3G picking up in Australia

Ovum analyst Nathan Burley discusses the market dynamics and Australian operators' 3G strategies. He also forecasts Australian 3G development.

3G take up in Australia is being aided by multiple factors including; a wider range of attractive and capable handsets at affordable price points, an increasing range of simplified and affordable services and content, improved coverage with enhanced HSDPA speed, and the extending of 3G to prepaid.

In addition, unique factors such as the aggression 3G strategy of incumbent Telstra, enabled by its Next G nationwide HSDPA network drive adoption. 3G entrant 3, which drove the market early, also continues to be gain market share with innovative offers.

These two operators have invigorated the market, Vodafone Australia has also promoted 3G leveraging its global experience and products. Optus has been left behind, but it too has recently announced plans to expand its 3G footprint to replicate 2G and shifted handset subsidies to 3G models.

3G Australian market development scenario 2007-2010

Migration to 3G connections accelerates. 2G users will upgrade as operators phase out 2G products for all but low-end prepaid voice users. 29% of connections will be 3G by the end of 2007, rising to 70% by the end of 2010.

Data pricing falls. All carriers, including Telstra and Optus, reduce pricing (short term) in response to 3's innovative moves and (longer term) growing use and understanding of mobile data in the mass market, and potentially stronger WiMAX competition from 2009.

We forecast continued mobile data uptake, with subscription packages to services and content and volume-based pricing to becoming increasingly popular.

Service use and non-messaging data ARPU grows. Three factors will lead to data ARPU growth: 3G network coverage, quality, speed and latency improvements; enhanced, simplified and cheaper services, applications and content offerings, and pricing; and improving device capabilities that are more data friendly. An increasing 3G user base facilitated by these factors, in conjunction with operator marketing, will ensure data use and data ARPU growth.

We believe the upside that data provides for operators is not yet fully appreciated and is often underestimated. Lack of other differentiators besides price, will also make this non-voice battleground increasingly important for operators.

Yet the battle to encourage uptake continues. Despite continued data revenue growth, many users will still fail to move beyond voice and SMS. Data as a percentage of revenues will grow at a steady rate, but much effort will still need to be invested into changing customer behaviour by the whole industry. The data upside is crucial for operators as voice tariffs fall and acquisition costs take their toll.

Numerous successful 3G services emerging. Mobile broadband data access for laptops and also PDAs, mobile email and mobility applications such as business mobility enablement will be the most successful enterprise applications.

In terms of real-time consumer multimedia services, video, information/news, mobile TV, instant messaging, full-track music, community and interactive services will succeed. We are also confident about the success of mapping and location-based services (LBS), raw data for web browsing, and the potential of mobile advertising. We are less positive about video calls in the short term, despite improving usage.