The number of Australian 3G and mobile subscribers is gaining momentum, and the revenues of the leading companies are up but tighter margins, a saturated market and strong competition have stalled profit growth in the country's mobile sector.
A brace of results and briefings from the industry's main players recently has confirmed a consistent picture of a mature industry where, despite massive investment, operators are continuing to struggle for profit growth.
Despite close to A$5 billion ($3.8 billion) invested in 3G networks in Australia since 2002, a Citigroup report has painted a disappointing scenario for mobile operators. 'Mobile margins can only go down in this segment over the next 18 months,' says the report, authored by analysts Tim Smeallie and Phil Campbell. 'There may be pain, but we are not sure if there is any gain.'
IDC analyst Landry Fevre characterizes the Australian market as in 'retention' rather than 'acquisition phase' and predicts it will reach '100% saturation' by the end of next year or early 2008.
While there are now currently 1.5 million 3G subscribers, a market now worth more than A$1 billion, IDC is forecasting that number to almost double to 2.8 million by the end of this year, and to represent just over half of the mobile customer base by 2010.
This is likely to benefit Hutchison Telecommunications (Australia) the most, which has the first mover advantage in the 3G market and recently migrated around 400,000 users from its 2G Orange brand and over to the '3' brand. Hutchison recently passed one million '3' subscribers, giving it around two-thirds of the Australian 3G market.
But while Hutchison would appear to be the best placed of all the mobile operators in the market, even the company's chief executive Kevin Russell is cautious. 'Industry growth in mobiles is pretty flat from a market standpoint, if not sluggish and negative,' Russell said in a recent briefing.
'While capped-plan pricing may be cannibalizing fixed-line revenue, it may not be delivering incremental margin growth for some of the players.'
Russell said that 3G comprised 5% to 6% of the company's revenues at the beginning of 2006, and had 'probably doubled' to 12% in the seven months to July. 'We are going to see that 12% increase rather rapidly over the next 24 to 36 months.'
Perhaps the major victim of the industry saturation, however, is third-ranked Vodafone, which announced that its net profit for the year to March 31 had fallen from A$144.5 million to A$49.5 million, despite a jump in revenues from A$1.74 billion to A$1.94 billion.
Vodafone has around 220,000 of its users on the 3G network it shares with Optus, a tiny percentage of its current subscriber base of three million, but is aggressively marketing 3G to its existing customers with free handsets.
The industry malaise is also evident in the first quarter results for Optus, which recorded a 4% slip in ARPU. Its mobiles division, which contributes 74% of the company's earnings, saw a 5.6% decline in earnings despite adding 69,000 subscribers. Margins were down 4% to 35%.
'Maintaining market share has proven particularly costly in Australia, and we expect no let up in competitive pressure,' said Ovum analyst David Kennedy.
Despite the tough conditions, the four major mobile players are all expected to launch their HSDPA services later this year.