3.35 billion telco reselling market has had moderate growth for the past five years and is set to grow 2.6% a year on average over the next five years to 2012-13, thanks to growth in mobile virtual network operators.

Past weak revenue growth has reflected the weakness in resold wireline services but, increasingly, this has been offset by growth in mobile, data and pre-paid calling services. In 2007-08, revenue will be driven higher as resellers increase the depth and breadth of their product range, as they aim to attract customers in their target market by offering service and product bundles.

Product tie-ins associated with internet access and also mobile telephony services will help drive revenue growth higher. Similarly to the wired telecommunications industry, resold wired services are expected to exhibit weaker demand, as consumers substitute to mobile services and disconnect from the wire network.

From next year growth will come from mobile virtual network operators, like Crazy John’s, offering 2G and 3G services, and increased demand for remote stored value pre-paid cards for international calls in particular.

But there will be more weakness in wired services with Optus expected to migrate more resale customers to its new ULL network whilst AAPT will utilise infrastructure from its 2007 acquisition of Powertel, which will also negatively affect revenue.

Industry forecasts will also depend on regulatory matters as governed by the ACCC. Future decisions will invariably impact industry and sector forecasts accordingly.

Whilst the ACCC continues to regulate key services, wholesaler margins continue to be attacked by Telstra, with the company having dropped the retail price of services below the wholesale price on more than one occasion.

Behind the big players are several medium-sized operators. Ozicom Unidial Group (market share ~2–4%), first entered the industry in 1997. It describes itself as a “marketing, distribution and management company” and has been a big player in the prepaid industry, selling through convenience stores and petrol stations.

Gotalk Ltd, formerly Telecorp Ltd (market share ~3.8%) is a Gold Coast-based, publicly unlisted company that offers a variety of resold telecommunications services. It offers calling card services, broadband ADSL and ADSL2+ internet services, long-distance calling, prepaid mobile, teleconferencing and Voice over Internet Protocol (VoIP) services.

People Telecom (market share ~3.3% 2005-06), which re-listed on the ASX in July 2004, offers a full suite of telecommunications products segmented into fixed, mobile and data services. In June 2006, People Telecom signed a $100 million agreement with Telstra for the provision of wholesale wireline and broadband access. The agreement will end in 2007. In January 2007, People Telecom announced a new five-year, $21 million agreement with Optus for the provision of mobile telecommunications services. Critically, the new agreement will enable People Telecom to offer 3G services.

M2 Telecommunication (market share ~1.1%) is a reseller of fixed-line, mobile and data telecommunications that utilises infrastructure from a number of different carriers including Telstra, Optus and Telecom New Zealand (PowerTel). M2 targets the commercial market, particularly small to medium enterprises.

In July 2006, M2 partnered with Optus to exclusively wholesale Optus mobile services to third parties wishing to become Mobile Virtual Network Operators (MVNOs). Turnkey solutions offered by M2 have proven to be popular and customers include Dodo, Telecom One, Red Media and Telkom, with more customers expected to sign in 2007. In February 2007, M2 announced it would offer Optus 3G services to retail and wholesale customers.

Tel.Pacific (market share ~1.1%) provides pre-paid calling cards to the Australian market. The company also offers VoIP services through its Hello brand and offered internet access but sold its ISP arm in April 2007 to G-Node Networks, as it was considered a non-core activity. Tel.Pacific’s phone card business operates under a few key brands such as Hello, Joy, GPS, Double Happiness and Tel.Pacific Time. Cards are distributed through more than 15,000 locations across Australia and in 2006 the company sold 598 million pre-paid international call minutes.

Industry outlook Revenue $m Growth % 2007 3,452.3 3.2 2008 3,562.1 3.2 2009 3,649.6 2.5 2010 3,733.0 2.3 2011 3,858.0 3.3 2012 3,964.0 2.7

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