Woolworths, the fresh mobile people

When Coles introduced Fly Buys, Woolworths introduced Everyday Rewards. When Coles introduced petrol discount vouchers, Woolworths introduced petrol discount vouchers. It's a bold plan, but can it — and Coles' inevitable copycat product — change the prepaid mobile world for the better?

It's funny how Australia's top-heavy retail industry can change things with the wave of a budget-allocation pen. Coles introduced its Fly Buys loyalty program; Woolworths introduced, albeit belatedly, its Everyday Rewards loyalty program. Coles introduced petrol discount vouchers; Woolworths introduced petrol discount vouchers.

(Credit: Woolworths)

It is, then, with great interest that we can welcome the arrival of a Woolworths initiative to bring down mobile calling rates by establishing a mobile virtual network operator (MVNO) arrangement with Optus, whereby Woolworths will buy mobile calling minutes in large quantities and resell them to customers as its prepaid Woolworths Everyday Mobile service.

Woolworths isn't the only MVNO in Australia; Virgin Mobile, which also piggybacks on the Optus network, is among the best-known but others include Austar, Primus and Soul. For the most part, these companies have floated around the market's periphery, cherry-picking a few customers here and there but by and large ceding Australia's retail customers to the big four.

However, with a new offering from Woolworths — a company whose high-tech associations begin and end with the Dick Smith retail chain — the game has changed significantly: new competition will put welcome new pressure on the major carriers and their high-margin mobile businesses. Waiting for telecommunications providers to lower their prices is pointless, since they rely on mobile profits for survival; engendering real competition in the mobile sector requires new, competitive offerings from players outside the market.

Their biggest weakness: prepaid mobile plans. Per-minute rates are the secret weapon of the prepaid mobile market: it may sound great that Virgin Mobile's $75 prepaid cap gives you $650 worth of calls and 50MB of data, but when you're being charged 90c per minute — in one-minute increments — that $650 doesn't go as far as you might think.

Especially when your credits expire after 28 days. Virgin Mobile offers a bargain-basement Bean Counter plan with rates of 10c per minute, but it's only available online and requires a credit card (read: long-term, potentially expensive, committed relationship thanks to automatic top-ups).

Read the fine print on the other networks' prepaid deals, and you'll likely come to the conclusion that Woolworths is offering pretty good value for money. Call rates are just 15 cents per 30 seconds, 15c flagfall, no contracts and 100-day credit expiry. Compare that with Telstra's prepaid Casual plans, for example, and you'll be paying anywhere from $1 per minute and 27c flagfall for $10 minimum monthly spend, down to 36c per minute if you spend $350 per month to get — wait for it — $350 worth of calls.

Engendering real competition in the mobile sector requires new, competitive offerings from players outside the market

Other MVNOs exist somewhere along a spectrum between Virgin Mobile and Telstra, but Woolworths' rates would seem to reflect its desire to launch an aggressively competitive service for its customers. Just why its MVNO deal is important becomes glaringly obvious when you consider the company's reach: with hundreds of millions of customers passing through the doors of its subsidiaries (including Safeway, Dick Smith and Big W) every year, the retail behemoth hardly lacks exposure for its new products.

The company claims its customers already purchase 21 million prepaid mobile recharges annually, so the buying habits are already established; all Woolworths needs to do is get them to buy its own prepaid vouchers instead. Since they're already walking through the door, that battle is already half over. Add the potential for mobile prepaid tie-ins — of the "spend $50 at Woolworths/Safeway and get a $5 mobile recharge" variety — and there are some very powerful forces at work here.

This sort of product will be irresistible to the very demographic that deals like Bean Counter won't: budget-conscious and budget-limited adults and, more importantly, their teenage children, who are too young to have their own credit cards but highly likely to have their own mobiles. These kids are equally likely to pump discretionary cash into buying mobile recharges so they can call and text their friends/significant others until the morning alarm clock rings, and they love prepaid because it leaves no trace of their actual usage on Mum's Visa statement.

Whether that's good or bad I will leave for Mum to decide. In the meantime, Woolworths' entry into the mobile market provides much-needed price competition in a market that seems to have settled around the proposition that mobile customers are there to be gouged.

The best part is yet to come: now that Woolworths has thrown down the gauntlet, we face an inevitable counter-MVNO offer from Coles, which will hardly be left behind should Woolworths' move be seen as successful. That's when the real fun will start, as the two retail giants compete by using discount mobile calling to lure customers into their shops. It's the petrol voucher wars all over again.

With which carrier will Coles partner? I'm tipping Vodafone, which has a smaller network footprint than Telstra but could offer lower prices that would be critical in matching the Woolworths offer; Telstra, by contrast, has little interest in facilitating the undercutting of its own services.

There are obstacles, of course: with more and more people expecting data plans with their phones, data pricing may factor into play — making the relatively generous download-cap plans of many carriers seem more advantageous. Or will it? Woolworths says customers don't want data — and, statistically speaking, the majority still don't. For those who do, many competing plans include unlimited voice calls and generous data allowances, but all require a long-term commitment. This fact should make Woolworths' MVNO move a welcome step for the proverbial unwashed masses who just want to be able to make mobile calls without having to sell their car to pay the bill.