Ovum Analysis --

With mobile broadband, who needs an NBN

Nathan Burley, Analyst at Ovum

Competition from mobile broadband to disrupt Telstra’s fixed access stronghold

Take-up of mobile broadband in Australia has been extraordinary. Ovum estimates there were over 1 million mobile broadband connections to PCs at June 2008.

Prices for mobile broadband fell over 60% between July 2007 and October 2008. Pricing has now bottomed out, with products removed and limited-time offers expiring.

The biggest potential for mobile broadband growth in Australia comes from existing dial-up and the large low-end ADSL user base. HSPA could comfortably provide many Australians’ broadband service.

According to the Australian Bureau of Statistics, 45% of broadband connections in Australia were at speeds below 1.5Mbps in June 2008. The average download amount across all broadband connections in Australia is 3.4GB per month. However, the small proportion of high-usage connections inflates this figure. For example, one ISP recently stated that over 50% of its user base downloaded less than 1GB per month. Both these levels of speed and download requirements could be comfortably provided by HSPA at competitive or lower-price points.

Further market potential exists for dial-up users – be it as a back up for another broadband service or as a dedicated Internet service. HSPA offers higher download speeds at potentially lower cost as dial-up users generally download small amounts of data. HSPA also offers the advantage of no call charges and potentially the ability to cut a fixed line and save associated line-rental charges.

If users are prepared to ‘cut the cord’, up to A$30 in savings make any wireless broadband offering very attractive. Presumably, this will become increasingly important if macroeconomic conditions continue to negatively affect the Australian economy. However, there are clearly barriers to users disconnecting a fixed line. These include a long-standing fixed phone number.

For a broadband ISP, an ideal HSPA broadband service would therefore include the ability to offer VoIP and number portability. This will make the technology even more disruptive.

Mobile operators and ISP mobile broadband positioning

Telstra will continue to use HSPA as a substitute to fixed broadband in areas where it does not offer fixed broadband services. (Telstra’s ADSL broadband network reaches 92% of the Australian population and 80% of the Australian population are able to access HFC or ADSL2+ services.) Optus’s strategy will be similar, however its fixed footprint is much small.

Mobile broadband gets more interesting for 3 and Vodafone which can actively target traditional fixed broadband subscribers without risk of cannibalising any existing fixed broadband revenue.

However, this is just the tip of the iceberg, HSPA through wholesale agreements makes considerable sense for many broadband ISPs in Australia especially with the uncertainty generated by the NBN.

Up until a few years ago, the majority of fixed broadband connections were based completely on Telstra infrastructure. During the last few years, competitors have been aggressively migrating resale ADSL1 users onto non-Telstra ULL-based ADSL2+ networks. These services generally have much higher margins for ISPs. However, non-Telstra ADSL2+ DSLAMs are predominately only deployed in metropolitan areas, limiting options outside these areas.

HSPA therefore provides a technology that can be used to deliver broadband to many of the ADSL1 customers outside their ADSL2+ footprints. Additionally, with expanding 3G coverage, HSPA will increasingly cover more areas where ADSL, and especially non-Telstra ADSL2+, does not.

Challenges and question marks

There are challenges with mobile broadband provision – for example, ensuring enough network capacity is provisioned, and matching existing fixed broadband price points for service and devices.

Another issue will be convincing users to churn. Broadband churn rates are lower than mobile and many users are accustomed to broadband technology being delivered over a fixed solution. Educating users on wireless alternatives will prove challenging.

The expected national broadband network (NBN) deployment in Australia (which includes A$4.7 billion of government funding) may also impact mobile broadband. If, as some have suggested, the NBN increases costs for low-end broadband this could create more ‘low-hanging fruit’. Additionally, if an integrated operator were to win the NBN tender it may be able to leverage the asset in areas such as backhaul to benefit its mobile broadband network.

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About Ovum
Ovum is a global advisory and consulting firm. Its primary activity is providing value-added advisory services and consulting to retained and project clients. The company acts as a well-respected and trusted source of industry data, knowledge and expertise on the commercial impact of technology, regulatory and market changes. Ovum engages in continuous research and industry analysis to determine market dynamics in its specialist sectors.

Ovum has developed long-standing relationships with many of its corporate clients, which include major international blue-chip companies such as Alcatel-Lucent, AT&T, BT, Cable & Wireless, Cisco Systems, Deutsche Telekom, Fujitsu, HP, IBM, Microsoft, Telstra and Vodafone.
Ovum is part of the Datamonitor Group.


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