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O2As regular readers know, last week O2 UK announced its first mobile broadband service. Since then the clever folk at analyst firm Ovum have had a bit of a think about it – and here’s the company’s verdict…

“The most interesting aspect of this announcement is that it now means that all the UK mobile network operators have launched a mobile offering,” said Steven Hartley, a senior analyst at Ovum.

Two packages are available to existing O2 mobile or home broadband subscribers. Both include free access to 7,500 nationwide WiFi hotspots:
* An 18-month contract for £20 per month for 3Gb per month and a free modem
* A one-month contract also for £20 per month and 3Gb per month but the cost of the modem is £119.

So how does O2’s offering compare to its rivals?”

Hartley said that O2’s offering is relatively expensive, although the tariffs from both Vodafone and T-Mobile are currently cheap because they are on offer.

“For the equivalent length of contract and usage limits, O2’s 18-month contract is £5 more than 3’s, Vodafone’s and T-Mobile’s [although the latter runs for 24 months],” he said.

“The one-month contract is the same price as Vodafone, but the one-off USB modem fee is £20 more expensive.”

Hartley also questioned why the offer was only available to existing customers, either mobile or home broadband.

“None of the other companies make this stipulation, although 3 is now offering a 50 per cent discount to existing customers,” he said.

“A focus on existing customers emphasises a churn reduction strategy, which contradicts O2’s SIM only customer acquisition drive. Growing mobile broadband uptake in the UK could be an excellent opportunity to attract new customers to data services.”

Hartley said a focus on fixed-broadband customers was also another signal of O2’s intention to drive customer growth in this area.

“Hence its core messaging around the service conveys mobile broadband as complementary to fixed, particularly with Wi-Fi access included,” he said.

“Only T-Mobile also includes Wi-Fi, and shows how mobile broadband offerings are converging with those from fixed ISPs.”

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However, Hartley said that O2’s fixed broadband services are only currently available from unbundled exchanges and its customer numbers are small to date – around 100,000.

He said because of that, Ovum doesn’t expect large numbers of mobile broadband customers to come from this category. 
In light of O2’s announcement, Hartley said Orange’s position in the UK mobile broadband market was particularly interesting.

“Orange is missing a major opportunity due to a strategic emphasis on fixed broadband, combined with almost no marketing and exorbitant pricing [£25 per month for business users and £29.99 for ‘non-business customers’] for its mobile broadband offering,” he said.

“O2’s announcement at least shows Orange that fixed and mobile broadband can live side by side.”

“Therefore, O2’s complementary mobile broadband offering is interesting from a market positioning perspective,” he added.

“But ultimately it is not competitive for consumers, even existing customers.”

Ovum therefore believes that O2’s fixed offering “is unlikely to set the market alight” and as a result, “revised pricing looks more likely”.

That means cheaper prices as companies battle to attract and keep mobile broadband customers.

“The longer term outlook for mobile broadband is similar to that of fixed broadband – falling prices and a need to focus on value-added services, or survive as a bitpipe,” Hartley said.