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

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.
Written by Josh Taylor, Contributor

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.

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