Why the new iPhone could alter the dynamics of Australia’s telco sector: Bartholomeusz

Another significant moment has arrived for Telstra and the wireless market, with the much-anticipated launch of the iPhone 5 in the US overnight.

None of Telstra, Optus or Vodafone is likely to allow what happened when the iPhone 3 debuted in 2008, when Optus stole a significant march on its competitors by embracing the phone with enthusiasm while Telstra haggled with Apple over the cost of the handsets.

It wasn’t until the middle of 2010, when David Thodey decided to mount an assault on the mobiles market and aggressively cut Telstra’s pricing that Telstra was able to recover its ground and generate sufficient momentum that it was also able to gradually reduce its handset subsidies. That assault just happened to coincide with the release of the iPhone 4.

There is a lot of hype around the iPhone 5, which means there will be a temptation, particularly for Optus and Vodafone, to use it to attack Telstra and arrest that momentum that has seen it add 3.2 million mobile customers and dominate the wireless broadband segment over the past two years. A lot of those customers would be nearing the end of their two-year plans and would be contestable.

Analysts are already concerned that a price-war in the form of handset subsidies could be ignited, undermining wireless margins and profitability and stalling Telstra’s earnings growth.

That may not eventuate, given that Vodafone remains under real pressure and Optus has consistently shown it is a disciplined competitor and is more focused on maintaining its margins than growing market share.

Both would also be conscious that, after striking its deal with NBN Co and the Federal Government, Telstra has a war chest it could deploy to protect and expand its presence in wireless which, in a post-NBN future (and regardless of which version of an NBN is ultimately built) will be critical to Telstra’s future.

But with Telstra and Optus both rolling out 4G networks (with which the iPhone 5 may or may not be compatible) there is an opportunity for one of them to leverage the launch into a decisive shift in market share or, in Vodafone’s case, to recover some of the vast number of customers who deserted it because of its network quality issues.

Telstra, whose rollout is more advanced than Optus’, would see the launch as an opportunity to exploit its network advantage. The 4G network offers far higher speeds than the 3G networks and are far more efficient; and the more customers Telstra can win or shift onto the new network the more profitable they will be and the less congestion there will be on its existing networks.

While the concerns about margin erosion are legitimate, the wireless carriers can offset increased handset subsidies by the way they price what would appear an almost inevitable surge in data usage – to properly exploit the capabilities of the iPhone, particularly on the 4G networks, users will access a lot of data.

It’s not often that a simple product launch can alter the dynamics of an industry. Apple has, however, now demonstrated on several occasions that the launch of a new iPhone – and the iPhone 5 is reported to be something more than an incremental upgrade of the iPhone 4 – does carry that potential.

This article first appeared on Business Spectator.


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