Now Telstra has supermarkets to worry about Email Print Normal font Large font March 11, 2006 Page 1 of 2 | Single page ALAN KOHLER
If Coles doesn't follow Tesco into IP telephony, Woolworths will, writes Alan Kohler.
Advertisement AdvertisementNOW that he's selling Myer back to the Myers, John Fletcher's next task may be to take on Telstra by trailing Tesco into telecoms.
It has a nice ring to it, but it also sounds decidedly non-core - anathema to the refocused Coles. But hear me out.
The world's biggest grocer, Tesco, which Coles makes a habit of copying (as do most other supermarket chains around the world), has just teamed up with a small listed Australian company, Freshtel, to sell internet protocol (IP) telephony through its 1780 UK stores. Tesco has also bought 6 per cent of Freshtel. The deal was announced on December 29 and vastly ignored.
Two and a bit months later Tesco internet telephony is being sold from a booth near the supermarket checkouts - it's a "white label" product supplied by Freshtel, like any other home brand product in the store.
You buy a pack for £19 ($45) that includes a handset, a disk for your computer and £5 worth of calls and then you can make free calls to your mum anywhere in the world, as long as she's on the Tesco/Freshtel network as well - along with anyone else on the network for that matter - and 2p (5c) per minute for all other calls. You can also buy a two-pack, with two handsets, for £30 (one for your mum).
Tesco has 12.5 million loyalty card holders in the UK and a lot more supermarket customers than that. These Tesco customers will soon be phoning each other for free and phoning other people for not much. Freshtel's business model involves getting a per-customer licence fee from Tesco whether the customers make free calls or paid ones, plus a margin on the hardware. Tesco gets a small revenue flow but mostly wants customer loyalty - rather like the petrol discount schemes.
Freshtel is believed to be in discussions with two major Australian supermarket retailers, but the company wouldn't confirm this yesterday, and wouldn't say whether they are Coles and Woolworths. It is also understood to be talking to Wal-Mart in the US and Carrefours in France which, by the way, is building 23 stores a year in China.
About 40 per cent of Freshtel is owned by the management, led by founder Michael Carew, and although it is based and listed in Australia, most of the company's business is elsewhere. It has 270,000 customers on its own retail service, Firefly, of which 65,000 are in Australia.
Tesco Telecoms has been operating for a few years and had 1 million mobile phone customers as at December 31. Its plan with Freshtel's IP telephony is to turn what has been a niche product for big businesses and nerds into something for the mass market.
IP telephony, or voice over IP (VoIP) as it is sometimes called, has long been a theoretical threat to all incumbent telcos, spooking CEOs at night but sleeping during the day. But Tesco the Telco brings it into immediate and shocking reality.
Telstra's revenues from the traditional public switched telephone network (PSTN) are already falling faster than revenues from internet and mobile phones are rising, as customers cancel lines and rely entirely on mobiles, or simply don't make as many calls because they are too busy sending emails and text messages or using personal messaging online.
Once one of the major retailers starts selling free/cheap phone calls, which won't be long now that Tesco has started the ball rolling, the decline will accelerate steeply.
As the price of phone calls falls towards zero and line rental income starts to disappear, Telstra will have no choice but to head up the value chain into broadband TV - the type of subscription television that is distributed via the internet - and eat the lunches of the free-to-air TV networks and Foxtel/Austar.
Kim Williams of Foxtel and John Porter of Austar bemoaned the appearance of this train heading towards them at a subscription TV conference this week, and pleaded for a continuation of the ban against digital multi-channelling by the free-to-air networks.
And given the weeks that Communications Minister Helen Coonan's media policy reforms have been stuck in a siding called the Prime Minister's office, I'd say they are on pretty solid ground. There are few, if any, political points in knocking over the first in a line of media regulation dominoes and then seeing what happens, so I'd say the radical bits of Senator Coonan's reforms are getting the old prime ministerial red pen treatment.
There will be no analogue TV switch-off this side of the London Olympics (2012) or the one after that. Multi-channelling will remain banned and there'll be little or no change to anti-siphoning, in my view. Cross-media rules will probably be relaxed in line with the ideas of Senator Coonan's predecessor, Richard Alston.
And then everyone will turn around and look at Telstra, wondering what it plans to do about more fibre in the customer access network to boost broadband speeds, and upgrading the rather pitifully slow broadband TV it has already launched.
There is simply nowhere else for Telstra to go - and it might even be a profitable destination. But if Coles doesn't follow Tesco into IP telephony, Woolworths will. Phone call prices are about to collapse.
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