June 19, 2008

Major Changes Ahead for Mobile Market


New Zealand's high priest of mobile communications knows the day of reckoning is at hand, with mobile networks set to get faster, the Apple iPhone revolution soon to reach our shores and the masses crying out for Facebook, Bebo and MySpace as they go about their daily lives.

JON HOYLE reports.

Vodafone New Zealand chief executive Russell Stanners says the big question now is how to put the pieces together, particularly how to make it pay.

We have heard it all before. Telecommunications companies have been pedalling mobile internet since the late 1990s, and Stanners' wireless broadband crusade has been in motion for some years, but many analysts believe the revolution is now upon us.

Stanners gives few interviews but today he has a message to sell: the future is mobile and here's why. The world has 3.5 billion mobile users and 1.4b computers with an internet connection. In New Zealand, there are about 1.4 million fixed lines and about 4.2m mobile phones, so Kiwis and the rest of the world have already decided mobile is how they want their communications served up, Stanners says.

Also, companies such as Google and Microsoft are breaking their necks to access the vast and lucrative mobile market. Google is even developing its own phone specifically designed for the internet and users will not incur subscription fees in exchange for getting advertising.

Added to this is consumers' growing infatuation with social networking websites like Bebo and Facebook, which are expanding beyond their original youth markets, drawing in the middle-aged, Stanners says.

The problem with broadband via a mobile device is that it has been ponderously slow, compared to a decent fixed line connection.

That is about to be fixed, Stanners says.

Vodafone and its mobile network partner, Nokia, will hold a demonstration in Auckland in July showing that speeds of 50-100 megabits per second (Mbps) can be achieved. If all goes meticulously to plan, New Zealanders could have these speeds by 2010, Stanners says.

Earlier this year, Japan's biggest mobile operator, NTT DoCoMo, tested a "super 3G" network and recorded a maximum download speed of 250Mbps.

What this would mean to the average user is that it would allow the downloading of a full- length movie onto their handset in a few seconds.

The next-generation fibre and copper network Telecom is currently working on promises minimum speeds of 10Mbps.

Currently, Vodafone offers a theoretical maximum of 3.6Mbps; the reality is an average performance of 800 kilobits per second to 1.4Mbps. Stanners says the current trend in mobile network technology is for that speed to double every year, with the company considering upgrading its equipment to reach 7.2Mbps.

But the critical event was the birth of the touch-screen iPhone, which has elevated Apple founder Steve Jobs to the level of a god in some eyes. Even its critics laud its user interface as natural and intuitive, which means it is relatively straightforward and more natural to use than the cramped, miniature keyboards on most smart phones.

The major mobile phone manufacturers are hard on Apple's heals and the first wave of touch-screen handsets hit the market before Christmas.

Vodafone New Zealand's parent, UK-based Vodafone Group, last month announced a deal with Apple for Vodafone subsidiaries in 10 countries, including New Zealand, to sell the iPhone.

Some analysts doubt Vodafone has an exclusive agreement and expect Telecom, later this year, to announce it too will flog the devices.

One suspects the advent of the iPhone was a special moment in Stanners' professional life.

"Awesome - Steve Jobs at his best. He went out there and set a new standard for us to look at - something that will change user behaviours and your thoughts of what the internet is," he told delegates at a recent telecommunications conference.

Stanners says the iPhone has quickened smart-phone development, hastening the convergence of laptop and handset development towards the creation of a pocket PC.

To pull these trends together successfully, information communications technology and telecommunications industries are now wrestling with the problem of connecting the internet to 3.8b cellphones. It will require a complete re- think of how telecommunications companies charge for their services - subscriptions or advertising, the latter of which both Vodafone and Telecom are dabbling in.

Stanners is in no doubt that in making mobile broadband for the masses work, there will be problems with getting enough spectrum and backhaul to handle the increased data volumes, and the fact his customers are unlikely to be willing to pay much more than they already pay for mobile.

"But when you think of the underlying trends in our industry, then there's a lot of things that make us very confident we can do this," Stanners says.

He has been described by some in the sector as "a born salesman", with a seemingly unfaltering conviction in Vodafone's quest for market domination.

A sports fan, he is also seen as "aggressively competitive" but respecting, and sometimes admiring his competitors' strategies and market behaviours, as long as they play by the rules.

He joined Vodafone as director of business markets in 2002, taking over the managing director's job on April Fool's Day 2005.

A year later, he announced Vodafone's aim to be the number one telco in the country.

Australasian telecommunications analyst Paul Budde doubts this will happen.

Vodafone would need a fixed line network as well to efficiently deliver fixed services, rather than wholesaling space on Telecom's networks or using Telecom's exchanges to deliver services to customers under local loop unbundling.

Vodafone rakes in about 23% of total telecommunications sector revenue, but it reigns supreme in mobile.

Vodafone New Zealand was born in 1998 when the Britain- based mobile giant, the Vodafone Group, bought BellSouth's New Zealand operation for $750m. Vodafone inherited $510m of debt and 120,000 customers, or about 19% of all mobile customers, with Telecom holding the balance.

In 2006, Vodafone bought internet service provider ihug, and after some initial hiccups, launched a series of packages based on a free broadband component that, according to one analyst, more than doubled its subscriber base at the end of last year and the beginning of 2008.

During Stanners' time at the helm, revenue has grown 19.2% to about $1.43b.

Researchers' estimates of Vodafone's market share vary slightly but seem to settle on about 52% of all mobile customers, but a disproportionately higher cut of revenue at 60%.

Budde believes Vodafone's mobile internet vision will become reality.

He also thinks the company could easily take 70 or 80% of the mobile market if it chose to, but the company fears the Commerce Commission will move to regulate if Vodafone appears to become dominant in mobile.

Stanners smiles at the thought.

"We wish, we wish. I'm not sure there's a specific way they suggest we could do it, but I don't think so. It's very difficult to make material moves like that," he says.


* Born: Manurewa, Auckland, 1962.

* Marital status: married with three children.

* 1984: graduated Auckland University with a BCom.

* 1984: began working for IBM.

* 1997: made a director of telecom systems in IBM's New York head office.

* 1999: returned to New Zealand to become managing director of Unisys.

* 2002: director of business markets, Vodafone.

* 2005: took over as managing director, Vodafone.


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