In the next five years, the mobile telecommunications industry will be transformed by new technologies, new players … and the exit of at least one national network. By IBISWorld’s JASON BAKER.
The mobile phone market is clearly over-supplied. Success will increasingly depend on what services are offered. By Jason Baker.
In the next five years, the mobile telecommunications industry will be transformed by new technologies, new players — and the exit of at least one national network.
Opportunity: Growth in disruptive technologies including voice services utilising WiMax technology. For example Netgear is launching a Wi-Fi phone in the US for use with Skype — not yet available from Australian retail stores.
Threat: One player will exit the mobile telecommunications market in the next few years.
Australian mobile telephone usage will generate more money than fixed-line telephones in Australia for the first time ever in 2007-08. Mobiles are increasingly being used as a substitute for fixed-line phones, driving mobiles’ growth and taking revenue streams away from landline services.
The mobile telecommunications carriers industry’s revenue is set to grow from $11.5 billion now to $13.2 billion in the next financial year, while revenue for wired telecoms will shrink from $14 billion today, to $12.8 billion in 2008, according to IBISWorld research.
Mobile subscriber penetration is now in excess of 90% of the population and IBISWorld expects it will hit 100% this financial year. However, growth among individual carriers is increasingly being driven by attracting customers from competitors. Competition levels will continue to intensify, given that operational earnings are driven by scale.
Due to this massive level of penetration, the industry is now considered to be in the mature phase of its life cycle.
The Australian mobile telecommunications industry is clearly over-serviced, with four national network providers servicing a population of just over 20 million.
As a result, at least one player is expected to exit the market during the next five years, which is another characteristic of an industry in the mature phase of its life cycle.
With the market literally beyond saturation point, the key to growth for industry players will be in increasing the average revenue per user (ARPU) rate, and one of the key solutions to that challenge is the uptake of new technologies.
3G is now the main game for all of Australia’s big mobile telecommunications carriers. Through the successful introduction of 3G into the Australian marketplace, the mobile carriers hope to increase ARPU by encouraging users to take advantage of the technology’s superior data capabilities.
All four mobile telecommunications carriers will seek to increase the scale of their 3G services quickly to minimise excess capacity in their networks. These carriers are finally looking to extract some returns for this technology after paying a total of $1.2 billion for spectrum at the height of the technology boom in 2001.
By pushing 3G subscriber growth they are attempting to arrest falling ARPU returns by focusing on exclusive content such as sports events and television shows like Big Brother.
While carriers are spending more on advertising and marketing, a Nielson Media survey in mid-2006 found that many consumers did not fully understand 3G technology and could not see clear benefits.
With 3G subscriber growth not keeping pace with many internal estimates in 2005-06, carriers will attempt to migrate 2G and 2.5G customers to 3G with generous and perhaps loss-leading subsidies on 3G handsets over the coming year.
The problem is that, at present, there remains a distinct lack of a killer application for 3G services other than simply being a mobile wireless device. If viewed simply as a mobile wireless device, 3G is unlikely to gain any penetration given that download costs are presently prohibitive for consumers and businesses alike.
As it stands, users will pay between 0.26 cents and 1.5 cents per kilobyte of information over Telstra’s 3G network. However, as prices fall, 3G data cards may become more prevalent, but greater use may detract from network performance, which may also limit growth. But the use of data services has been promising and Hutchison has reported higher and increasing ARPU for 3G customers.
IBISWorld believes that the main, albeit slight, threat to the future dominance of 3G technology is the successful emergence of disruptive technologies such as WiMax.
WiMax is a seal of approval certifying that equipment conforms with IEEE 802.16 standards and is interoperable with other WiMax standardised equipment. The 802.16 standard allows wireless broadband access, but requires line-of-sight connectivity and large towers.
Unwired, a local internet service provider, covers (among other areas) approximately 2000 sq km in Sydney (or 3.5 million people), with only 71 towers.
It is essentially a fixed service that operates in the metropolitan area network (MAN) and wide area network (WAN), as opposed to the more traditional Wi-Fi, which operates in the local area network (LAN) or Bluetooth, which operates in the personal area network (PAN).
More recently a new standard, referred to as 802.16e (or 802.16-2005) has been ratified, which provides mobile wireless broadband in laptops and later down the track PDAs and most importantly, mobile phones.
WiMax is shaping up to be a pure substitute for 3G given that data represents the future of the mobile telecommunications industry.
Further, voice services will also be possible utilising WiMax technology, with Netgear launching a Wi-Fi phone in the US for use with Skype. This is not yet available from Australian retail outlets but it does represent a choice, a threat and, more importantly, an opportunity.
There is no 802.16e-certified equipment presently available on the market, but the first wave of products are expected in late 2006-07 or 2007-08. The competitive advantage of WiMax relative to 3G is that services can be more competitively priced given that the costs of establishing and maintaining a network are nowhere near the costs of 3G services.
Information from the industry-led WiMax Forum also suggests that data speeds will be faster (and cheaper) relative to 3G services. However, 3.5G is expected to bridge this gap, with Telstra aiming to offer 3.5G data speeds of 14.4 Mbps in early 2007.
Telstra has stated that its long-term aim is to target a peak speed of 100 Mbps for Super 3G services, but this is still some way off. Although there is no killer application for Super 3G services at these speeds, given that wired download speeds are presently limited to about 20 Mbps, the comparative difference may compel some businesses to utilise mobile services for standard downloading, although the extra costs of wireless as it is today may deter such an action.
At this stage, it is unlikely that there will be a substantial migration of mobile subscribers to WiMax given that 3G is available now, coverage and data rates are increasing and mobile carriers are more than happy to give away a handset to acquire a new customer.
By the time mobile WiMax comes to market, 3G is expected to have a firmly entrenched customer base, which will make it even more difficult to compete on a similar scale.
One positive for WiMax is that break-even subscriber levels will be substantially lower than 3G services. WiMax may not become a dominant technology but it may prove to be a profitable niche. Irrespective of which way customers migrate, increased competition only serves to deliver better more economical services to Australian consumers.
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