By Mark Pesce on July 10, 2008 | Permalink

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!)