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More customers joining 4G ahead of NBN rollout

Australians are flocking to 4G devices and abandoning fixed line internet despite the rollout of the NBN’s super-fast internet connecting more homes every day.

Faster mobile internet speeds have become a focal point for Australia’s biggest carriers including Telstra (ASX: TLS), Optus, owned by Singapore Telecommunications (ASX: SGT), and Vodafone, part-owned by Hutchison Telecommunications Australia (ASX: HTA).

Yesterday Telstra said it had connected over 350,000 new devices to the 4G network since June 30, thanks largely to the popularity of the Apple 5s and Samsung’s Galaxy S4, which have technology capable of running on the high speed network. Although each company claims to have the best network speeds and coverage, Telstra has already connected 3.2 million users Australia wide and hopes to cover 85% of the population by Christmas.

Telstra says it’s already in the process of looking at new technologies to offer the market, including 4G LTE Advanced and carrier aggregation – this type of network could download at nearly 300 megabits per second (Mbps). In comparison, the Coalition’s NBN is expected to offer at least 50 Mbps.

Some experts have warned that a rapid uptake of 4G will led to slower speeds and, eventually, force users back to fixed internet such as the NBN because it is capable of high speeds and usage. However, Informa Telecommunications analyst Tony Brown told The Australian Financial Review that, “The supposition that mobile networks are inevitably going to decline in quality as they become congested isn’t necessarily the case.”

Such fast speeds on mobile networks means users will no longer be bound by the constraints of physical hardware, such as cables and output devices, therefore allowing more people to use their mobiles or tablets to conduct everyday internet browsing. Phone companies have been pushing out faster speeds and bigger packages to encourage customers onto the network, increasing their usage and the company’s profit margin in the process.

Where to for the NBN?

Even as the NBN gets rolled out to more homes, iiNET (ASX: IIN), TPG Telecom (ASX: TPG) and M2 Telecommunications (ASX: MTU) stand to challenge Telstra, which controls around half of the fixed broadband market.

Each company is waiting for an opportunity to be on a level playing field with Telstra because its ownership of critical telecommunications infrastructure has enabled it to remain dominant in the industry. With increased mobile speeds, however, the market for super-fast fixed internet might be smaller than first thought.

This would put pressure on not only the NBN Co’s revenue from the network but also the government’s payback period. Communications Minister Malcolm Turnbull has acknowledged the uncertainty surrounding the NBN and whether or not customers will transition to wireless-only households. Mr Turnbull has instructed the new NBN board to assess whether his planned overhaul of the network will still enable it to be economically viable given the markets new dynamic.

AFR quoted Mr Turnbull as saying, “You are talking tens of billions of dollars being spent here, you have to focus carefully on demand… if you get demand forecasts wrong, you can spend a lot of money you don’t need to.”

For many internet users, wireless connections will be sufficient for common activities such as internet browsing and social media but businesses are still more likely to need faster, more reliable internet connections.

Foolish takeaway

Technology’s presence in our everyday lives has led to an expectation of convenience and ease in using it. People would rather pay one bill and have the convenience of an internet connection everywhere they go, rather than have multiple bills and be constrained by fixed internet.

For investors, fixed internet has been lucrative for many years and Telstra shareholders enjoyed the lion’s share of profits. Discover whether you should buy, sell or hold Telstra shares in our brand-new report, written by a top Motley Fool analyst. It’s free, click here for your instant download!

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

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