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Author: Dan Bieler
No-frills mobile operator tele.ring, now fully owned by Deutsche Telekom's T-Mobile, has launched a new tariff (Ätsch), reducing its per-minute charges to 5 cents per minutes into all networks, with a monthly fee of €5. Interestingly the offer comes with a Motorola Razr V3 for €5.
Comment: This offering follows the introduction of a 7 cents per minute tariff by “bob”, the no-frills brand of mobilcom Austria and a 6.9 cent offering by no-frills operator “yesss” (see EuroView Daily, 3 July).
The speed of the price decline of Austrian mobile call charges is remarkable, indicating the high level of competition in the market. Given that the technology of the network infrastructure is similar in Austria to other countries, it is fair to assume that the structural cost base is similar as well - if anything it is slightly higher given the mountainous terrain.
We thus would expect similar developments in other European markets. Deutsche Telekom already said during its Q2 2006 analyst conference that it plans to slash minute charges to well below 10 cents in Germany, thus undercutting most no-frills offerings. The Austria experience shows just how far below 10 cents these offerings can quickly fall.
The new low-cost packages also highlight another trend: that of higher network-capacity exploitation. With increasing network capacity available in light of the introduction of UMTS and HSDPA, operators aim to exploit these new capacities more effectively through different tariff options. For example, mobilcom Austria introduced an option for unlimited SMS against a monthly fee. As a result the number of SMS increased by 64% in Q2 2006.
In addition to defending or gaining market share, the aim of the mobile operators is, of course, to stimulate more overall mobile usage and to push fixed-mobile substitution in the hope of defending their top-line revenues. Financial results over the last few quarters suggest that the price for this policy is increasing margin pressure. In economic terms the increase in capacity essentially translates into a shift of the supply curve to the right, thus pushing prices down. There seems to be a certain inevitability about the current developments in the mobile markets.
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