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Ovum sceptical about BT mobile broadband deal

The new BT mobile broadband deal looks to be astonishingly good value, say analysts - but the package may be too much for a profitable operation, warns Ovum analyst, Steven Hartley.

In a public expression of his concerns, Hartley  focused on the behind-the-scenes deal done to provide wireless access, over Vodafone 3G towers:

BT has a wholesale agreement with Vodafone, which is an extension of that signed last year for the business service. Unfortunately, the terms of the wholesale deal have not been revealed. Our main concerns for this offer hinge on the amount BT is paying to use Vodafone’s network.

Hartley's analysis is published here:

This offer is an extension of its business offer launched in 2008. However, by squarely positioning mobile broadband for consumers as an extension to its fixed service, it is yet another example of mobile broadband being seen as a complement rather than a substitute to fixed broadband in markets with high fixed broadband penetration.

Furthermore, BT is a large fixed player moving into the mobile broadband domain. Until now, the UK market has seen mobile players launch fixed broadband services, but only Virgin Media (which already had a mobile arm) move in the opposite direction.

As a result, BT is able to leverage its strength in fixed broadband, which makes this stand out from the ‘me too’ mobile broadband offers that have flooded the UK market over the past eighteen months.

For example, the offer comes as part of a bundle including fixed and mobile broadband, as well as unlimited WiFi hotspot access and other broadband ‘value-added services’, such as free security and online back-up. Mobile players T-Mobile and O2 both include WiFi in their UK mobile broadband packages, but T-Mobile has no fixed broadband and O2’s fixed broadband has limited market share.

Therefore, BT really has an opportunity with this product to finally do something in the mobile domain that has some consumer appeal. Unfortunately, BT would not be drawn on the broader topic of its mobile strategy, so we are not sure to what extent this heralds a new dawn for it in mobile.

BT has taken the same approach to connectivity management software as Vodafone’s recently launched Zero Click Connect. This is another sign that mobile broadband client software will take a much more holistic approach to connectivity in the future, playing into the hands of integrated players.

Although switching between network technologies is not automated, like in Vodafone’s dashboard, the client software recommends the best available connection across home WiFi, WiFi hotspot and mobile.

This plays to the strengths of BT’s extensive WiFi hotspot network, while minimising consumers’ excess mobile usage charges – particularly as the 1GB mobile data allowance is less generous than many tariffs on the market. Interestingly, like Vodafone, BT has also developed its software based on its strength serving business customers. Therefore, both dashboards share the same pedigree as well as philosophy.

 Nonetheless its costs per megabyte will be higher than any of the UK’s MNOs and, as a result, its margins will be slim. Yet BT’s offer is very much focused on offering value. The lowest option costs just £15.65 per month over eighteen months (with the first three months half price) for both fixed and mobile broadband and unlimited WiFi.

We raised this concern with BT, but it was naturally adamant that the mobile broadband element is financially viable as part of the bundle. However, with a limited mobile broadband allowance, power users may well be dissuaded by excess usage charges. This will limit uptake by the most valuable mobile broadband customers.

Also, in a market as competitive as the UK, particularly in light of current economic conditions, BT is likely to face immense competitive pressure to increase its inclusive data allowance. If it does, this will harm both incremental top-up revenues and margins. The increased data usage will no doubt need to be paid for at wholesale rates, even though revenues decline as a result.