Several months ago I wrote an article about how Optus, part owned by Singapore Telecommunications Ltd (ASX: SGT), was losing mobile subscribers to Australia's biggest mobile telecommunications network, Telstra Corporation Ltd (ASX: TLS). At the time, I commented that besides having an inferior data network, Optus had also suffered some bad publicity. However, it now seems possible that Optus will grow mobile subscribers in the near future.
In FY 2014 Telstra added another 937,000 mobile subscribers compared to a net loss of 126,000 subscribers for Optus. However, the rate at which customers are leaving slowed to a net loss of 25,000 in the most recent quarter to June 2014. An aggressive new ad campaign by Optus has set the stage for a reversal in fortunes.
I would not be surprised if Optus finally shows subscriber growth over the next 12 months, beginning this quarter or the next. That's because they have just begun a new marketing campaign where they pay potential customers up to $250 to trade in their old phone and up to $200 to cover early cancellation fees with their current telco. Optus has timed these promotions to coincide with the launch of Apple's iPhone 6 with a view to attracting some of the 1.2 million mobile customers who are apparently coming off their contracts in the next four months.
However, in a late twist, Telstra announced yesterday that it will try to spoil Optus's promotion by matching the switching offer. Although Optus still has more attractive plans, Telstra will offer an extra gigabyte of data downloads, but only to customers who sign up after September 16. It seems like true competition between the big mobile telcos has finally begun.
However, Telstra has clearly been caught unawares. Optus increased the amount of data that comes with its plans a few months ago, and announced the switching offer prior to Telstra. For most people data is the important limit, because customers can use their data allowance to make calls and send texts over a variety of smartphone apps. Indeed, my new plan with Optus offers unlimited calls and texts.
Personally, I was planning to switch to Telstra until these changes came in. Optus could have erased that risk four months ago if they had switched me automatically to the best plan when I was in the Optus shop. Indeed, the fact that Optus post-paid subscriber numbers were down 2.4% over the last 12 months shows that the company must focus on rebuilding customer loyalty. It's hard to believe existing customers are the focus when the homepage encourages viewers to "switch now."
The new challenge for Optus is that existing post-paid subscribers don't automatically benefit from the new lower rates. To be fair, the company claims that they have been training staff to switch customers to the more attractive plans. Although that wasn't my experience when I visited a store, the company has agreed to credit me with the savings I would have made, if they had switched me then.
The bottom line is that it's extremely difficult to win new subscribers simply by discounting services if the competition can match your prices. Telstra's success is due to the fact that its rates were competitive, coverage is superior and the customer service well regarded. I wouldn't be worried if I owned Telstra shares because the larger telco's mobile dominance will likely continue. Nevertheless, I wouldn't buy Telstra shares right now because Optus's latest attempt to build subscriber numbers may stem the flow of customers to Telstra, or impact Telstra's margins.
