Optus cashed up for 3G race

location based services

SINGTEL OPTUS is spending aggressively to catch up to Telstra and protect its mobile phone revenues, earmarking $800 million for a new national "third generation" phone network.
The spending to cover 41 per cent of Australia's population in regional and rural areas - bringing Optus's total 3G coverage to 96 per cent of the population - puts Optus head-to-head nationally in third generation telephones with Telstra.
Optus chief executive Paul O'Sullivan cast yesterday's announcement as a historic step for the company, with a planned completion date of 2010.
"This new investment focuses competition where it's needed most," he said, with cities including Newcastle, Bendigo, Ballarat and Wollongong likely to be serviced late this year.
Telstra said its own national 3G network, NextG, launched in October last year, already covered 98 per cent of the population at a cost of $1 billion. A spokesman said: "To compare the planned Singtel Optus network to Telstra's existing NextG network is like comparing a single-engine propeller plane to a 747 jet."
But analysts were left puzzling about how the new Optus network would pay for itself, with estimates Optus would require about 1 million customers to break even, even at the lower cost.
"It presents a material challenge to Telstra in non-metropolitan Australia," an analyst, who asked not to be identified, said. "The size of the investment has surprised the market."
In committing to the new network, Optus is going it alone without funding from its 3G infrastructure partner in Australia's cities, Vodafone. Optus has already spent $450 million to establish the urban 3G service with Vodafone covering 55 per cent of the population, which competes with the urban 3G network established by Telstra and Hutchison at a cost of $450 million to Telstra.
Optus says it wants the new network to wind back Telstra's mobile market share in regional and rural areas from its current level of about 55 per cent to levels of about 45 per cent. Network costs would range from $500 million to $800 million, depending on which 3G frequency Optus selects.
The scale of the spending has also led to fears about expensive duplication of telecommunications infrastructure, with companies wearing the cost of misplaced spending. The analyst said in terms of margins that the deal meant "the competitive environment will only become more aggressive rather than stable".
SingTel shares slid 8c to $2.91 yesterday; Telstra climbed 4c to $4.29.
Optus may also be motivated by its long-term competitiveness in broadband, where it has admitted it has lagged behind Telstra. Wireless broadband services can be offered over the new 3G phone networks.
An industry expert with Wavelength Systems, Tom Amos, said yesterday: "I would assume it's all about Optus positioning themselves for regional broadband."
Mr O'Sullivan said funding from the Federal Government's Broadband Connect program, now being considered, was not part of Optus's business plan.