Thoughts on the Demise of Kogan Mobile

The collapse of Kogan Mobile signals a broader trend towards 'consolidation' within the budget mobile space. This is not a good thing for consumers.

Just a few short weeks ago I wrote an article arguing that Kogan Mobile’s decision to increase its mobile plan charges by approximately 33 per cent across the board wasn’t necessarily an underhanded measure on its part, nor likely to price it out of the budget mobile space. I’d provide a link to the article, but there’d be no point. Kogan Mobile no longer exists in any real sense. It didn’t price itself out of the market, but was effectively (if indirectly) removed from it by Telstra.

Kogan, no stranger to controversy, has come straight out and claimed that there was nothing indirect about it at all: Telstra deliberately targeted them as part of a strategy to remove budget competitors. Telstra on the other hand has claimed they had no beef with Kogan at all, and that their entire issue was a contractual one with wholesale provider ispONE. Kogan Mobile’s demise was merely collateral damage.

For those who aren’t across this issue – an understandable position, I’ll concede – here’s a useful primer on the whole affair, which aired on ABC1’s The Business on August 21, 2013. It's not too long, and well worth a look:

This report is substantially correct in most details, although the idea that Telstra would move against Kogan now due to increasing network constraint is probably not accurate. Kogan was using wholesaled 3G capacity from Telstra, which, due to the rapid uptake of 4G (LTE) services, is now less limited than it has been in some time, and is certainly no more limited than it was last year when Kogan began selling services. It also fails to draw a necessary line between the 4G services Telstra provides and the throttled 3G service offered by Kogan (and Aldi). Telstra does not wholesale 4G services.

There is surely some merit to Telstra’s claim that the issue was entirely with ISPone, and that Kogan’s woes are simply a by-product of the wholesaler’s collapse. Telstra hardly stands to make a direct gain by the loss of Kogan; it is unlikely that many of Kogan’s 120,000 budget-conscious customers will move across to Telstra, which is the most expensive mobile provider in the country. I’d suspect most of them will move to alternative budget providers, such as Aldi, Vaya or Amaysim. The attractions of Kogan were price – unlimited allowances and large data provisions – and the flexibility of uncontracted pre-paid plans. Nevertheless, if the removal of Kogan was a by-product, from Telstra’s point-of-view it was a useful one.

Kogan is also right to ask why Aldi has received a lifeline from the telco, while they haven’t. It’s a tricky question to answer, since no one is privy to the details, and there are strict non-disclosure agreements around these wholesale deals. That said, I’d be surprised if Aldi’s much larger size didn’t play a part, coupled with the fact that it doesn’t directly compete with Telstra in other areas. Kogan, meanwhile, has built its success on retailing electronic equipment, including mobile handsets, in some cases undercutting Telstra directly. Kogan thus aren’t merely a competitor in the provision of mobile services, but also of hardware.

More generally, however, the removal of a high-profile MVNO is good for Telstra. The ACCC has remarked repeatedly that despite their comparatively modest market-share, MVNOs serve a valuable purpose in the Australian mobile space. Their budget plans are a boon for those on low-incomes. Meanwhile they generate greater price-competition within the sector, and drive a greater proliferation of products. It is generally going to be in the interests of the Layer One telcos (those who own and operate the actual mobile networks – Telstra, Optus and Vodafone) to limit competition, and to lessen the fragmentation of market-share. There is no regulation whereby they must wholesale mobile services. They’ll only do it as long as it remains profitable.

Kogan Mobile was a relatively minor player even within the MVNO space, but, given its high-profile – it has hardly left the news since it launched last December – its demise becomes hugely symbolic. It makes it clear that for budget mobile resellers in the Australian market, who already operate on razor-thin margins, calamity is only ever a step away. In case anyone was under any illusion as to where the power resides in this relationship, this should make it clear that it sits entirely with the large telcos who own the networks and who set the prices.