Thursday, March 31, 2005

The Empire Strikes Back, again

I maintain a keen interest in developments in the Norwegian market, not only because it is a lovely country full of nice people, but also because it looks to me like a laboratory for future developments elsewhere. It is the only market in Europe (so far) where the regulator has explicitly mandated naked DSL, it has an aggressive FTTH player, and is the only market where an access-independent VoIP provider has gained enough critical mass to risk causing the incumbent some pain. Therefore, I've naturally been eager to see the response from the incumbent.

Telenor revealed its pricing yesterday, and this inevitably raises the issue of comparability with Telio. The noticeable differences are:

  • Telenor has drastically undercut Telio on monthly line rental (NOK49 vs. NOK159), as well as its own PSTN monthly line rental (NOK159). Again, not only is the company dealing with competition issues, but also with the naked DSL threat, so pricing VoIP at this level potentially claws back some of what might otherwise be lost completely.
  • The line rental charge has no inclusive minutes, unlike Telio, which offers free unlimited calling to fixed lines in Norway and all of Western Europe and North America, as well as 100 free minutes to a selection of other countries. Only on-net calls are free.
  • Telenor is charging for call set-up, whereas Telio foregoes this, and mobile pricing is significantly higher on Telenor (NOK1.19 - 1.85, depending on network, vs. NOK0.89 to any network on Telio).
  • Though a subtle distinction, Telenor states that its activation fee is zero, but charges NOK499 plus postage for the ATA. Telio charges NOK495 for activation, but states that this includes the adaptor (postage separate).
  • Telenor VoIP customers can port an existing PSTN number for free (generous of them given that it's an internal transaction), whereas Telio (and therefore Telio customers) has to pay NOK110 for the privilege.

My sense is that, rather than go head-to-head for the intensive user who probably uses Telio already, Telenor is pitching this at a more marginal user, and one more risk-averse. Playing around with a spreadsheet (which I can't replicate here because Blogger doesn't do tabular data), it looks to me as though, for anyone making less than about 130 minutes of fixed line calls per month (to both fixed and mobile) within Norway, the Telenor plan may offer some slight savings over Telio. The more marginal the user, the greater the savings over Telio (at 90 minutes per month I come up with c.15%). However, once we start adding in international calling, these quickly evaporate.

Telenor, however, is (rightly or wrongly) the "devil you know" for many Norwegian consumers, and for households considering cutting the cord and going with naked DSL and mobile only, this product may be a more palatable alternative, particularly if they have only a very weak loyalty to fixed line services in general. To these customers I assume Telenor will push the message of lower cost of ownership (which they theoretically can claim in certain scenarios), as well as free number portability and a familiar brand. How, and if, it is marketed aggressively outside this target audience is an issue I will be very keen to observe.

UPDATE: An astute reader points out that I failed to clearly note that naked DSL from Telenor costs NOK60 per month more than if the DSL subscription is accompanied by PSTN subscription. I excluded this factor initially because, strictly speaking, it relates to broadband access, not voice service. However, it is arguably a part of the cost equation which consumers would consider in a purchase decision (and could be viewed as an effective surcharge on VoIP). Plugging this NOK60 increment into the cost comparison (effectively as a higher monthly line rental cost) pretty much wipes out savings over Telio, except at very low levels of usage (60 minutes per month). In other words, a Telenor DSL customer looking to opt out of the PSTN would be leaving behind a NOK159 monthly subscription fee in exchange for a NOK49 VoIP subscription, plus an additional NOK60 for naked DSL, with call charges unchanged. Taking this into account, I'm not convinced that there is a huge incentive to adopt the product as it is now.

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