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iPhone madness changes the game

Although 3G phones have been around for years, it appears the iPhone 3G has successfully rewritten the rules of competition in Australia's mobile sector — whetting the nation's appetite for data.
Written by David Braue, Contributor

While I'd like to believe that my rant about the high price of iPhone 3G data had something to do with it, I suspect the carriers were long ago doing the maths that have led to a season of post-iPhone 3G discounting that appears to be nothing less than a race towards the bottom in mobile plan pricing.


Consider the carriers' rush to beat each others' iPhone 3G pricing: Virgin Mobile, for one, began offering the iPhone with 1GB of data for $70 a month and 5GB of iPhone 3G data for $100 a month — pushing iPhone 3G pricing towards that of its wireless broadband services.

And 3 — the only carrier not offering the iPhone — launched plans offering a 3G SIM to existing iPhone 3G customers who are willing to incur break-contract charges after just one month.

That would likely include pretty much everybody signed up to Telstra's plans, which are so bad that the carrier took the unprecedented step of unilaterally boosting its data allowances from miserable to just miserly. They're still far from competitive, but may at least take the comma out of many unsuspecting customers' phone bills.

Carriers are clearly responding to a market that, judging at least by analysis of the iPhone 3G data plans, seems to have taken the unusual step of treating the iPhone as a sort of desktop replacement. Honestly, six months ago nobody would have even thought of downloading even one gigabyte to their iPhone, much less five gigabytes.

Yet even as carriers play the data game to win customers, customer enthusiasm about 3G is driving an even more interesting trend.

As well as pushing the iPhone, Virgin Mobile is now offering Virgin Broadband at Home, a landline replacement service that provides unlimited local and national calls, along with 4GB of broadband data, for $60 a month, with everything carried over an HSDPA modem into which you plug your phone.

In other words, Virgin is so desperate for your data business that it's throwing in the phone calls for free. This is a significant market shift from years ago, when data packs were optional add-ons for those of us geeky enough to be able to spell GPRS.

Yet even this deal pales by comparison to the latest from Optus, a bundled plan called Timeless that has taken the bottom out of voice calling by deciding just how much the average voice customer is worth.

Timeless offers unlimited local and national local calls like Virgin's plan, but ups the ante with unlimited calls to GSM mobile phones on any network.

This is a significant step, because calls to mobiles have long been the one part of Australia's telecoms market that has refused to go down; carriers have clung to extortionate network interconnect fees to cover their losses on free or next-to-free STD calls. Just track carriers' mobile revenues over the past few years to see the effect this has had: they're raking it in.

Every carrier offers plans with free calls to other mobiles on their own network, which is easy to offer since there is no interconnection charge. However, Optus' decision to extend Timeless calls to other mobile networks implies that the carrier will take a loss on each call customers make; those interconnection fees still have to be paid, after all.

This means the Timeless plan represents Optus' determination of just how much money it needs to bring in to satisfy the average customer's voice calling habits, while eking out a profit. The company is effectively telling the market that it can eat a certain average volume of interconnect fees in exchange for having customers on long-term contracts.

Where will Optus recoup these expenses? You have three guesses, and the first two don't count.

Consider that the Timeless plans require customers to spend at least $14.95 for a 200MB mobile data pack, or $30 on top of the basic plan for 2GB of mobile data, and the answer becomes clear: data is quickly replacing mobile calls as the anchor on which the carriers are pinning their mobile strategies. Where carriers were happy to give away commoditised landline calls in favour of fat mobile revenues, now they're starting to forego call-to-mobile revenues and looking towards data as the cash cow instead.

Apparently, Timeless is available to both GSM and 3G subscribers — but both can only call people on the GSM network. This small detail may mean it's a sneaky way for Optus to get its 3G subscribers to push their friends into upgrading (this might have been a much easier sell before Optus' 3G network dropped off the face of the earth on 1 August).

But if peer pressure doesn't do it, Timeless' focus on data bundles might: offering 3G-class data packages on GSM plans may sound generous, but it's actually going to be an exercise in futility for suffering GPRS users who will likely pull their hair out and give up long before getting anywhere near those caps.

Timeless is certainly not for everyone yet; the price Optus has put on it is higher than what many people pay for their mobile services, so will be of little appeal to many. However, it is a significant step: the way that competitors react to the new plans will decide just how common they become. Since Virgin is a subsidiary of Optus, you can bet your hat that the network bosses will be comparing sales figures for the two plans to see which offers the better long-term pricing strategy.

The takeaway from all this is that, although 3G phones have been around for years, it appears the iPhone 3G has successfully rewritten the rules of competition in Australia's mobile sector — whetting Australia's appetite for data. Just consider this: how many iPhone subscribers even looked at the cost of their phone calls when signing up?

All this, just a month after the iPhone's launch. Expect even more to change as the iPhone, and its many competitors, duke it out over the next year; with a reported 800,000 iPhones being manufactured every week, it appears we've hardly scratched the surface of the changes this little phone will wreak.

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