Can We Sort Out The Mobile Mess In New Zealand?

Those who have followed my comments and analyses on the mobile market in New Zealand will not have been surprised at the withdrawal of both TelstraClear and Econet from that marketplace.

The fundamentals have been wrong for a long time.

• Telecom has been all over the place with its mobile activities (I can’t call them strategies).
• The regulator came on board far too late in the piece, and you can’t blame it for the regulatory mess that had been built up over a long time.
• Government policies from the past in relation to the Kiwi Share, which distorts relative pricing between fixed and mobile, has certainly not been helpful either.

The role that TelstraClear and Econet have played has also not been very strategic and, while they certainly do have a point in stating that the mobile industry environment in New Zealand is anti-competitive, they have, rightly or wrongly, lost credibility.

So we now have two monopolies – a CDMA monopoly from Telecom and a GSM monopoly from Vodafone – and neither of the two have any incentive to make any changes to the situation. Telecom should consider itself lucky that, without any vision and strategy, it has ended up with roughly a 50% monopoly. New Zealand is the only country in the developed world which only has two mobile operator, others have at least one other player to keep the other two honest.

Vodafone NZ is one of the most profitable operators within this international organisation. They have no incentive to compete any further with Telecom. While Vodafone could easily obtain a significantly larger market share it will never do so, because that would mean that there would only be one monopoly.

Vodafone could even wipe out Telecom, because the incumbent’s CDMA technology is no longer competitive. Vodafone’s GSM technology is world standard, with all the attendant advantages – the lowest network equipment and operational prices, the most marketable handsets, global leverage and so on. But again the absence of competition stops Telecom from making any serious changes to its technology, which is rapidly becoming obsolete.

However, now would be the time for Telecom to change, because Vodafone is caught in the trap of being unable to take advantage of Telecom’s weakness because of the regulatory backlash that this would occasion.

As predicted, number portability is, given the current monopolistic situation, laughable. Without a third player there is no way in the world either of the two players will use this tool to alter the equilibrium.

The only way out of the mess is to get a third competitor into the market. Based on the GSM technology it is nowadays possible to establish a third operator at very low cost, which would be welcome in a country that suffers from mobile charges that are among the highest in the world. A 10%-20% market share would be enough for a new player to become profitable and this would also be enough to get the two monopolists moving.

However, competition can only be successful if the incumbents are reined in. They can easily make life very difficult for other players, as we have seen in the case of TelstraClear and Econet. A change in behaviour is needed, and it is good to see the Commerce Commission has launched an investigation into this.

However, as I have mentioned on previous occasions, any new regulatory developments in the mobile market need to address both the current anti-competitive mobile environment and the fact that over the next five years the mobile industry will move towards wireless broadband. Such networks will be seamlessly integrated with the, by then, fully IP-based fixed networks.

This will change the mobile market beyond recognition.

The change will be similar to the one we have seen in the fixed market, where we went from a telephone-oriented market to a broadband market. The fact that New Zealand was not prepared for this change has caused enough problems, so hopefully the message will have got through that this should not be repeated in the mobile/wireless market.

Now, I will be the first to say that this is not an easy task. New Zealand is caught between the damage done in the past and the uncertainties of the future, and only a robust and open debate can help the country find the best possible solution.

The industry needs to put the national interest first, to achieve the right outcomes before the operators and potential operators start worrying about their own positions.

The current debate in New Zealand regarding structural separation makes me feel confident that, in the mobile industry also, we will be able to muster a ‘can-do’ attitude that will lead to the creation of the foundation for a prosperous industry, for both its customers and the operators.

I would challenge the Minister David Cunliffe to use the credibility he has built up in the industry to guide the various parties to a ‘national mobile interest’ roundtable.

Paul Budde

Also see:
New Zealand - Mobile & Broadband Overview and Analysis - 2007
New Zealand - Mobile Communications - Market Overview & Analyses
New Zealand - Mobile Communications - Spectrum
New Zealand - Mobile Communications - Statistical Overview and Major Operators

PAUL BUDDE Communication Pty Ltd,
T/As BuddeComm
http://www.budde.com.au

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