Kogan Mobile: what sounds too good to be true generally is

Kogan Mobile: what sounds too good to be true generally is

Summary: When Telstra first decided to wholesale its 3G network, it was met with confusion by the industry. The confusion was compounded when Kogan announced high-data mobile plans on the Telstra network.

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TOPICS: Telcos, Telstra
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Telstra never wanted Ruslan Kogan's prepaid mobile service Kogan Mobile on its 3G network. That much was obvious when shortly after Kogan announced its prepaid mobile plans on the Telstra network in December, Telstra was quick to put out a statement denying that any agreement had been signed with the technology company.

Somehow, Kogan Mobile was able to offer 6GB data plans for AU$29 per month on the notoriously expensive but high-quality Telstra 3G network. It was unheard of. Industry executives speculated that when Telstra first got into the 3G wholesale market, the company was planning to squeeze all it could out of the 3G mobile network as the company's own mobile customer base migrated over to the 4G network, but no one could have predicted that Kogan Mobile would have stepped in to offer such high-data plans at such a low cost.

Kogan Mobile initially refused to reveal which company it was getting its services through, but everyone's suspicions were confirmed when Kogan took ISPOne to court after thousands of its customers had their services suspended.

The deal between ISPOne and Kogan Mobile has never been made public, but according to technology lawyer Peter Moon, Kogan Mobile was charged a flat rate per customer for services, while ISPOne copped the volume charges from Telstra under the belief that some Kogan Mobile customers would use less data than others, and the whole arrangement would even itself out.

ISPOne could not have been more wrong. Users flocked to Kogan Mobile in the hundreds of thousands, all keen to use as much mobile data as possible each month. The result was that ISPOne ended up with bills far in excess of what Kogan Mobile was paying.

The company's first move was to try to rein in Kogan Mobile customers through the suspension of customers' services that were thought to be in breach of ISPOne and Kogan Mobile's acceptable use policies. All ISPOne got for that was a high-profile court dispute with Kogan Mobile, and a damages bill after Kogan emerged victorious and had all of its customers' services restored.

ISPOne was the unfortunate man in the middle between Kogan Mobile, which was determined to undercut the big telcos on the price of mobile data, and an increasingly unhappy Telstra, which was not keen to see its customers flock to a low-cost mobile virtual network operator (MVNO) like Kogan while Telstra's 3G network was bearing the load of all 115,000 of Kogan's customers.

Something had to give, and, ultimately, ISPOne's debts to Telstra began to get too high. The telco giant swooped in and moved to wind up ISPOne and disconnect the hundreds of thousands of Kogan Mobile customers.

Until they find another provider, Kogan Mobile customers get 20 voice call minutes and 20 SMSes to use over the next seven days, and absolutely no data. The cheap 6GB data plans are no more.

The Kogan Mobile tale is worrisome for the future of the MVNO market. ZDNet has heard from multiple sources that Kogan Mobile made approaches to Optus and Vodafone, only to be shot down. Telstra managed to re-sign ISPOne's other major customer, Aldi, so no doubt Kogan made moves to keep itself going. But Telstra's prices were unsurprisingly much higher than what Kogan had been paying, and would have amounted to millions of dollars extra each month just to keep the customers on the service.

In its last gasp yesterday afternoon, Kogan Mobile warned that its own demise is a sign of things to come in the MVNO market.

As the mobile network market matures and the name of the game is customer retention rather than customer acquisition, the three largest network operators are slowly shifting their own plans to offer less data at a higher price.

It is only so long before this trend starts to trickle down to the MVNOs. It can already be seen with Optus' subsidiary Virgin Mobile, which went to market this month with new plans that charge more money for less data. But for that, you can always get a free international flight.

It's difficult to see how MVNOs in Australia will be able to survive on undercutting the major network operators on the price of data alone. Increasingly, the competitive MVNOs are able to bundle in their mobile offering with other products, such as fixed-line services in the cases of iiNet and Dodo, which can help offset the cost of reselling mobile services. But in the case of stand-alone MVNOs, the demise of the likes of Kogan Mobile and Red Bull Mobile should be the canary in the coal mine.

As users reduce the amount of calls they make and SMSes they send, mobile network operators will need to figure out how to charge more for data over time. This means they have to make the customers value the data more than they currently do.

Optus has attempted to do this through its data breakage plans, where customers who go over their monthly limits get charged in AU$10 increments per extra gigabyte. Overall, it's a cost reduction for the customer who goes over their limit, but the data on each plan is more expensive.

Telstra and Vodafone are expected to have new plans in the market later this month, but both telcos are already talking up the added benefits of being a customer on their networks, while talking down how much data will be on offer.

The way data charges are shifting in the mobile operator market can only encourage the federal government on the potential future of the National Broadband Network. If mobile data charges remain far in excess of that available on fixed networks, those considering shifting to wireless only will probably hold off for quite a while.

In the meantime, for now, it seems that Kogan Mobile's 6GB data dream was just too good to be true.

Topics: Telcos, Telstra

About

Armed with a degree in Computer Science and a Masters in Journalism, Josh keeps a close eye on the telecommunications industry, the National Broadband Network, and all the goings on in government IT.

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8 comments
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  • Why do they have to charge more?

    4G networks make the cost of data transmission far cheaper than 3G. Initially the capital expense is offset by on-contract customers. In a world where the 3 major networks are increasing data prices, consumers will find ways around it.

    I have carried a pocket wifi device around with me for several years because the data is cheaper.
    jjcoolaus
  • GiffGaff

    Having got back from the UK, where MVNOs are all over the place, I can't help but feel that once again Australians are getting the rough end of the mobile stick. GiffGaff (a no frills MVNO operating off of O2 in the UK) manages to give unlimited data and over 4 hours of calls, not to mention free calls between its own customers for only about $20 (GBP12). (http://giffgaff.com/goodybags/12pound-goodybag)
    crispi1971
    • The difference between the UK and Australia

      Is that any company offering unlimited ANYTHING is bound by law to provide that service UNLIMITED. People here know these things and as a result lawsuits like what Kogan have just gone through actually happen.
      The FIRST thing i noticed in the uk, after buying a 3 sim, and attaching an 'Unlimited' data pack to it, was that that 'Unlimited' pack, was limited, to 500mb. 5. freakin. Hundred. Megabytes. The law in the UK is the same.... except because the locals live with their heads perpetually up their arses and do not argue when businesses do blatantly illegal shit do them, the companies run riot, then when you complain, they cut you off, and tell you to go get a lawyer if you want to right it.

      This is how the organised crime company Carphone Warehouse exists (I was one of millions in 08 that had my bank account cleared out by one of their staff members, reported it to CPW, was not refunded any funds, and offered a 5 pound courtesy voucher. 5 pounds wont even buy you a phone recharge in one of their stores. The police were aware of the matter, but didnt considered it a Civil issue and not their problem)
      Funkmonkey
      • Correction -

        Police considered it a civil matter.
        Funkmonkey
  • 4th telco

    Australia needs a 4th mobile telco in the market just for mobile like Vodafone.competion would increase.the more virtual providers more strain on exsisting towers.
    graeme9851
    • 3 Mobile

      We had one. Three mobile. They exited the market in Australia. Previously number 4 network in Australia but the only point of difference they had was price, which was unsustainable. So they decided to pull out of the market and invest in Vodafone.
      Benjix89x
  • UK does have better value for money for data

    I am still in the UK and have a 3 SIM. I pay £12 a month and the data truly is unlimited (subject, of course to a fair use policy). I get thousands of sms texts a month (I have no idea how many - I don't really use texts: 3,000 or 5,000 I think) and 200 minutes of calls with my unlimited data.
    The signal is very patchy in the part of rural Scotland that I live in but it works well in the cities and airports, and data is £5 per day when I go to the EU. Yes, only £5 (about $8) for as much data as I want to use for the entire day. Not the $15.36 per MB that Telstra charges.
    So how can one company provide lots of roaming data for a fiver while another charges $15 per meg?
    I've always thought that Telstra needed splitting up - properly and completely - into an infrastructure company and a services company. Even more now, I think that all mobile operators, including the UK and elsewhere, need to provide either connectivity or infrastructure, but not both. It's a bit like Qantas (or Virgin or whoever) providing the airport and the planes - imagine if we had to have a separate "Qantas airport" and "Virgin airport" for each city.
    If 3 were to use the masts in the village I live in, I would have a great signal. But Orange and Vodafone own the two that I know of. The current situation requires 3 to build a new mast to provide coverage to this area (3 used to piggy back on (I think) Orange's network). Surely it would make sense to use existing infrastructure but all customers of all networks can access them - no extra masts unless capacity warrants it. Hurrah for the anti-mast protesters, and hurrah for users who get better coverage as a result.
    Similar with Telstra, Vodafone and Optus in Australia: the capital costs are different due to the geography of Australia, but a separate infrastructure company to the connectivity company/ies seems to me a sensible solution, as one can concentrate on getting good deals / connection / data / etc. for its customers and the other can concentrate on building masts, putting them in the right locations and making sure there aren't too many in one location (e.g. rich suburb by the ocean) and none where they are needed (e.g. new suburb on the fringe of the city limits).
    My Australian mobile is with Telstra because the signal / service was always top quality and I didn't mind paying a bit extra for it. But their data charges are frightening. And ISPOne was a bit naive to think that Kogan's customers would present in equal quantities of high users and under-users of the data plans. A brave challenge, but ultimately Telstra kept the market as it wants it.
    kew_nick
  • prepaid choices in the USA

    In the USA, there is already a long list of prepaid / no-contract providers. The problem is most consumers are only aware of the few large ones.

    There is a reference guide of the prepaid resellers (25+) and categorized by network on http://www.allprepaidplans.com
    Peter Tester