Roaming deal a milestone in mobile market

19 Aug 2004

Everyone knows that, all things being equal, if you are on contract with a mobile operator your phone bill will be higher than if you are a prepay customer. But how much higher – 25pc more? 50pc? 100pc? Figures released last month showed that in its first fiscal quarter, O2’s average revenue per user (ARPU) for postpaid customers was €1,053, compared to just €361 for prepaid customers.

An analysis of Vodafone’s recent results presents a strikingly similar picture: ARPU for contract customers was €1,150 compared with just €364 for pay-as-you-go users. So, O2’s contract customers pay an average of 291pc more than their prepaid counterparts while Vodafone’s big spenders shell out even more – 316pc more.

Ireland’s biggest two operators usually explain Ireland’s higher ARPU rates by pointing out that Irish people talk for more minutes every month than people in other countries. Fair enough, but that does not explain the difference in ARPU between prepaid and postpaid customers within the Irish market – do postpaid customers really talk that much more than prepaid customers?

Since 2001, when Meteor came into the market, Ireland has had three mobile operators but the truth is that in the lucrative postpaid market, which consists mainly of business customers, there are effectively only two contenders slugging it out for customers – O2 and Vodafone. How could it be otherwise when less than 3pc of Meteor’s customers are postpaid?

However, the roaming deal signed between O2 and Meteor last week, which will give Meteor coverage in a number of sparsely populated rural areas – including counties Kerry, Donegal, Mayo, Sligo, Leitrim, parts of counties Limerick, Galway and Cork and parts of Roscommon, Longford and Clare – changes all that, reckons Andrew Kelly, director of regulatory and corporate affairs at Meteor.

“Although our coverage is 90pc of the population, in rural areas it can look like we have really large gaps. We don’t expect to carry a lot of calls in the national roaming areas because they are areas of low population density but [the deal] gets rid of the perception that we have a coverage issue. And those people who would have been thinking of moving to Meteor and who didn’t because of the coverage perception will now feel free to do so,” he says.

Iarla Flynn, chairman of ALTO, the association representing alternative operators in Ireland’s telecoms market, believes the deal, which will run for 30 months from 1 September, will introduce much-needed competition into the postpaid market in particular.

“Meteor won share in the prepaid market by undercutting the other two operators. The evidence is there that the prices in the prepaid market in Ireland are among the best in Europe. The same thing has not happened in the postpaid market and I think a lot of that is down to the coverage issue,” Flynn says.

“I see the roaming agreement is vital because number one, it plugs some gaps in the coverage; and number two, it addresses that issue of perception: Meteor’s coverage will now be as good as any other network. That should put it in a good position to compete in the broader mobile market, particularly the postpaid market because that’s where the big money is.”

However, O2 spokeswoman Johanna Cassells refutes the suggestion that Meteor’s poor network coverage has stifled competition. “We don’t believe you need 90pc or 100pc network coverage to have a successful business and to increase market share. If you look at our operation in Germany, it doesn’t have anything like 100pc population coverage. And yet, in the past two years it has managed to grow its market share by 3pc, which is very significant in a market as competitive as Germany’s.”

Cassells describes the deal as a commercial win-win deal for both parties: Meteor will be rid of a damaging perception while O2 will boost its network usage in sparsely populated areas. This may be true, but O2 had long shied away from making such a deal for fear of opening the door to greater competition from Ireland’s third mobile operator. What has made it change its mind?

It seems that a number of factors were at play in the decision, quite apart from the prospect of better network usage. To start with, as Meteor is continuing to aggressively expand its own network – it now has 90pc population coverage – O2 probably felt that it would eventually have national coverage anyway, so better to do a deal sooner rather than later.

Another factor was more politically motivated: in a policy proposal earlier this year, The commission for communications regulation identified national roaming as a strategically important issue and, while these proposals had not been formally adopted, it is highly likely the regulator would eventually have made it a requirement of O2 and Vodafone. Through its deal with Meteor, O2 has pre-empted this. Moreover, by voluntarily entering such an agreement, O2 can cast itself as a ‘good corporate citizen’.

By getting into bed with Meteor, O2 has also succeeded in wrong-footing its arch-rival, Vodafone. In fact, the latter looks like it has most to lose from the deal. Not only has it been made look a laggard on the issue of market competition, it will also have to rethink its marketing strategy, which hitherto has been based on the primacy of its network. “Vodafone has been advertising heavily around coverage, aimed mostly at Meteor,” observes Flynn. “The roaming agreement might undermine Vodafone’s strategy of making coverage its trump card.”

Accounting as they do for 94pc of the Irish mobile market, the dominance of Vodafone and O2 is hardly likely to be challenged overnight but Flynn feels that, especially when put alongside the impending arrival of Hutchison and one or more mobile virtual network operators into the market, the roaming agreement marks a milestone in the opening up of the mobile market.

“The agreement marks the first significant change we’ve seen at that competitive level since the entry of Meteor. So hopefully things are about to change dramatically in the mobile sector,” Flynn concludes.

By Brian Skelly

Pictured are Danuta Gray, chief executive of O2 Ireland, with Stewart Sherriff, chief executive of Meteor, announcing the roaming deal last week