telco aims for wireless dominance

Telco aims for wireless dominance
Michael Sainsbury
11aug06

TELSTRA plans to be Australia's biggest third-generation (3G) mobile player within 12 months and will continue to use its massive spending power to pull ahead of its rival in fixed-line and wireless broadband customer numbers.

Almost 300,000 3G customers were added in the six months to June 30 as well as 60,000 users of the wireless broadband EV-DO service.
Telstra's nearest rival in 3G is the market's smallest but fastest-growing mobile network, Hutchison's "3". The company, which had migrated 200,00 users from Orange to "3" by the end of May, turned off its 2G Orange network at midnight on Wednesday.

Hutchison will reveal its half-year results and latest subscriber numbers on August 23 and chief executive Kevin Russell said yesterday that Telstra's renewed focus on 3G was good for the mobile market in Australia.

"As the 2G market declines, 3G will continue to accelerate and, as the only mobile provider focused solely on 3G, Hutchison is well positioned."

Telstra chief executive Sol Trujillo said Telstra's secret weapon would be the new $1.1 billion 3G network, which will replace its existing CDMA network as early as the first quarter of 2008.

"There will be one new dimension coming into play that nobody will match, at least not initially, and will never catch up to us, and that is relative to our wireless broadband platform," Mr Trujillo said.

"That is going to be powerful."

Broadband - both fixed-line and wireless - was the key to Telstra's growth.

"That's a game we will win as we compete in the marketplace," Mr Trujillo said.

"But I would say equally as important is ... growing 3G."

The effects of Telstra's latest aggressive spending to buy mobile subscribers was seen in skyrocketing mobile phone subsidy costs, which rose 18.9 per cent to $504 million.

Acquisition costs rose 14.1 per cent to $137 per subscriber. In the same period Optus's subscriber acquisition costs fell 9.4 per cent to $146. Telstra also paid out $113 million in dealer performance commissions, up 175.6 per cent.

"The margin decrease is mainly driven by Telstra's very aggressive customer-acquisition programs," Morgan Stanley analyst Andrew Hines said.

"There seems to be no sign of that abating in 2006-2007, so expect margins to be adversely impacted again.

"3G subscriber growth is accelerating, and Telstra intends to become the market leader by the end of the year, which could put further pressure on prices."

Telstra is not alone in ramping up handset subsidies, with rivals, especially Vodafone, also playing the game.

Mr Trujillo indicated Telstra could compete in the fixed broadband market despite the cancellation of its $4 billion fibre-to-the-node network upgrade.

"The Government has made their choices and we will go with the flow."

Telstra streaked ahead of its biggest rival Optus, adding 303,000 broadband users in the second half, for a total of 620,000 for the year.

http://www.theaustralian.news.com.au/printpage/0,5942,20086813,00.html