EE may have got a head start with the launch of 4G in the UK, but as Dominic White notes, the battle lines have only just been drawn
There’s rarely been a better time to be a mobile-buying consumer, it would seem.
With record numbers of customers out of contract, a plethora of new smartphones on the market and 4G arriving this week, the networks are out there marketing with a renewed aggression in the run-up to Christmas.
In prime position to hoover up the highest-spending customers during the crucial festive season is of course EE, the diminutive brand which Everything Everywhere – owner of Orange and T-Mobile – has chosen for its exclusive 4G service.
It’s nearly a decade since Three launched its then-exclusive 3G service. The operator, owned by Hutchison Whampoa of Hong Kong, had paid for the privilege of exclusivity by buying the new entrant licence in Gordon Brown’s record-breaking 3G auction – which guaranteed it an early launch – three years earlier.
EE, on the other hand, has just been plain lucky thanks to regulator Ofcom allowing Everything Everywhere to reuse its existing spectrum for 4G services.
That controversial decision has given EE a seven-month head start on its rivals while they wait for Ofcom to auction off the so-called “digital dividend” spectrum previously used for analogue television transmission so they can reuse it for 4G.
This Saturday evening, during X Factor, EE will launch its series of television commercials featuring ubiquitous American film actor Kevin Bacon, part of a marketing blitz costing tens of millions of pounds.
EE punters in London, Bristol, Birmingham, Cardiff, Leeds, Sheffield, Edinburgh, Glasgow, Liverpool, Southampton and Manchester will have immediate access to 4G on EE.
By the end of the year, customers in five more cities – Belfast, Derby, Hull, Newcastle and Nottingham – will have access too.
But they will have to pay a premium – on average £5 per month more than 3G contracts with similar allowances. And the service will only be available on certain high-end handsets.
EE’s tariffs have been criticised because the monthly data allowances of the cheaper tariffs could be chewed up within minutes due to 4G’s faster speeds – up to five times faster than 3G on average, according to EE.
EE chief executive Olaf Swantee (pictured) said the plans, which range from £36 for 500MB of data to £56 for 8GB, cost about 10 to 20 per cent more than for equivalent 3G plans. And he insisted it was a small premium to pay for up to five times faster connections.
Swantee wouldn’t disclose targets for customer uptake but reckoned EE was charging less of a premium than that charged by some operators in other parts of Europe.
“Our business model is more built around a fast adoption of 4G services … because of our whole tariffing structure and tariffing strategy and because the UK in general has a big appetite to move to new technologies,” he told reporters.
How much of an appetite remains to be seen. Early adopters will enjoy the fact that it will be possible to download an HD movie in minutes and to stream TV without buffering.
And the network will start life almost empty, meaning that initial speeds will be noticeably quicker than anything experienced before.
But Enders Analysis had a sober insight into EE’s likely 4G uptake, which suggests that the upstart network may not be about to ruin Christmas for Vodafone and O2.
“In terms of initial subscriber numbers achieved, expectations for the 4G launch need to be realistic,” wrote Enders analyst James Barford in a note to clients.
“Only around 25 per cent of new contract customers take plans of more than £35 a month, and the network will only cover a third of the country by the end of 2012, leaving an initial addressable market of only eight per cent of the total contract market for new connections,” he added.
That is likely to amount to around 200,000 in the Christmas quarter, reckons Barford: “For EE to win, say, half of these would be a significant achievement, but make little dent in its contract subscriber base of over 13 million.”
Ironically, Enders believes that the short-term performance of EE will depend heavily on its ability to maintain momentum in its Orange and T-Mobile brands, with its ability to raise average revenues per user “a better measure of the impact of 4G”.
And while one would think EE’s exclusive 4G push could lead to a price war with rivals O2 and Vodafone, analysts think the arrival of the new technology will in fact lead to a greater focus by consumers on network quality rather than price.
That’s certainly the line Vodafone has been peddling in its pre-emptive attack on EE’s new service.
Both Vodafone and O2 are spending heavily on marketing for fear of losing subscribers to their new rival.
Vodafone has splurged £4.5 million on a national newspaper campaign (yes, print still counts when it comes to advertising) which claims that “not all 4G networks are the same”. Vodafone tells customers its 4G signal will travel “further into your home” and that it will be the only mobile network to “own a nationwide fibre backbone”.
In addition it is offering customers a discount on switching to a 4G contract if they buy handsets on a 3G plan now and decide to switch while they are still in contract. O2 has made a similar offer to its customers.
The problem here is punters might understandably ask why their provider won’t simply let them sign up to what is likely to be a more expensive two-year deal on 4G for free.
In a sense, Vodafone and O2 are only drawing attention to the fact that they can’t offer a transitional contract because they don’t own the right spectrum yet and would be breaking advertising codes.
Their frustration will be compounded by the fact that punters who joined Orange or T-Mobile in the past six months with a Samsung Galaxy S III, iPhone 4S or HTC One X may be eligible to swap to 4G EE for a flat fee of £99.
And Vodafone, which has traditionally dominated the corporate market, will be anxious that Swantee doesn’t fulfil on his push to use 4G to win more big company and government contracts, which currently only account for 14 per cent of EE’s revenues.
Let battle commence.