Hong Kong’s Hutchison Telecom and the UK’s Vodafone entered the Australian mobile market with big plans. They thought Australia would be a good bridge between Asia and Europe – but they were wrong. Now they’re both scaling their operations down. Datamonitor’s Nick Greenway takes a look at what went wrong, and their chances of keeping a foothold in the market.
Late last month, Hong Kong’s Hutchison Telecom and Britain’s Vodafone announced within days of each other that they would be scaling back their operations in Australia. Both announcements were in response to tough times in recent trading.
Device penetration saturation has meant revenue growth stagnation as fewer new customers sign up, and the lack of viable data services has meant a failure to increase revenues per user in an already paranoid market.
Australia has always been viewed as something of a bridge between Europe and Asia-Pacific. With a common language and level of development, international operators such as Vodafone and Hutchison have been lulled into believing that business models can be exported to Australia with little alteration. But this has failed to be the case.
The country’s incumbent telcos have had the upper hand, in a market that is still firmly dependent on voice-revenues, and will be for some time to come. Optus and Telstra have been able to leverage their fixed-wire brands. They’ve also been able to market and drive mobile traffic through ISP services. For example, Telstra’s Bigpond ISP homepage offers value-add services to Telstra MobileNet.
The newer entrants don’t have these options open to them. As a result, Telstra and Optus account for around 45% and 33% share of the mobile user market, whereas Vodafone has barely 18% and Hutchison less than 4%.
Cut costs, cut services
Vodafone has been leaking customers in recent months, despite a global strategy of being market leader or ‘second in charge’ through expansion or acquisition in every market it enters. In light of falling revenues, the company aims to cut its Australian operating costs by half – a strategy that will involve a hefty workforce cull, possibly approaching 50%.
Hutchison’s situation is somewhat different. Despite being the fourth largest operator in Australia, it still has a tiny share of the country’s 11.3 million mobile subscribers. Although the company has a sizeable war chest, it is a traditionally run company with cautious management.
The Hong Kong company’s boldness when it came to bidding for 3G licenses was something of a departure from its normal strategy of risk-averse investment – but it was in keeping with Hutchinson’s desire to become one of the top four or five global brands that will eventually survive.
However, while pulling out of Australia with a view to returning in a few years (through an A$3bn 3G spectrum investment in Sydney, Melbourne, Brisbane, Adelaide and Perth) means sitting on a large sunk cost, it is indicative of another feature of the Australian market – apathy.
Apathy rules OK
Faced with moderate voice traffic revenues – $1.5bn last year, equating to only about $130 per subscriber month – and miniscule data revenues, operators are facing a dilemma over rolling out new services to recoup some of their vast investment. The Australian market is proving to be less patient than its European counterpart, and less tolerant of services for service-sake.
Content originally designed for other geographies has been recycled for quick wins in Australia, but has failed to impress skeptical users. Vodafone’s sport update service, which failed to tailor the sport information on offer to Australian taste, serves as a prime example. SMS use is thriving, however, and there is a market for the services. They just have to be the right type.
All in all, the position of globally recognized brands such as Vodafone, DoCoMo and Hutchison has weakened, as markets have become dominated by replacement rather than new uptake. Vodafone’s requirement to operate under its own brand to fuel its growth as the global brand of choice has been a hindrance, as it does not have the home-grown clout of Telstra and Optus. It may even have damaged its brand in Australia, and it would not be a surprise to see it pull out altogether in the medium term.
I’ll be back- but with any impact?
As for Hutchison’s aim to be back in Australia with a 3G offensive a few years down the road, Datamonitor remains skeptical. Despite Hutchison’s renewed focus on the Asia-Pacific region through its desire to shed investments in Europe and elsewhere, it will be near impossible to claw back a foothold in Australia if the two market leaders end up grabbing 95% of the market.
Ultimately it will all probably come down to legislation. The Australian government has never been shy in coming forward to enforce industry regulation, and it may well dislike the country’s mobile telecommunications market becoming a two-horse race.
The only mitigating factor might be the country’s ability to drive faster standardization than more open markets, bolstering its position after Japan and Korea. Despite this, Datamonitor expects the government to intervene in the short to medium term.