Kogan Mobile "muscled out" of the industry

Kogan’s foray into the Australian MVNO (mobile virtual network operator) market appears over, now that wholesaler ispONE has entered administration and terminated its contract with supplier Telstra.

Around 120,000 Kogan Mobile customers will now need to find a new provider and port out before their credit expires.

Kogan and retailer Aldi had been leasing capacity from Telstra through reseller ispONE for their respective prepaid MVNO services.

Telstra had recently made moves to terminate its contract with ispONE, citing unpaid invoices for data services. But ispONE this month appealed to the Federal Court seeking an injunction on the contract termination, arguing that it did not owe Telstra anything. The parties subsequently entered mediation.

The process did not result in a satisfactory compromise, and ispONE has now entered voluntary administration and terminated the contract. Aldi Mobile supplier Median has reached a temporary deal with Telstra to maintain services, but Kogan has not been so lucky.

Telstra will now progressively send text messages to Kogan Mobile customers advising that they have seven days before outgoing voice and text messages are disabled.

Data, international calls and MMS will not be available, and during the seven days services will be limited to 20 minutes of voice and 20 SMS. After the period, only emergency calls will be available, and even this service will be cancelled after six months.

The Australian mobile industry will meanwhile have to deal with the added strain of porting at least 120,000 mobile numbers. Industry body Communications Alliance (CA) has arranged for the mobile industry to dedicate additional resources for the task.

In a typical month, around 150,000 mobile customers port their service to another provider, but the industry expects substantially higher volumes during the next month. CA members have agreed to meet daily during coming weeks to monitor porting volumes and assess any potential delays.

Kogan has used a lengthy statement detailing the situation to allege that the contract cancellation was motivated by the disruptive threat Kogan Mobile posed to incumbent operators due to its low-cost unlimited plans.

“Kogan Mobile has been muscled out of the mobile industry against our will by a force much bigger and much stronger than us,” the statement reads. “We worry that the big telcos in Australia will continue their consolidation of power. Inevitably, this will mean higher prices.”

Telecom analyst Paul Budde said ispONE was depending on end-user data consumption habits remaining stable in order for its deals with Telstra and Kogan Mobile to remain profitable.

“If you want to be competitive within the constraints of a market where you have three dominant network operators, then you have to take risks,” he said. “Basically you buy capacity from the operator, and then you gamble a little bit that not everybody’s going to use the maximum.”

Wholesale arrangements are also very tight and are changeable at the whim of the service provider - if Telstra doesn’t want to maintain a deal, it can simply change the terms.

“Resalers have come and gone, dozens of them have failed because of all of this,” Budde said.

The failure of ispONE is bad for the Australian mobile market, and a good indication that the three major mobile operators will eventually raise prices for consumers, he said.

He added that he was impressed with the way Kogan has been handling the situation - being transparent to its customers and informing them of alternatives. Furthermore, its customers were likely to be aware that they were taking risks along with Kogan and ispONE.

“Customers are going into this with their eyes wide open. They know that if you go for a low price and it’s not coming from Telstra, Vodafone or Optus then you take a risk,” he said.

“And to be honest, nothing really happened to the customers, they’re not losing money or getting ripped off. There’s a bit of a hassle, you have to look for another provider, but at the same time there are already good deals out there for stranded Kogan customers.”

For example, Optus on Monday launched an offer providing Kogan and Aldi customers porting to its network with double the data and standard voice time for the first three credit recharges.

Telstra, on the other hand, is playing hardball with its seven-day limit on outgoing calls and text, Budde said.

“Putting the seven days on it basically limits customers to quickly making decisions and - Telstra hopes - quickly moving over to Telstra. But at the same time, I would definitely advise customers to have a good look around, because they are in the box seat.”

Image courtesy of Emilian Robert Vicol under CC