Is bundling the answer to Optus' 3G problems?

Stuart Corner
Friday, 10 October 2008 02:38

Opinion and Analysis

Optus' wireless broadband service has been in strife lately: first it canned Fusion its fixed wireless voice and data offering, then it jacked up the cost of its wireless broadband service. UK consultancy Analysys Mason has some suggestions.

Analysys Mason says that operators, like Optus, that provide both fixed and mobile broadband services "would do well to follow the example of O2 UK and bundle fixed broadband with a mobile broadband subscription."

Since September 2008, O2 UK has been offering subscribers one year of free 8Mbps DSL when they sign up for its standard mobile broadband service. The package costs £20 per month and has a data usage limit of 3GB per month.

According to Analysys Mason, "Most mobile broadband contracts in the UK have a data limit of 3GB per month," but mobile plans that compete with the O2 DSL/mobile bundle cost £15 per month. "In effect, O2 UK is charging £5 per month for the fixed DSL connection, plus access to 'The Cloud's' 7500 WiFi hotspots," Analysys Mason says.

According to Matt Hatton, principal analyst at Analysys Mason, "Before September's announcement, O2 UK was failing to sign up mobile-broadband customers as quickly as its competitors, particularly 3 UK and Vodafone UK, and had to do something to take a share of the growing market.

From what Hatton says O2 UK has similar problems to Optus: "Unfortunately, O2 UK's 3G coverage and capacity are worse than its competitors, making it difficult to attract subscribers and support a large mobile-broadband subscriber base."

Certainly Optus does not have the coverage of Telstra, and its recent decisions to can Fusion - which provided fixed line telephony and fixed broadband over its 3G network - and hike data prices for wireless broadband have been attributed to its network not being able to adequately support the traffic generate by the uptake of Fusion and of mobile broadband services.

According to Hatton, "Combining mobile broadband with DSL brings benefits in the form of reducing traffic load on the wide-area [mobile] network." He add that "Most MNOs - rightly - continue to be concerned that the traffic generated by the rapidly increasing numbers of mobile-broadband subscribers will make unsustainable demands on their network," and suggests they "should be considering ways to offload as much traffic from the wide-area network as possible."

He says that, "For MNOs that are present in the local loop unbundling (LLUB) market, fixed costs are high and they need to achieve scale quickly. Combined fixed-mobile operators can build much-needed scale in their fixed businesses, which until now have been only modestly successful."

Building scale in its fixed line business is a high priority for Optus. Apart from having a strong focus on its mobile network, which accounts for more than 50 percent of revenue and 70 percent of EBITDA, Optus is making extensive use of the unbundled local loop to deliver broadband and telephony services and migrate revenue away from low margin resale services.

It has close to one million homes connected and claims that the ration of on-net to off-net (resale) consumer revenue has shifted from about 50:50 in June 2007 to 78:21 at 30 June 2008.