The release of the pricing plans of the three mobile operators ahead of the much-vaunted launch of the iPhone 6 on Friday would tend to suggest they’ve all learned from history.
In 2003 the launch of the iPhone 3 sparked a fundamental change in the structure of the industry, although it took some time for the true nature of that change to become visible.
With Sol Trujillo unwilling to pay the price of the Apple handsets a prescient Optus grabbed a significant competitive advantage, and significant market share, by embracing the game-changing device.
It wasn’t until 2010, ahead of the iPhone 4 launch, that Telstra responded. David Thodey mounted a full-scale assault on the mobiles market, aggressively ditching the Trujillo premium-pricing strategy by slashing pricing while playing up the advantages of Telstra’s superior network.
The strategy and timing were perfect given that the decisive shift in Telstra’s tactics coincided with the meltdown in Vodafone’s network and subscriber base which has continued into this year. While the rate of loss has declined, Vodafone lost about 800,000 customers between June 2013 and June this year.
Telstra’s subscriber base has also been boosted, albeit to a far lesser extent, by Optus’ recent focus on the profitability of its business and the quality of that profitability, rather than subscriber volumes. All three carriers are benefitting to varying degrees from rational pricing -- even Vodafone, having invested heavily in rehabilitating its network, has been disciplined on pricing.
Optus did fire a pre-emptive shot in the battle for iPhone 6 customers by offering credits to offset switching costs for customers who leave their existing carrier before their contracts expire. It would have anticipated, however, that Telstra -- which has most to lose given its disproportionate share of the market -- would inevitably counter that ploy. As it has.
A Goldman Sachs analysis of the plans offered by the three carriers shows that despite the increased promotional activity -- handset discounts, switching credits and bonus data allowances -- the majority of customers upgrading to an iPhone 6 would actually pay more, albeit only $5 a month more than a year ago. The cost of higher tier plans is relatively flat, which could suggest the carriers are trying to encourage customers to shift into the higher-value plans.
Goldman’s conclusion is that the plans are designed to balance customer retention with profitability.
With no decisive difference between the plans they appear to be as much, if not more, about defending the customer bases they have (and maintain or increasing their average revenues per user) as seeking net additions.
While Telstra might have most to lose -- its market share means it has both more customers overall and more customers coming off the standard two-year contracts they entered for the iPhone 5 in 2012 -- it has been emphasising its network quality advantage and its far larger, iPhone 6-compatible, $1.3 billion of 700MHz spectrum position.
It plans to invest another $1 billion on the network this financial year to protect its quality and reach advantage, which might also explain why the premium it is seeking for the higher-value customers relative to its peers’ prices appears to have narrowed.
Having repositioned and restructured its business -- and invested heavily to try to narrow the network coverage and quality gap with Telstra -- Optus’ promotions appear to be more aggressive but it hasn’t materially altered the competitive relativities. It would contradict what it has been doing for the past two years to abandon its financial disciplines to chase market share.
The launches of each generation of IPhone have, in any case, had diminishing impacts on the industry dynamics.
That’s partly because the carriers have neutralised the ability to gain a competitive advantage; partly because they are more profit and returns-conscious; partly because none of the successor devices have been as game-changing as the original model and partly because Apple’s Android competitors are now far more competitive and innovative. The larger screens on the new iPhones aren’t novel.
The activity by the carriers around the launch, however, does signal that Apple’s cachet is still powerful. None of the three carriers is going to risk losing customers, particularly high-value customers, by under-estimating its appeal to consumers.