Optus have released their price plans for the NBN. Thankfully, we don't look like idiots for demonstrating that the prices are comparable to ADSL prices, and in many cases cheaper for what you actually get on a speed and per Gigabyte price.
For consumers, here's the news where Optus sit in the marketplace thus far, wait for it…they're not the cheapest, nor are they the most expensive. They're sitting in the middle, just like they do in mobile phone plans.
Well, Optus have no choice other than to price their products in this way. They can't leave any money on the table when setting prices - they’re a very big company with thousands of employees to feed and many millions of shareholders to deliver profits to.
However, Optus staff will always live by this one rule…'we can't be as expensive as Telstra' as they were born into this market as a challenger brand (you're probably aware that Optus announced their iPhone 4S plans last month, then changed them just three days later to make sure they were cheaper than Telstra on the eve of the iPhone 4S launch).
Optus moves its pawns
Pricing boffins will tell you that if you are the biggest player in a market (like Telstra), you've got the biggest brand and therefore you are at the top of the product and brand life cycle where you make the most profits and return for investors and you can't leave money on the table. You need to charge a price premium if you are the biggest player. In previous jobs I've seen plenty of beady eyed executives ask me 'are you sure that you're not leaving any money on the table with this price'.
So, Optus are pricing where you'd expect them to be and the reality is that the NBN consumer prices they’re offering are in line with their equivalent Naked ADSL plans.
However, Optus are not going to standout and win share in a commodotised broadband market on these prices alone. They'll need to do way more than they are doing now to make a compelling offer.
Cue sound of pennies dropping…
They've got millions of mobile phone customers to whom they can offer a bundle price on the basis of getting a bigger share of the customer’s wallet. Home phone line rental will be redundant on the NBN so all the bundling / loyalty discount pricing will be on Mobile Phones, IPTV, and Wireless broadband. Ye olde home phone bundles, one of Telstra’s strongest features in the legacy ADSL world, will be irrelevant.
Mobile phone bundles will be big for Optus with the NBN. This will be a big part of the retail landscape of the NBN.
Thus far, Optus have undercut iiNet which is *not* an accident. iiNet have been touting their number 2 position in ADSL to rub salt into the open Optus wounds of the Open Optus network. It can't have been pleasant and Optus have just moved one of their pawns in the long game of the NBN by offering a mobile phone plan bundle discount in their NBN pricing.
The NBN is going to be a long fight for Optus and Telstra. I predict there will be one big winner over the next ten years at their expense. Vodafone. See below.
There's going to be 5 key strategies as ISPs are forced into a new game for broadband market share.
1) Exclusive Content
If you can offer exclusive content to your audience, you've got a compelling offer that people will pay a price premium for. Telstra are signing up the digital rights for full replays online of all games of Australia's favourite sports (AFL and the NRL soon). If you love your footy, then Telstra have given themselves a huge advantage in winning you as a customer in an NBN world. Sure, it is not that seamless yet, but by the end of the NBN rollout, it will be magical if you're a football fan.
The NBN means reliable fast internet and TV quality streaming on demand (for real) and everyone will have boxes connected to their TV in an NBN world. Sitting on your couch and using a remote to 'show me a replay of my team's game' or 'show me just the goals scored in the latest game' and seamlessly jumping between tries is going to be compelling. Many are already doing this with the T-Box V1.
However, as a consumer, exclusive content does not seem right to me. If I'm on Exetel and want to watch just one NRL game online once every month and I can't, I'd feel slighted by the AFL or NRL for shutting me out and selling the rights to just one Internet Provider.
From a business point of view, it is gold. You can charge a price premium for it.
The ASP World Tour of Surfing live streams its many competitions over the web. A couple of hours later, every heat is available of replay online, where you jump instantly using your mouse to any of the scoring waves in the heat. Brilliant. It’s open to any internet user. Lock that away on one ISP and many will reluctantly follow it.
Vodafone have been participating in the NBN trials and will be a player in the NBN market. They've currently got exclusive rights on the cricket for mobile phones, and they'd be nuts if they weren't covering off all internet access rights for the future, giving them another of Australia's favourite sports for exclusive replays, on demand highlights and specific games.
Locking the cricket streaming and online digital replays to an ISP would be another key customer ring fencing event.
2) TV / IPTV / Entertainment
When it starts to get traction here, IPTV will be huge. Take the US for example, web video (mostly Netflix and YouTube) already accounts for 37% of Internet traffic volume. Australians don't have access to Netflix right now, but by 2020 when we do have access to similar services, you could easily imagine video and TV on demand could be well over 50% of the NBN use.
Fetch TV / IPTV / Internet Foxtel bundles will be a massive point of customer competition. CNN, BBC, MTV all via the internet, directly to your TV. Right now, it is embryonic but will grow quickly when the NBN backbone is in place. Foxtel has to innovate as there is a lot of fat in the model now.
3) Multi Product Bundling
Optus knows what is going on here…the strategic advantage for any ISP which also has a mobile phone subscriber base will be to bundle price and offer reduced prices on your broadband plan.
Standalone broadband providers will struggle to match these price points without margin pressure.
Those ISPs that can bundle can make a combined margin from a customer, whereas a standalone provider can only make a margin on the broadband plan and needs a price point that gives a margin to survive.
Look forward to quadruple bundles in the future: mobile phone, broadband, wireless broadband, IPTV.
4) Price Competition
Another option for ISPs on the NBN (which many will be forced into) will be to simply go bargain basement and offer rock bottom prices, just as TPG / Dodo and others already do now, and then try to make money in other ways - think RyanAir charging for toilets on cheap plane tickets for broadband.
In an ADSL world, users have suffered on ultra cheap ISPs due to 'contention issues' where the sheer volume of people on the ISP means that the speed suffers as the ISP does not re-invest on getting more capacity.
5) Service and Incentives
Customer service, service quality and other incentives will be another differentiating feature on the NBN as ISPs vie for customers.
Optus have priced their NBN plans to land a glove on iiNet but protect their margin (Optus don't want to be bargain basement) so they've looked to their strengths (i.e. good market share in mobile phones) and come in cheaper if you bundle your mobile phone as they can spread the profit margin they recoup across the two products, whilst appearing cheaper than iiNet.
It’s a long game, and if Telstra undercut Optus in any way on NBN plans with a future announcement, expect a price update from Optus a few days later.
You can compare all the NBN prices here on WhistleOut for each of the speeds.
Cameron Craig is director for Whistleout, a comparison site for broadband plans, mobile phones, credit cards, home loans and pay tv.
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