Bargain-hunting forces Spark to change tack

Spark's Auckland office block on Victoria Street. Photo / File

New Zealanders holding out for the cheapest broadband they can find is forcing Spark New Zealand to compete more aggressively on price.

Government data show prices for telecommunications services have dropped 15 per cent over the past five years. In that time, there has been a major overhaul of the sector with a third mobile phone operator gaining traction, network operator Chorus carved out of Telecom, and the roll-out of a government-sponsored fibre network.

Spark, the services business that decoupled with Chorus in 2011, has been focusing on the higher-value end of the broadband market in recent times. However, a two percentage point fall in its market share to 42.3 per cent of connections in 2016 has prompted a rethink and the country's biggest telecommunications company plans to chase price-sensitive customers, initially with its Skinny brand.

"A growing portion of the market is choosing to buy primarily on price - we're seeing that across all telco portfolios irrespective of whether its consumer, SME, or big business," chief executive Simon Moutter told analysts. "We can't continue to try to steer our whole proposition to high-value markets."

The move is a throwback to when Moutter was first appointed CEO in 2012 and tasked his team with competing aggressively to maintain broadband share. The roll-out of fibre has seen more effort put into migrating customers to the higher-value fixed line delivery.

Moutter said there are more gains to be made migrating customers to fibre, and that his rivals were paying too much to acquire new connections in what's largely a saturated market.

"It is something that frustrates us, the degree of competition driven by acquisition, which is just driving market churn," Moutter said. "That is the state of the market today and we have to play in it and over time I guess it will become a bit more orderly."

Spark is rethinking its wider strategy, and Moutter plans to put it to investors by the middle of the year.

The company is keen to shift its customers from the copper lines owned by Chorus, which have regulated wholesale prices. Of its 675,000 broadband connections, 138,000 are on fibre and more than 40,000 are on Spark's wireless broadband.

Spark has previously signalled it wants to cut its reliance on Chorus's copper lines, and beefed up its call centre service capability after harsh winter conditions caused an increased number of faults last year. It also wants to have more control over fibre assets in central business districts, and this month kicked off a takeover bid for Wellington-based TeamTalk which owns the CityLink fibre business and Farmside rural internet service provider.