Optus the loser in Vodafone move

VODAFONE'S not-unexpected swoop on Crazy John's last week is just the latest move by a company very keen to improve its market share.

The local arm of the world's biggest mobile group has its eye squarely on the No 2 spot, which has been held by Optus for 15 years

If Russell Hewitt and his team can do that, in what is very much a capital-intensive business, there will come an increase in margins and profits.

Make no mistake, the local arm of the world's biggest mobile group has its eye squarely on the No 2 spot, which has been held by Optus for 15 years.

And right now, although you won't find anyone in a senior position at Optus to admit to it, the company is in its weakest position for some time.

Its failure to understand Telstra's NextG strategy is known. Suffice to say that Optus has gone feral in its efforts to play catch-up with aggressive pricing. But is it enough or has the company in its dithering opened the door enough for Vodafone to seize some advantage?

The move of its corporate headquarters from North Sydney to the soulless corporate parklands of suburban North Ryde has unsettled the company. Many staff loathe the new location for its distance from the city rather than its nice facilities. Plenty of Optus people are looking for new jobs.

Also, the company lost a huge government subsidy to extend its network into regional Australia when Communications Minister Stephen Conroy pulled the pin on the $1 billion OPEL network. The fibre the Government was going to pay for was to underpin Optus' own regional 3G network money that will now have to come out of the pockets of its parsimonious owner Singtel.

Optus has spent a lot of its corporate energy over the past 12 months fighting back at Telstra. Add to this a perception that its brands and marketing are tired.

Vodafone's Crazy John's purchase now gives it 300 shopfronts across the country, about the same number as Telstra's own branded shops - the biggest mobile company also has an exclusive deal with Fone Zone.

Optus only had about half this number and has ceded prime locations to Telstra, Vodafone, Crazy Johns and "3".

Still, Vodafone will face the same issues Optus has been through when it bought Richard Branson out of the Virgin Mobile venture.

Optus missed the original deal with Crazy John's to replace Telstra and also missed out on the regional third-generation roaming deal with Hutchison's "3" network. It was a sought-after deal fought for by all three other networks. Eventually Telstra won. Optus has given Telstra another strategic leg-up. "3" will be able to battle Optus and Vodafone for customers in regional areas.

Telstra has now firmed as the natural buyer for "3" when its Hong Kong owners sell out, as they eventually will. They are long-term infrastructure asset traders and proved they would happily sell bits of their mobile business for the right price when they sold Vodafone.

About the same time there were discussion about the Australian network as part of the deal but Hutchison wanted about $1 billion more than the $3 billion Vodafone was offering.

After being ruthlessly dumped by Optus as its joint venture partner to build 3G networks together, the pair still have some joint network in the cities but are going it alone for the rest.

That move was made partly because Optus chief Paul O'Sullivan was trying to force Vodafone to sell him its network.

It didn't work and Vodafone now has a score to settle. It may be make or break time for O'Sullivan.

sainsburym@theaustralian.com.au