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Future of Media Summit Blog
iPhail
At last the facts are in. Earlier today, Vodafone AU finally released their pricing plans for Apple's iPhone 3g, being released in Australia tomorrow morning. (Midnight, if you're among the select Optus customers.)
Never in my five years in Australia have I seen such a complete failure in marketing. Three Australian telcos - Optus, Telstra and Vodafone - have the device. All of them have completely failed to recognize the pent-up demand for the device, and the way it will change network usage. This was revealed - beyond all doubts - in the way they released their pricing plans, and the specifics of those plans.
Most striking, perhaps, is that this is the device the network operators have been waiting, dreaming and praying for. Seeking every opportunity to increase ARPU (average revenue per user, the gold-standard calculation for all network operators), carriers have done their best to charge for ringtones, games, and other effluvia, as well as the normal carriage of SMS (which costs them next to nothing, being a standard part of the GSM network protocols), and voice traffic.
My own carrier, Vodafone Australia, has a market strategy which fits both its desires for high-ARPU customers and my own need for connectivity: for $99 a month, I get a "cap" of $720 to spend across most of the services they offer: in particular, voice, SMS and data. Vodafone does not bill data by the kilobyte or megabyte (as is common with other Australian carriers), but by time - hence, using my 3.5Mbps HSDPA connection with my Nokia N95, I can grab quite a lot of data in the 5-minute billing interval. An interval that costs me $1.00 within my cap.
When I ran the numbers three years ago, this was the main reason I chose Vodafone as my provider. I knew, given my own proclivities, and desire to develop mobile data services, I would be using the data network more than I'd be using the voice network, so I chose a plan which gave me plenty of data headroom. That plan has served me well - I've never even come close to using my full cap, despite some very busy times developing software for mobiles.
Now we come to iPhone 3g. It is already known, from data gathered in the US and Europe, that iPhone's ease-of-use for mobile internet is unparalleled. Nokia, Motorola and Microsoft have been caught flat-footed, and, even now - a full year later - have nothing new to show. Their mobile web browsing is as complicated, unfriendly and ugly as it was a year ago. This is a real pity, because it means, in the near-to-medium term, Apple has decisively won the battle of the mobile Internet. Everything now hinges upon iPhone, and its ever-expanding base of users.
Those users have been using the mobile internet in unprecedented numbers. Perhaps as much as 30x greater mobile internet usage in Germany; world-wide, 70% of all Google mobile searches happen on iPhone. It's as if the mobile internet has been waiting for iPhone.
Somehow, this fact has been lost on Australian carriers. Although they have long wanted to have an indispensable always-on device to drive ARPU ever-upward, now that such a device is reality, they have shown a pig-headed determination to choke the goose about to lay an endless supply of golden eggs. A typical example is Optus' plan (general consensus holds that Optus has the most generous plans of the three carriers), which provides a maximum of 1 GB of internet usage per month - for a hefty $179.
Let's run some numbers here. The front page of the Sydney Morning Herald clocks in at just about a half a megabyte. That's fat, but also fairly typical. The widespread deployment of broadband has lead to a proliferation of media-rich pages. Now, if I hit the SMH page (or a similar site) sixty times a day, I'd reach my 1GB cap. (Keep in mind that the SMH home page auto-refreshes, so that is hardly an inconceivable figure.) Add in any Google Maps activity, or push email, or what have you, and the figure could easily double. Now, instead of $179/month, I'd have that bill plus potentially hundreds of dollars in data charges.
On the other hand, if I wanted to buy 3G mobile data service for my MacBook Pro from Optus, they'd give me a cute little USB dongle with the Hauwei 3G/HSDPA modem and SIM card, plus 5GB of data - and it would cost me only $39.99 a month.
Have I missed something here? After all, data is data. The network usage for the dongle is completely indistinguishable, as far as the network is concerned, from the iPhone 3G. (I say this with confidence, as a network engineer with a quarter-century of experience.) The only thing that is different between these two data plans is the end device: in one case it's a USB dongle, in the other it's an iPhone 3g.
Given that Vodafone offers plans competitive with Optus for mobile data, this must reflect a competitive reality: $40/month is what it costs for 5GB of HSDPA data, plus a decent profit for the operators.
The only conclusion that can be drawn from this is that there is an "iPhone tax". In other words, not only are we asked to pay a premium to purchase iPhone 3G, we will also be paying a premium to receive every bit of data on iPhone 3G.
I few questions need to be asked here. The first one is simply a question of anti-competitive behaviour: Is it legal for any carrier to charge me more for data received on an iPhone than, say, my N95? The network itself is device-neutral - any compatible HSDPA network equipment may be used on the network, provided there's a valid SIM card in the device. What is the justification that "bits cost more" when received on an iPhone, versus my N95? Isn't this simply rent-seeking?
Some of the justification, assuredly, is the 10-12.5% backend payment that Apple has negotiated with Australia's carriers. That may justify some increase in costs as an "Apple Tax" - but it still doesn't add up. It is plainly apparent that the carriers have jacked up their mobile data rates because demand for iPhone is so strong. But demand for iPhone is so strong precisely because it is the first mobile internet device worthy of the name. The tax on mobile internet usage is precisely the type of regressive policy which will do most to inhibit usage of the device, the network, and the carriers. In short, the carriers are acting as their own worst enemies.
If this had been another, and more rational universe, the Australian carriers would have closely examined the wealth of data available to Apple, Google and AT&T to understand how iPhone users actually use the device, and would have priced their data plans accordingly. My guesstimate is that the average iPhone user would use somewhere between 2GB and 5GB of mobile data a month - a figure that's bound to rise as 3G/HSDPA units reach the field. Working backward from that, the carriers could have developed an effective 80/20 solution which would have met the needs of the majority of the users, while still providing headroom (at a cost-premium) for heavy users, like myself.
None of this happened, nor is there any indication that the carriers even considered this. Instead, they've ignored their own mobile data pricing plans, and have egregiously increased the prices for data carriage by an order of magnitude or more.
Is is popularly believed that Australians will need to shut up and take this. I believe that a good case can be made to the ACCC that a substantial amount of anti-competitive behavior has occurred. Just the difference between their competitive mobile data plans and the plans for the iPhone is enough to indicate that there has been a serious failure in competition. Bits are bits, and paying more for iPhone bits - just because they're iPhone bits - is wrong, and, I would argue, entirely illegal.
Furthermore, I believe there is something we as Australians can do to "put the blowtorch" to the carriers. We need to protest, and we need to do so actively. Hence, I want to suggest that Australians form their own MVNO, a Mobile Virtual Network Operator. MVNOs purchase carriage in bulk from another network, and sell that carriage along to consumers. This has proven effective in the US and in Australia, where there are several examples of MVNOs. If we can't get the deal we want from the carriers at the consumer level, we need to bargain with them to establish wholesale rates, then resell to ourselves.
Is this a big ask? Hardly. If we put the word out through our various social networks (both human and electronic), I'm sure that in practically no time at all we'd have 10,000 or more subscribers ready to sign up for an MVNO. I don't know how many subscribers we'd need to get to a break-even point, but I doubt it can be many more than that. Given the amazing facility of many members of the community for setting up and running online services that scale to handle many users, I suspect that much of the infrastructure for this MVNO can be created by the community, for the community, at very low cost. The power of social networks - as has been endlessly pointed out by Clay Shirky - is that it allows large numbers of individuals to self-organize quickly and effectively.
I've heard people complain about the mobile carriers since before I moved to Australia. I suggest that it's time to put up or shut up. Passive resistance is no longer enough. It is time to show the carriers that we can do this ourselves. We can service ourselves and our needs. We will do this because doing anything else is abhorrent.
We could name our MVNO the Future AUstralian Carrier, or FAUC.
Don't like your plan from Telstra, or Vodafone, or Optus? Well, get FAUC.
Yes, we'd still have to deal with Apple, we'd still have to promise them 10% of the operating revenues from iPhone, if we wanted to retail it on FAUC, but we could at least be completely transparent about our costs. Customers (that is, us) would understand where every dollar spent on FAUC went. That, in itself, would likely engender tremendous loyalty from the base of users - which would bring more users in, a slow tidal wave, as people abandoned the big-name carriers for a crazy mob of Australians who decided to do it themselves.
So... who's in?
(If you are interested, join our FAUC Facebook Group - thanks!)
Great article and great idea to run with. I’m in! A minor issue, but you would actually need 60 SMH views (not 6) to reach 1GB, but this is still a paltry limit given typical page sizes these days.
Totally count me in. But you knew that.
So who’s 3G network would you plug FAUC into? Won’t the carrier’s either stiff you with their wholesale rates or simply refuse to let you on? Or have I missed something here? I would have liked to have an iPhone but out here in teh regional Australia I would have to go with Telstra and I simply can’t afford their crippled plans.
John -
Wholesale rates are a completely different ballgame. In this case, you can negotiate with each of the carriers from a position of strength - playing them off against each other. Should they resist at all, you only make a better case for the ACCC. Something that they are doubtlessly fully aware of. They will not dare to collude.
The other huge issue in the success of the iPhone is the customer perception/hesitance at very limited data usage and the impact that it has on the mobile experience. In my research I constantly hear that people have been burnt by a bill and are confused by data costs, resulting in limited use, or none at all. My Optus bill last month showed $4,048.81 for 289MB (they rebate me $3,826.98). I get have a heart attack every time I get one and can’t for the life of me work out what goes on. And why are the limits so low? I’m happy to pay more to have more data, but I don’t even get the option to get more than 1GB!
Unlimited data (or a high limit) makes people comfortable to use the device for anything. Putting a low MB limit will make customers question their usage frequently and hesitate to use the device as it was meant to be.
The Australian telco’s had a golden opportunity to get customers comfortable with the internet on a mobile device, looks like they still don’t get mobile customer experience.
Sign me up for FAUC’s sake!
If I had a 3G phone, I would probably join, but I only have Wifi and GSM. Which brings me to a point I have have suggested in some other blogs in the past week:
Forget 3G, embrace wifi. We should set up a local competitor to FON or encourage them to cover Australia now. They provide a cheap wireless router and if you share your Internet connection with other FON users, you can use any FON accesspoint in the world for free in exchange.
It is quite a success in many places in the world and even major Internet providers (UK, Russia) join in. Google and Skype have deals with them too.
We could negotiate with ADSL providers (there’s a lot more of them than Telco’s) so that people can share their Internet outside their monthly data allowances. That might mean that contrary to FON the system would not be entirely free, but it would still be much cheaper.
I’d also love to help out setting something up (although I have no relevant experience).
I’m completely with you on this one Mark. The entire point of the iPhone, like the iPod with 1000 songs in your pocket before it, is to have the internet in your pocket.
In the same way that 3G mobile broadband devices have revolutionised business, the iPhone is the device that could have done the same thing for everyday mobile consumers.
Either the telcos are more than happy to exploit their consumers or they completely miss the point.
Regardless, I’m disappointed about how all of this has played out. I had hoped that the iPhone would be a catalyst for a mobile data revolution and the telcos would see the future and embrace it. I should have known better!
Mark, Great post - count me in, too!
I received a totally underwhelming email from Telstra today (having ‘signed up’ for their iphone alerts a few weeks ago). Their first communication to me - total FAIL. Here I am telling them that I am willing to spend thousands of dollars with them in the next year or two, and they send me an email which tells me to line up tomorrow morning @6am to get one because ‘stocks are limited’ - and no info about new data plans!
http://tinyurl.com/4ajmod
FAUC me, too!
Yes Mark, this is a brilliant idea and the word needs to spread quickly so that the carriers profits are dented and Australians are offered more decent and competitive deals. I joined FAUC on Facebook.
I just do not want to believe that Australians will flock to these data poor plans - but I suspect they will.
Someone should contact this guy and have him publically decide to wait for FAUC http://www.smh.com.au/news/cameras—camcorders/queue-action-brett-set-for-iphone-first/2008/07/10/1215658012681.html
@Darcy Moore: I Twittered your suggestion around. The easiest way to contact him is probably for someone to just walk there. Can’t help because I am in the wrong city.
So, where do I start on this one?
Great piece but I have been harping on this issue with Aust carriers for a few years now! I started an innovative carrier agnostic mobile solutions company a few years ago (before 3eep) and guess what - the carriers with there great and natural sense of cultures full of egos, inertia and paranoia made me realise I was wasting precious time.
So recently I fell in love with the iPhone 3G for a while and now and well what can I say? I’m pissed with Aust carriers!!!
Do they not understand that they need to foster driving data usage before getting positive outcomes. (even if those outcomes are 3-5 years down the track)
You know, we get so cocky in Aust about the fact that we have such great mobile 3G networks but reality is the Koreans, Chinese, Japanese are way ahead of us in this arena - 4G is already starting to take in certain parts of Asia!
Get over it Telstra, Optus and Vodafone.
I’m in BIG time!
Mark, your passion is admirable. Nevertheless starting your own MVNO is a pipedream, pun intended.
The thing you “missed” in that comparison between the data plan for your Macbook and the ones for the iPhone is that for the iPhone ones… you get a free iPhone. The iPhone “tax” you talk about is actually a perfectly legal and time-honoured practice of amortisation of the cost of the iPhone over the length of the carrier contract.
Forget that Steve Jobs said the magic numbers of $199/$299 in his WWDC keynote. Of course you can’t buy an unlocked iPhone for those prices. Apple actually wants you to fork out four figures for that device you all love so much, they just want to drip the money out of you over 24 months instead of the normal upfront gouging for your Macbook et al.
The iPhone isn’t the be-all and end-all of mobile internet. Opera Mobile 9.5 is an amazing browser and will be generally available in beta next week for Windows Mobile devices, with Symbian to follow soon after (up until now it has only been available on the HTC Touch for the last month or so). IMO it’s a technically superior browser to mobile Safari, with better standards support, better JavaScript support, and what’s more - you don’t need to buy a new device! :)
That said, the answer to the iPhone woes isn’t too difficult. Buy from Optus, ask for it to be unlocked, then go and use Virgin Mobile for $15 per month for 1GB data. 1GB will be plenty of data for first time mobile browsees.
Typo… I meant to say Opera Mobile 9.5 has only been available on the HTC Touch Diamond up to now.
Great article and excellent commentary thread, I’d like to ask folks here a questions though….
It appears that Telstra provides free access to its WiFi APs as part of their plans.
So assuming that’s the case, the question becomes how much would you be using your iPhone in a data intensive manner when you’re not in range of Wireless AP whether it be from your work, your home, or one of Telstra’s “free” WiFi APs.
If the answer is “not that much”, then you may be able to get away with relatively lower 3G data usage.
Don’t get me wrong I’m not defending the 3G data pricing plans from any of the carriers, clearly they are small and prohibitively expensive for what will likely be heavy use.
I’m just wondering if there is a way around them so that the pain is not so great….
So the plans are underwhelming, and bits to the the iPhone are pricier than to other devices. And yet the queues for the iPhone started early, were long, and ended late.
Isn’t this a marketing success, for Optus at least? The queues for Vodafone were short, reflecting their stingier plans. But I can imagine desperate iPhone-requirers will buy from Vodafone over the weekend until demand catches up again. The discerning iPhone buyer would try to buy the iPhone outright and unlock them, but the shops were apparently reluctant to do so. Which is IMHO the correct thing on the first day, since the demand is so great that some buyers will sign on to “some sort of contract” anyway.
As usual, the early adopters pay more for the privilege. Prices will fall when new sign-ups do. Till then, it would be foolish to have more generous plans if shops can’t deal with demand for the product anyway.
IMHO for a lot of people this will be a device where using significant amount of data does make sense. Before this, seeing people using mobile data, even computers is not unusual, but not common either. I think this will be a learning process for many buyers, as to how much data they actually need.
There are 3 players in the Australian market, which makes me more optimistic that there will be some ability for the invisible hand to function.
Hi Roger, although Telstra’s WiFi APs are much more common than Optus, Optus do offer this too. From their pricing page: “Optus WiFi: Customers whom connect their Apple iPhone to an Optus iPhone rate plan will receive free WiFi from any Optus WiFi hotspot.” List of hotspots etc here: http://tinyurl.com/6fhbna It’s not clear if it’s Optus’ 120 APs only or the full 450 available including their partners.
I use a lot of data and something like this will make a huge difference in my bill.
Couldn’t agree more Mark. I was looking at the plans available today and was amazed at how off-the-mark Telstra plans are. Who cares if you get $350 of included calls when you only have $10 of data. They really have missed the difference between an old-school mobile and an iPhone. As for the pricing - well I still like my 3 mobile and data plan, and I’m planning on buying an iphone outright and staying with 3. Unless you pull off a FAUCing miracle in which case count me in.
I finally found out about Telstra’s voice charges… short story, there are no cap plans for voice and you pay top dollar rates.
Comparing these with my current cap plan it’s pretty clear that even if just used the iPhone for voice and no data, I’d be in for a very rude shock.
Seems to me, Telstra wants its iPhone users to use Skype over WiFi….
“Virgin Mobile for $15 per month for 1GB data” - sounds good, but they charge 1.5c per kB after that, which equals $15 per MB (or $15,000 per GB!)
The Optus data deal Pesce mentioned: $39.99 per month for 5GB is better, but the excess usage is $0.15 per MB, or $150 per GB
How can these two telcos justify a price difference of 100 times for the same amount of data? This is faucked.
FAUC will get off the ground if 10,000 people join: https://www.thepoint.com/campaigns/fauc
Please tell everyone you know!