Optus announced, with fanfare and press, that they’d taken an in-depth look at their current network coverage in regional Australia. As a result, they intend to spend $1bn between June 2017 and June 2018 improving the number of towers and quality of their networks in those areas.

Here’s a quick summary of the announcement.

  1. Optus’ $1bn spend looks likely to be used to produce a total of 500 new base stations around Australia.
  2. That includes 114 new base stations under the government’s blackspot program (for which Optus received $36.4 million from Mr Turnbull.)
  3. New base stations and towers will be focused on improving coverage in carefully chosen areas of regional Australia. Optus’ goal is in reaching as many people as possible. That includes consideration of the places that city dwellers travel and holiday.
  4. This is Optus’ most significant capital expenditure in the 25-year history of the company.
  5. The new investments could affect up to 2.8 million Australians living on the fringes of Optus’ existing coverage footprint.
  6. Part of the $1bn spend will involve providing an extra 4G capacity to 200 existing sites across the country, upgrading what is now 3G infrastructure. In total, over the year ahead, 1800 of Optus’ existing 3G sites will be enhanced to have a 4G capability.
  7. Part of $1bn spent will be used to cover spectrum licenses – the government granted temporary access to a frequency which enables the networks.
  8. Ultimately, this will leave Optus with 7000 base stations. (Compared to Telstra’s 8600.)

Why is Optus making this considerable network investment?

Alen Lew, CEO of Optus said: “one of the single largest investments in regional mobile infrastructure in Australia’s history”. “one of the single largest investments in regional mobile infrastructure in Australia’s history”. Quoted in The Australian, he said he wanted to make Telstra a ‘Premium’ player.

Here are the implications :

  • Mobile is replacing fixed:
    As we have pointed out, there is a potential threat to the fixed broadband business from mobile broadband networks. Optus’ coverage improvements, especially its 4G network improvements, will allow it to offer mobile versions of fixed broadband products to a broader audience, including those in regional Australia.
  • Smaller phone companies:
    There are quite a few smaller phone companies which use the Optus network. Those companies and their customers will benefit too. Consider the likes of OVO Mobile, Moose Mobile, and Yomojo. Each has unfettered access to whatever speeds and coverage Optus provides its ‘retail’ (those who bought from Optus direct) customers. This is a boon for all of them.

Analysis of the investment

  • It’s not just about $1bn:
    It’s not easy competing with Telstra on network investments. Competing with big T isn’t about a single year’s investment, however significant the spend is. Telstra started with an advantage when it came to coverage when the government spans them off. Then they doubled down to maximise it when their 3G network launched. Since then, for years, they have outspent Optus on base stations and coverage. Becoming a head to head competitor will involve Optus spending more than $1bn.
  • It discourages discussion on roaming :
    No wonder Optus joined Telstra striking out against Vodafone’s suggestion that the ACCC allowed national roaming agreements in the news 2 months ago. In a sense, the ACCC has been proved right. Vodafone wanted carriers with good bush coverage (read Telstra) to have to share their network. Telstra responded that such sharing might work as a disincentive to investment. It seems, from Optus’ announcement, that’s true.
  • It does offer badly needed competition:
    Telstra charges $15 per month more than other carriers because their marketing has convinced everyone their network is better. Over time, Optus new network capability is likely to erode that advantage.

Summing up Optus’ $1bn network investment

Telstra has been open about the fact that they invest in the network beyond the point that it is economically sensible to do so. It allows them to charge that 15% margin. They have convinced Australia that they have the best network despite the fact that, especially in cities, that is far from accurate.

If there’s a worry here, it’s that telcos tend only to be able to do one thing at a time internally, however large their organisation is. Here, we see Optus working in parallel on both content and coverage. The benefits of spending this money, the winners from them doing it and the advantages to Optus of this strategy seem extremely clear. All they need to do now is to pull it off. Let’s see if they can manage the implementation of both ideas at once.

Here’s the ultimate question though: Following Optus’ announcement, is this a reason to choose Optus over its competitors? My answer would have to be “Erm, yes.” Remember, they have carefully positioned this not just as improved bush coverage, but also at areas that city dwellers go on holiday, and travel to for business. Well done Optus.

Sources :

The Australian covers telco well :

http://www.theaustralian.com.au/business/technology/optus-tackles-telstra-in-the-bush/news-story/6c18aa8e2fb9894b6b7e0c5cf33d273b

Intelligent analysis as always in the AFR: http://www.afr.com/technology/optus-chief-allen-lew-says-mobile-investment-leaves-rivals-in-the-dust-20170721-gxg569

SMH too: http://www.smh.com.au/business/optus-reveals-1-billion-plan-to-boost-mobile-coverage-in-regional-australia-20170721-gxfo2p.html

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