Flaws In Optus and Telstra’s Content Strategy

It is becoming more challenging to be a telco.

It’s getting hard to be Optus, Vodafone and Telstra. Full year ‘profits’ fell for the last two. Vodafone made a $200m loss.

The bigger Australian telcos are, as always, caught in a fight for customer acquisition and retention. Allen Lew, CEO of Optus, spent A$160 million on the EPL – The English Premier League. Users pay $15 a month on selected higher-end Optus mobile plans to see the content. (There are other ways you can buy access, too.)

Telstra’s CEO, Andy Penn, replied by making his own, more significant, content assets – including the rights to the AFL, NRL and Basketball – free to use for his customers on his network. Telstra now offers this content ‘data free’ to their customers.

Recent primary research and analysis I’ve been involved with seem to suggest that both approaches (the purchase of content by both sides) are ineffective.

The big Australian Telcos are part of an Oligopoly

An oligopoly is an industry which has only a few big companies.

Oligopolies are somewhere between monopolies and perfect markets. Managers in oligopolies have to be aware of the decisions their ‘rivals’ are making. They are part of a small group of competitors, and each must consider the potential response of their counterparts before doing anything.

  • It affects pricing :
    When Optus cuts their price, Telstra has to cut theirs too. Of course, for each of them, knowing that the other will respond to a price drop by dropping their price, is a significant disincentive for cutting costs in the first place.
  • It limits innovation :
    You could say that this fear of Mutually Assured Destruction prevents most sorts of movement and limits innovation in the field. Whatever one does, the other will likely copy – so why bother?

Allen Lew seems to take content personally

Q&A: Optus CEO Allen Lew assesses impact of Premier League

Content in phone plans is not a new idea

The idea of providing value-adds on top of carriage and charging for them as a service fee in telco is not new.

  • It’s been around at least 15 years :
    It was the cause for the intense interest in BlackBerry when that service was launched 15 years ago. Phone companies loved charging $30 a month for a service which only used a couple of MB of data.
  • Vodafone has done it in the UK and here :
    Similar schemes, attempting to charge a service fee for data, have been tried around the world by Vodafone, including in both the UK and Australia. TV and Spotify and, if I member correctly, a subscription to the SMH were offered by Vodafone as plan features.

Telstra shadowed the move

Telstra already had the rights to the AFL and NRL through their Foxtel stake.

Telstra offering free live NRL. and AFL streaming to entice mobile customers

Above source: http://www.smh.com.au/business/media-and-marketing/telstra-offering-free-live-nrl-and-afl-streaming-to-entice-mobile-customers-20150509-ggy2vu.html

Where this puts the major phone companies

Here’s Porter’s critical view of strategy and where Optus sits as a result of their decision.

  • Green box, top right :
    Optus and Telstra are mass-market products (that’s important, and I will return to it in a later blog post) differentiated by ‘value adds’.
  • Yellow box top left :
    TPG will launch soon in Australia and appears to be pursuing mass market low-cost customers. I’d also argue that Vodafone who have tried the content strategy before and seen it fail, could usefully start to operate in this quadrant.
  • Bottom half – red rectangle :
    This is all the other telcos in Australia. Importantly, Belong Mobile which, again, I will return to in a future post.

 

Some reasons content is not a good strategy in my view

  • Optus didn’t consider Telstra’s reaction :
    As soon as Optus launched their content offering, Telstra responded by starting their own.
  • Optus invested in content when Telstra had loads :
    It’s all the stranger that Lew decided to bet in an area – content marketing – which Telstra already has a strategic advantage for. Telstra has a 50% stake in Foxtel, so Optus ended up taking a spoon to a knife fight. They’re also charging for the EPL which has angered a lot of the fans they wanted on their side.
  • It has all the hallmarks of a pet project :
    Viewed critically, it seems – from the reasons I’ve suggested above – strange that Lew spent so much money on content assets. As this article points out, new CEOs are renowned for dismantling what the previous CEO did and then launching their own pet projects, to the financial detriment of the company. https://www.strategy-business.com/blog/The-Vicious-Cycle-of-CEO-Pet-Projects?gko=6d255 Is that what’s happening here? Optus is a very hierarchical place – or at least it was when I worked there. My experience was that it was difficult to disagree with a directive from the top. I hope that Lew has not surrounded himself with ‘Yes people’ (pun intended) and has a realistic view of what’s happening here.

Summing it up

Australia appears to be an oligopolistic market for phone services because of a lack of information about alternatives among the general public. There are around 50 phone companies in Australia, but not many people realise that.

Only 25% of people realise that there are 50 phone companies in Australia. 15% of people think there are only 3. It’s this information problem which causes oligopolistic behavior in Australia.

It is the other 47 telcos in Australia, the red rectangle in the Porter slide above, which represent the threat to Optus. In the next article, I offer a view on what is happening in the real world of customers, suggesting a platform which creates a growing problem for Optus that content won’t solve. In short, people don’t want content in their phone plans. They want fairness – something Belong is offering, and TPG may provide soon too.

 

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