At the start of deployment of a new generation of mobile networks, early movers always face the dilemma of whether to enjoy a temporary boost to profitability by charging a premium, or whether to encourage uptake and seize market share with special promotions. The dawn of LTE put paid to the idea that a new, faster network would push ARPUs up, as had happened at the transition to 3G. The more competitive, sometimes saturated landscape that had evolved in the decade after 3G started to roll out meant that operators had to accept that price wars were a fact of life, and a new technology would usually do little more than halt a decline in ARPU, while hopefully encouraging users to move up to a higher price bracket to support higher usage and more devices.
Vodafone UK has come down firmly on the side of grabbing market share – especially from EE, which pipped it to the post by a month in terms of commercial launch of 5G. Vodafone said it would not charge any premium for 5G and announced unlimited tariffs and an improved convergence offering. This was a notable change from its usual premium-price mentality and saw it trying to revive its flagging fortunes in its home market by behaving more like the UK’s challenger operator, Hutchison’s Three (whose 3G launch will come later this year).
Vodafone unveiled three new consumer and business plans all based on unlimited data, with pricing scaled on network speed rather than the volume of data used (though clearly one influences the other). Speed-based pricing is new to the UK, though it looks likely to be a fairly common feature of the 5G scene in mature markets, and has already been promised by Vodafone Spain.
The slowest tier tops out at 2Mbps and is targeted at users who mainly stick to messaging and social media; the other tiers are 10Mbps and the maximum speed the network can deliver, the latter targeted at gamers and heavy video users. The respective monthly prices are £23, £26 and £30 ($28, $32 and $37).
UK consumer director Max Taylor said the new tariffs provided a “vital point of difference versus our competitors … One of the benefits of 5G is that it helps us to provide more reliable service in congested areas, so why charge a premium for a service they should already expect?”
He also claimed the first fixed/mobile convergence package to feature 5G, though EE’s parent, BT, had already promised to add 5G to its own converged offering this autumn. The converged offering is £50 ($62)a month with a free Amazon Echo thrown in.
Vodafone’s 5G service was officially switched on by five-time Formula One motor racing world champion Lewis Hamilton and the MNO’s CEO Nick Jeffery. It initially went live in seven cities and will be available in 19 by the end of the year. Users will have roaming services in 20 European cities by the end of the month with other Vodafone networks in Germany, Spain and Italy. The first devices are the Samsung Galaxy S10 5G and Xiaomi Mi Mix 3 5G and there is a SIM-only option.
The aggressive pricing was seen as a way to boost Vodafone’s business in its home market, where it lags behind EE and O2; and to appease its restive investor base by demonstrating its determination to hit back at EE. Paolo Pescatore, an analyst with PP Foresight, commented: “The scale of its ambitions should not be underestimated. 5G represents a significant opportunity to turnaround its fortunes in the UK.” However, he added: “This should appease investors, but the consumer business model for 5G is still unproven and further investment is needed to roll out costly 5G networks.”
Vodafone’s decision to drive prices down even before all the MNOs have launched will cause consternation to some operator executives, who may have hoped to avoid out-and-out price wars for the first year, even if ARPUs did not actually rise. But Jeffery was clear that the return on investment (ROI) in 5G will come partly from increased market share, and is determined to chase that from day one, even though he is probably unleashing a race to the bottom in 5G pricing, in the already highly competitive UK market.
Vodafone also expects to boost ROI from cross-selling other services, such as home broadband, as seen in its attractive convergence offering. Jeffery insisted at the launch that “nothing we’ve announced today is not profitable”, partly because 5G is a more cost-efficient and spectrally efficient technology than 4G. That argument has been used for each successive mobile generation, and indeed, each generation has supported more traffic per MHz than its predecessor, and reduced the cost of delivering a Gbyte. However, clearly there are limits on this efficiency, and it may be outweighed if prices are driven too far down, hurting operator margins, especially if they fail to secure additional 5G revenue streams from content or enterprise services.
Scott Petty, Vodafone UK’s CTO, said he expects 5G to be 4-5 times more cost-efficient than 4G, but this is already a comedown from the estimate made by Vodafone’s group CTO, Johan Wibergh, in early 2018, when he said 5G would be 10 times more cost-efficient.
Meanwhile, although EE subscribers in selected cities have been able to access 5G since late May, parent BT will wait until the autumn to offer 5G to its BT Mobile customers (the legacy of an MVNO deal it had with EE before it acquired the company).
“We’re bringing together the best fiber and mobile connections to help keep our customers connected, both on the go and at home,” said Marc Allera, CEO of BT’s consumer division (which includes EE). “Launching 5G for BT customers will give them the opportunity to experience the fastest mobile speeds in the busiest areas of the UK, and our BT Plus customers will have the first opportunity to sign up for 5G.”
It will be interesting to see how Three responds to Vodafone’s unusual aggressiveness about pricing – low cost, unlimited data is usually the leading thrust of the Hutchison-owned fourth MNO. It positions itself as the best network for data-hungry consumers, and in 5G will leverage an advanced cloud-native core network to reduce the cost of supporting these. It is moving more quickly to a ‘true 5G’ platform than its rivals in a bid to get the capex hike over with in order to start reaping the operating efficiencies as soon as possible. Its migration will see it replacing Samsung with Huawei as its main RAN supplier (government willing), unlike most MNOs, which are sticking with their LTE providers for the first phase of their migration, since this is easier to achieve while still working with the Non-Standalone version of 5G, and the LTE core.
For the first time, Three has a spectrum advantage thanks to the 100 MHz swathe of 3.5 GHz airwaves – in the key first-phase global band for 5G – which it acquired with UK Broadband. That will help it keep the data allowances high and its own costs low.
According to Ovum’s WCIS tracker, O2 leads the UK for mobile subscriptions with 36% as of mid-2019, overtaking EE on 33%, while Vodafone has 20% and Three just 11%.