Thursday, May 30, 2013

Dumb-pipe operator or dumb pipe-operator?

Two remarkable releases from the Dutch mobile industry:
  • Vodafone NL CEO Rob Shuter on the company blog: "The multiband auction last December brought an unexpectedly large windfall for the Dutch treasury of EUR 3.8 billion. For us, however, this meant a solid bill shock of 1.38 billion! We were obviously fully aware when auction prices for mobile frequencies were established, but all parties agree that the prices were much higher than expected."
  • KPN, Vodafone NL and T-Mobile NL are suing the Dutch government over the 2012 multiband auction. Vodafone claim that reserving spectrum for a newcomer created artificial scarcity.
It is rather ironic to have mobile phone companies complain about bill shock and artificial scarcity, because these are at the heart of the industry. In fact, they have sort of invented those terms.

As to bill shocks: mobile operators charge ridiculous prices for international roaming (which next year will end) and for some reason there is still no pan-European pricing (T-Mobile Austria charges €17 while T-Mobile Germany charges €96 for the same smartphone tariff allowances). Further, the companies are using the fact that most people didn't see high prices coming (we did), which created a buzz in the press about overpaying. But in reality, other auctions brought in more on a per MHz per capita per year basis. And the result wasn't impressive in relation to the 2011 UMTS auction. And last but not least: buying a 17 year mobile license creates an enormous entry barrier and comes at the expense of EUR 230 per sub or just over 1 euro per month per sub for Vodafone.

As to artificial scarcity: this is exactly what telecoms operators create, slicing & dicing available bandwidth (i.e. throttling) in order to create a 'business model'. Mind you, this whole throttling of a 24 Mb/s ADSL service to tiers of e.g. 1, 2, 4, 8, 12 and 24 Mb/s (or a 1 Gb/s service to 50, 100, 200, 500 and 1,000 Gb/s) is extremely expensive from a capex/opex point of view (equipment, billing, marketing) and is hardly warranted by the associated costs (a 24 Mb/s sub is probably not much more expensive than a 1 Mb/s sub).

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