Stalling for time
The long anticipated shake-up of New Zealand's mobile phone market may be delayed even further as an inquiry into controversial termination rates is held up by the regulator.
One of the world's last great telecommunications duopolies, the New Zealand mobile phone market, looks set to remain undisturbed for some time with uncertainty over the arrival of a new infrastructure player and the imposition of tougher price controls by the industry regulator that are at least a year away.
The prospect of increased competition and more aggressive regulatory intervention has not stopped the incumbents, Vodafone and Telecom New Zealand, stepping up their investment in third generation mobile networks.
TNZ, which had earmarked capital expenditure of up to $NZ1.1 billion this financial year, is pondering a substantial increase in its capex as part of switching its network technology from the outmoded CDMA to high speed WCDMA on the same 850mhz frequency used by Telstra in Australia.
Analysts have warned that the five year turnaround of TNZ under new chief executive Paul Reynolds will largely hinge on the success or otherwise of the company's mobile strategy. Investors in TNZ have seen their shares fall about 40 per cent in the past year.
Vodafone, meanwhile, is moving to cement its position as New Zealand's dominant mobile carrier by investing $NZ500 million to lift its 3G coverage to 97 per cent of the country. It is also investing in fixed line infrastructure so it can bundle mobile plans with fixed line broadband.
Vodafone has about 53 per cent of New Zealand's 4.27 million mobile phone subscribers but its market share measured by revenue is about 60 per cent of the $2.3 billion total, a position it attained thanks to some help from TNZ's technology missteps.
TNZ's decision seven years ago to opt for CDMA mobile technology rather than GSM backfired badly. It opened the door for Vodafone to build a dominant market position in GSM with better handsets and roaming capabilities. The latest blow for TNZ's CDMA customers was the closure of Telstra's CDMA network in April, which ended the ability of about 2 million Kiwis to roam in Australia using CDMA phones.
The use of different technologies is one of the more peculiar aspects of the New Zealand market. That has contributed to more than half the mobile phone users having two handsets and a mobile penetration level of 107 per cent. Slovakia is the only other OECD country with a mobile duopoly.
New Zealand has low mobile revenues per capita compared to other OECD countries. Revenue per capita in 2006 was less than $NZ500 compared with more than $NZ600 in Australia. Mobile revenue as a percentage of total telco industry revenue is less than half the OECD average.
The potential new entrant to the market is New Zealand Communications, a company backed by private equity investors in the US and UK. It has been talking about building its own mobile infrastructure for several years but no date has been set for its launch. A major backer is entrepreneur Tex Edwards.
NZ Communications has signed a mobile roaming agreement with Vodafone and TNZ to get access to their telecommunications towers for its equipment.
There is speculation that NZ Communications will invest up to $NZ200 million to provide mobile coverage for residents of the three largest cities: Auckland, Wellington and Christchurch. Tristan Joll, an analyst with Goldman Sachs JBWere, has forecast that NZ Communications will attain 5 per cent of the New Zealand prepaid market over five years.
Those forecasts suggest that the regulator poses a far bigger threat to the duopoly than the new entrant.
The NZ Commerce Commission is in the process of deciding whether to investigate the country's mobile termination rates, where carriers charge one another when customers make calls to numbers owned by other carriers. Its most recent analysis found that mobile termination rates in the wholesale market were currently NZ16c per minute whereas the median OECD benchmark was NZ10.76c per minute.
Based on previous recommendations, the Commission would like to slash the termination rates to the long run incremental cost. That could wipe out about $NZ150 million in revenue. Australia recently forced mobile carriers to slash termination rates by 40 per cent from 15 cents a minute to 9 cents per minute.
But it will take a year for an investigation of mobile termination to be concluded and the government may not accept the Commission's recommendation. Communications and Technology Minister David Cunliffe, however, has been tough on the telecoms sector and would be under political pressure to adopt the Commission's recommendations.
The prospect of increased competition and more aggressive regulatory intervention has not stopped the incumbents, Vodafone and Telecom New Zealand, stepping up their investment in third generation mobile networks.
TNZ, which had earmarked capital expenditure of up to $NZ1.1 billion this financial year, is pondering a substantial increase in its capex as part of switching its network technology from the outmoded CDMA to high speed WCDMA on the same 850mhz frequency used by Telstra in Australia.
Analysts have warned that the five year turnaround of TNZ under new chief executive Paul Reynolds will largely hinge on the success or otherwise of the company's mobile strategy. Investors in TNZ have seen their shares fall about 40 per cent in the past year.
Vodafone, meanwhile, is moving to cement its position as New Zealand's dominant mobile carrier by investing $NZ500 million to lift its 3G coverage to 97 per cent of the country. It is also investing in fixed line infrastructure so it can bundle mobile plans with fixed line broadband.
Vodafone has about 53 per cent of New Zealand's 4.27 million mobile phone subscribers but its market share measured by revenue is about 60 per cent of the $2.3 billion total, a position it attained thanks to some help from TNZ's technology missteps.
TNZ's decision seven years ago to opt for CDMA mobile technology rather than GSM backfired badly. It opened the door for Vodafone to build a dominant market position in GSM with better handsets and roaming capabilities. The latest blow for TNZ's CDMA customers was the closure of Telstra's CDMA network in April, which ended the ability of about 2 million Kiwis to roam in Australia using CDMA phones.
The use of different technologies is one of the more peculiar aspects of the New Zealand market. That has contributed to more than half the mobile phone users having two handsets and a mobile penetration level of 107 per cent. Slovakia is the only other OECD country with a mobile duopoly.
New Zealand has low mobile revenues per capita compared to other OECD countries. Revenue per capita in 2006 was less than $NZ500 compared with more than $NZ600 in Australia. Mobile revenue as a percentage of total telco industry revenue is less than half the OECD average.
The potential new entrant to the market is New Zealand Communications, a company backed by private equity investors in the US and UK. It has been talking about building its own mobile infrastructure for several years but no date has been set for its launch. A major backer is entrepreneur Tex Edwards.
NZ Communications has signed a mobile roaming agreement with Vodafone and TNZ to get access to their telecommunications towers for its equipment.
There is speculation that NZ Communications will invest up to $NZ200 million to provide mobile coverage for residents of the three largest cities: Auckland, Wellington and Christchurch. Tristan Joll, an analyst with Goldman Sachs JBWere, has forecast that NZ Communications will attain 5 per cent of the New Zealand prepaid market over five years.
Those forecasts suggest that the regulator poses a far bigger threat to the duopoly than the new entrant.
The NZ Commerce Commission is in the process of deciding whether to investigate the country's mobile termination rates, where carriers charge one another when customers make calls to numbers owned by other carriers. Its most recent analysis found that mobile termination rates in the wholesale market were currently NZ16c per minute whereas the median OECD benchmark was NZ10.76c per minute.
Based on previous recommendations, the Commission would like to slash the termination rates to the long run incremental cost. That could wipe out about $NZ150 million in revenue. Australia recently forced mobile carriers to slash termination rates by 40 per cent from 15 cents a minute to 9 cents per minute.
But it will take a year for an investigation of mobile termination to be concluded and the government may not accept the Commission's recommendation. Communications and Technology Minister David Cunliffe, however, has been tough on the telecoms sector and would be under political pressure to adopt the Commission's recommendations.
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