The rise of the dongle

The rise of the dongle

n unassuming device with a silly name has appeared to be the saviour for operators and shop staff.

Sales of USB sticks (or dongles) was 18,000 per week at the beginning of March, and sales are steadily rising. It started as an offer for travelling businessmen, then students, and immigrants in temporary or shared accommodations, and now the market is capturing everyone.

Consumers frustrated by their fixed-line broadband service and cost are also now being targeted.

Vodafone’s retail staff say that stores are running out of dongles within two days of receiving the stock, and 3 staff say that dongle sales for March are 200% over target.

One 3 store manager tells Mobile that the shop is selling more USB broadband dongles than contract connections, while another salesman at 3’s central London shop says dongles make for a goldmine of easy commission: ‘You can get a hell of a lot of commission on them. They are the kind of product that you don’t need to sell. People come in wanting them Ð they sell themselves.’

USB dongle sales have exploded in the past few months. Sales have quadrupled since September to 18,000 per week. Fifty-eight thousand mobile broadband connections were sold in January, up from 27,000 in October, according to data from market research company Gfk.

Strong dongle sales have brought incremental revenues to the operators during the traditional post-Christmas quiet period, and at a time when mobile phone contracts experience their biggest slump over the last 18 months.

Price cuts settle at £15

All the operators, with the exception of O2, have been actively pushing mobile broadband, with prominent advertising campaigns and significant price cuts. 3 was the first to go after the dongle market Ð pricing its dongles at £15 per month – and saw phenomenal sales, prompting the other operators to pile in.

The past six to 12 months have seen price cuts at all the big four operators. T-Mobile, for example, launched its own offering just over one year ago, charging £24 per month. Roughly six months ago, the operator dropped the price to £20 per month, and in January started a campaign of £15 per month for mobile broadband.

T-Mobile and 3 have so far been the operators driving growth of USB dongle sales, but Vodafone has matched its competitors. The operator recently halved its price from £30 per month to £15 per month for up to 3GB of data.

‘It’s one of the fastest growing take-up services in the consumer sector,’ Vodafone’s spokesperson says.

Vodafone has appeared to broaden its area of focus for mobile broadband from the business market to consumers. By cutting prices, it has accepted a drop in average price as the market has become bigger and more cut-throat.

Orange, a late arrival to the dongle phenomenon, has also priced its product level with its competitors.

O2, meanwhile, is behind everyone else. The company currently only offers mobile broadband to business customers. However, the operator recently won a lucrative business contract to provide Network Rail with telecoms business tools, including mobile broadband.

O2 says it is looking into a dongle proposition for consumers. However, O2 has the tricky obstacle of having patchy 3G coverage, and was recently criticised by Ofcom. It also has a network that is full of mobile customers, with some analysts questioning whether it has the capacity on its network to cope with the increase in mobile broadband traffic.

Prices appear to have quickly hit the floor, with everyone agreeing that £15 is the lowest operators will go.

Rather than lowering the price further, the operators are looking to differentiate their offerings with a better product – higher speeds and alternative payment models.

T-Mobile launched a pay-per-day dongle connection in January, costing £4 for 24 hours, aimed at customers that don’t want to sign up for a monthly contract.

The £15-per-month tariffs require customers to sign up for an 18-month or 24-month contract. T-Mobile also has 12-month contracts, but with significantly higher prices.

Next month, the operator is looking to launch an enhanced version of its dongle, the Web’n’Walk stick, with speeds doubling from the current 3.6Mbps to 7.2Mbps.

3 and T-Mobile are promising faster HSDPA speeds and broader coverage with their network-share arrangement. Calls have already been made over the shared infrastructure.

3’s £10m ad campaign

3 has spent £10m on advertising pushing mobile broadband in the last three months, while Vodafone appears to have set aside an even bigger budget as it cuts its dongle price to £15 per month to match 3 last month, and made dongles a central part of its current strategy.

Commuters on the London Underground have not been able to swing a USB stick without seeing an advert for mobile broadband. ‘You can see mobile broadband everywhere. It’s one of our key products,’ a Vodafone spokesman says.

A Carphone Warehouse employee tells Mobile that a large proportion of dongle customers come into the shop saying they had seen the product advertised, or they come in with the Metro in their hand, showing the salesman the ad.

Viral marketing also seems to have acted as a catalyst for the surge in dongle sales. Sales staff report a large number of referrals and recommendations.

Students and army personnel, who live at the barracks, make up a sizeable part of dongle-buyers, according to shop staff.

Mobile takes on fixed-line broadband

One operator conducted a survey of its mobile broadband customers and found that for nearly half of the customers, the USB dongle was their first internet connection.

A significant number of the respondents also said they bought mobile broadband because they couldn’t or haven’t got a fixed-line connection.

Research from uSwitch, a price comparison service, revealed that over half of UK broadband users are unhappy with the service they get from their fixed-line broadband providers. Orange was ranked as the worst broadband provider by uSwitch.

There are 15 million fixed-line broadband customers, spending £3bn every year, in the UK today. The surging mobile broadband sales are likely to dent the pockets of the fixed-line broadband providers.

It is worth remembering that Orange has over one million broadband customers, with the mobile broadband numbers much smaller.

With mobile internet, mobile operators are in a better position to poach customers from the fixed-line operators. And it seems they are already doing so. They are also able to target their existing mobile base and sign them up on mobile broadband deals.

According to the operator survey, just under a third of those that have bought a mobile broadband connection also have an additional internet connection, while a fifth bought mobile broadband to replace their existing internet connection.

Concern over network congestion

The likes of Vodafone are very conscious of the impact of adding large numbers of mobile broadband customers. There are concerns over congestion on the network, with too much data going through at any one time. If too many customers use data-heavy services in the same location, the network can easily get clogged up.

It is something that 3, which has a much smaller customer base using its mobile network, is less worried about. It is also keen to push mobile broadband because it doesn’t incur the interconnect charges it does from its customers making calls to other networks.

However, this is a problem that oper

Written by Mobile Today
Mobile Today

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