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Riding the Wave the Aussie Way

Riding the Wave the Aussie Way

Consistent with their reputation of being among the earliest new technology adopters, Australians are keen to "ride, ride, ride the wireless surf".

We Australians lo-o-ve technology. Not only were we one of the most enthusiastic nations on earth when it came to uptake of ATMs, we just adore the Internet. We have been no slower to embrace mobile phones and even m-commerce.

A recent study by the Boston Consulting Group (BCG) shows that with wireless as with everything else, Australian users tend to stand head and shoulders above the global norm. Some 90 per cent of Australians who own a data-enabled mobile phone have tried m-commerce, compared to just 80 per cent of Japanese citizens, half of all Europeans and 30 per cent of Americans.

While compared to users in other countries, fewer Australian early adopters (23 per cent) have actually used a mobile device for a retail transaction, those that have report a much higher level of satisfaction than our counterparts elsewhere.

In theory, then, the future of mobile services in Australia should be bright. However, for a time, there were dark storm clouds of uncertainty gathering over the Australian mobile landscape about the online auction of spectrum licences to run the next generation of mobile voice and data services. Questions were being asked about WAP-usability and the difficulties vendors were having in delivering WAP services; argument reigned about what services were feasible or even desirable.

Now, at least, some of those Australian-based clouds would seem to be rapidly clearing away.

For a considerable stretch there were serious questions over whether Australian mobile carriers - wiser than, or wised up by, their European counterparts who clearly paid millions too much for their spectrum purchases - would bid so conservatively for spectrum the government wouldn't even reach its reserve. Or perhaps they would join British Telecom and some European bidders in losing their heads and end up paying far too much. Either way could have led to serious problems for the nascent m-commerce industry.

Those fears were fuelled when one potential bidder for Australia's 3G spectrum, One.Tel, pulled out of the auction, claiming that the infrastructure costs would be too great. Add the fact that the decline in the share prices of telecommunications companies over the last year was, in part, caused by the high prices some have paid for 3G spectrum and the heavy infrastructure investment required, and prospects were looking more than a little uncertain.

As it happens, the real result seems to show our mobile carriers are a canny lot with a keen idea of the real potential of the mobile market to boost their future revenue streams. With six bidders agreeing to pay a total of $1.17 billion for 48 of the 58 lots on offer, it should now be possible to inject some certainty into the Australian mobile picture.

The companies can use the 15-year, 2GHz licences to provide services from October 2002. Telstra and Vodafone, however, are unlikely to have services available until 2004. Optus Mobile and Vodafone Pacific bought the two national licences on offer. Telstra Corp achieved nationwide coverage by buying a combination of licences for state capital cities and for rural areas. Qualcomm-linked 3G Investments bought a capital cities licence giving it coverage of the country's five biggest cities: Sydney, Melbourne, Brisbane, Adelaide and Perth - plus Canberra, Darwin and Hobart. CKW Wireless bought limited spectrum in each of these markets. Meanwhile, Hutchison Telecommunications Australia bought lots covering the five biggest cities.

That means all Australia will have coverage to some extent, although Hobart, Darwin and Canberra will each only have access to one 3G carrier, Telstra, when services eventually go live after spectrum turn-on in late 2002. Residents in all other capital cities will have at least two options. Australia has more than nine million GSM mobile phone users, about half of the country's population. Telstra is the market leader with a share estimated at 48 per cent, followed by Optus with 33 per cent and Vodafone with 19 per cent.

Telstra and Vodafone representatives have reportedly said neither customer interest nor handsets were likely to emerge until 2004. However, Hutchison - unrestrained by the burdens of an existing 2G network - is moving rapidly to provide an early entry to 3G services.

While the prices paid for all that spectrum were far lower than might have been expected, given the relative size of Australia's mobile-using population, this may be all to the good. It certainly reflects the way the once wildly-inflated expectations of 3G have been toned down as the ailing financial markets of the last six months have taught carriers some new lessons in economy.

In Europe, carriers were apparently so badly misled by vendors overselling the promises of WAP, GPRS and 3G that governments are now having to bail them out for paying way over the top for spectrum. That scenario seems to have been avoided here. While the landscape remains uncertain, with delays in delivering 3G handsets and vendors finding the technology harder to bring to market than they first thought, analysts say the results are likely to be positive for the uptake of mobile services in Australia.

In fact, global leader of technology services for PricewaterhouseCoopers (PwC) Mike Boberschmidt believes the figure paid for spectrum in Australia is so seriously short of the windfall price the government hoped to reap that it will prove advantageous for Australian consumers.

"There's a point of view that says if someone purchasing a licence has to pay less, they have more available capital to put into infrastructure and other necessary things to get that licence earning revenue," Boberschmidt says. "So while [the price paid] may not be directly good for the taxpayers and the government in the first place", he says, it is probably a positive insofar as the industry will have a business model that works.

Well Placed.

Australians also have some other significant advantages over larger countries that may well smooth the path to mobile use and m-commerce here, notes Fred Balboni, the Asia Pacific leader for IT/SI for PwC.

Balboni says he has already spoken to numbers of CIOs with interests in understanding mobile technology and building skill set. PwC has also had four or five organisations go through its mobile lab in Melbourne so far. Enthusiasm and interest levels remain high.

Australian businesses, especially in the current cost-conscious environment, are looking to mobile technology to help them increase productivity, reduce inventory, increase sales and further build customer relationships. Balboni believes Australia is exceptionally positioned to achieve these efficiencies because doing so is much easier in a country with 20 million people than it is in a country with 250 million. Why? "It's a matter of fewer moving parts," Balboni says.

Furthermore, Australian CIOs have other advantages over some of our foreign counterparts. In countries like the US where corporations tend to be up to 10 or even 20 times bigger than those here, Balboni says, it is impossible for executives to achieve an end-to-end view of their organisations. Australian executives tend to find it much easier to gain a systematic view of all the pieces of their company. That makes working out what services to deliver via mobile far easier here than overseas.

The future is also looking bright for developers of services. BCG estimates by 2003 some 3.8 million Australians will have sophisticated data-enabled mobile devices, including smart phones, personal digital assistants (PDAs) and in-car devices. It predicts that, fuelled by this growth, business-to-consumer m-commerce revenues could approach $1 billion by 2003, with roughly half that revenue coming from the value of retail transactions and the other half from data services related to business-to-consumer activity.

"Similar to the Internet's evolution over the past five years - spurred by the introduction of advanced browsers, an increasingly relevant and attractive content offering and the introduction of faster access modems - we believe the m-commerce industry can overcome early obstacles and develop rapidly," BCG says.

BCG manager Tom von Oertzen says there are signs that wireless data services are becoming increasingly popular with consumers, with SMS message volumes rapidly increasing following the implementation of carrier interconnect agreements. Consumers appear ready for the wireless data revolution if only the right bundle of device, application, network performance and price were available.

But Wait a Second . . .

All we have to do is to overcome widespread dissatisfaction with the infrastructure, portal offerings and devices.

"The biggest things people are concerned with right now are the cost because of the time you're online, and the security of the connection," says IDC Australia research manager Joel Martin. "Those are the two biggest impediments to mobile e-commerce. If you can imagine entering all that data on, say, a credit transaction on the phone, you're being charged by the minute as well as having to enter all this information. So those are the two largest inhibitors worldwide."

Martin says to overcome those difficulties Ericsson, Vodafone and Nokia have announced that they will be jointly deploying an industry framework that will enhance the usability of mobile e-commerce. This will focus on deploying three primary technologies: WAP, Wireless Identification Module (WIM), and a Wireless Public Key. These will be developed so not only service providers but also Internet companies and enterprises can collaborate in facilitating secure and easy transactions.

BCG's work shows Australian early adopters, like their overseas counterparts, use a range of services: the most popular are e-mail, news and weather information; sports news and flight information also make the top 10. Contrary to popular belief, m-commerce applications are currently being used everywhere - at home, in the office and on the go. This suggests that the convenience and speed, even at today's level of performance, may be a bigger threat to the PCs than initially anticipated.

In the short term, BCG says Australian businesses should focus on the "must have" applications that consumers are expecting. Based on their experiences with the Internet, consumers want real-time information services such as e-mail, personal banking and news services. These applications will need to provide access to information in just a few "clicks" and allow the interaction to be completed in less than three minutes (Japan's I-Mode service records average session times of only 1.5 minutes).

The financial services industry is an example where the Internet revolution has had significant impact, and where m-commerce could have a further disruptive effect, BCG says. According to AGB data, 1.2 million Australians use Internet banking facilities, and almost 10 per cent of ASX stock trades are executed via the Net. Not surprisingly, 82 per cent of m-commerce users are interested in mobile banking applications - but this may only be the beginning.

Like a Virgin

According to Boston Consulting Group (BCG), banks, retailers, media companies, and even car companies could step into the shoes of some of the weaker 3G licence winners and become so-called mobile virtual-network operators (MVNOs). In that role, they would become the newest wireless players, offering competitive phone service and a free phone that would just happen to connect directly to their own Internet portals. MVNOs wouldn't be licensed to offer radio spectrum, but would rather access the radio networks of one or more existing mobile operators, offering services to customers using that spectrum. Under the proposed model, the MVNO would be able to offer both subscription and call services to customers.

Currently, Virgin Mobile is the only mobile virtual network operator in Australia, although Schema Associates director Paul Bronson says we may well see the introduction of more of them in Australia in the form of 3G MVNOs. Virgin Mobile buys its network capacity from equity partner one2one (owned by Deutsche Telekom) and focuses its efforts on branding, pricing and other customer-related activities. BCG says one reason Virgin Mobile is able to offer attractive rates is that it invites customers to reuse their old phones from other wireless carriers, allowing it to save the cost of providing a "free" or subsidised new phone to each user.

In an effort to leverage its brand position, Virgin Mobile is teaming up to offer services in Asia and Australia, partnering with SingTel in Singapore and Cable & Wireless Optus in Australia.

"Virgin is a good example of an MVNO," Bronson says, because it works well with young retail consumers who use its record shops. The company "basically buys air time off another operator and markets it as its own network service. So really all they're doing is selling someone else's capacity and acting as reseller," he says.

The main advantages of being an MVNO are:

Avoiding significant capital requirements for network infrastructure and spectrum.

Speed of network rollout.

The ability to differentiate its services from the network owners' services.

From the mobile network operators' perspective, the MNO gains access to an additional distribution channel and can use the brand power of the MVNO to target segments where they are not particularly effective. Hence, in Australia, Optus gains additional access to the youth market through the brand power and distribution network of Virgin.

MVNOs are becoming increasingly common in Europe and in particular in the UK, Schema consultant Andrew Bolton says. One.Tel has recently signed MVNO agreements with BT Cellnet in the UK and KPN in the Netherlands. One.Tel is aiming to cross-sell mobile products to its existing long-distance resale customer base in Europe.

"I don't know how well the MVNO model will go here in Australia with the 3G auctions," Bolton says, "but in the UK they expect there to be many of them because people have spent so much money on the licences. It is going to cost them so much to build a network that they're going to look at other people who didn't get a licence to use their network as MVNOs.

"The problem I think we may have in Australia is that those companies that bought 3G licences, like Telstra and Optus, given that they control so much now, will try and control everything anyway so the MVNO might have a harder time. However, One.Tel might be a good partner for an MVNO, given that it will be new in the market," says Bolton.

Schema says in order to be successful the MVNO needs to have a strong brand and access to effective distribution channels that allow it to target an under-served segment or one which the host network operator has not been successful in penetrating. The ability to cross-sell products and implement effective billing systems and customer care are also key enablers for success in the MVNO market.

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