Big Vodafone profit likely to draw heat

By PETER GRIFFIN


Vodafone has produced a $154 million annual profit - and is likely to face renewed criticism that it is squeezing too much out of its New Zealand customers.

The mobile phone operator's result is a 71 per cent improvement over the year before.

Its revenue rose to $1.07 billion from $841 million last year.


Vodafone is putting hundreds of millions of dollars into a third generation network it hopes will allow it to maintain its share of well over half the mobile subscriber market.

Its operating profit was $228 million and it paid $74 million in tax.

But such healthy results raise the threat of regulation of mobile termination rates - the charges that Vodafone levies other telcos to connect to its network.

These can be up to a third of the price of calling a mobile phone from a fixed line.

The Commerce Commission is investigating mobile termination rates, which are high by world standards.

The chief executive of the Telecommunications Users Association, Ernie Newman, would not comment on Vodafone's profitability, but said he expected the commission to order a cut in termination rates.

"There's nothing to shake our expectation that the commission, like other regulators around the world will find that these charges should be roughly halved."

Any cut in rates would affect the bottom line if Telecommunications Commissioner Douglas Webb forced the telcos to pass savings on to mobile subscribers.

Vodafone managing director Tim Miles was unavailable yesterday, but he has rejected the need for regulation, claiming the mobile industry is already competitive.

The likes of AT&T, ihug and WorldxChange predictably want termination charges slashed.

They have to pass termination rates on in their final pricing.

Aspiring third mobile entrant Econet Wireless claimed in July that New Zealanders pay 2.4 times the OECD average for their mobile phone calls.

"[Vodafone] is so profitable that even its prospective 3G network, which it argues represents a significant investment for it, will cost only around six months of its free cash flow," said Econet New Zealand boss Tex Edwards in a submission to the Commerce Commission.

This means that the market has got to such a point that even a significant infrastructure build becomes merely an opportunity to further cement the incumbents' stranglehold on the market."

But the Business Roundtable executive director, Roger Kerr, said in an August submission to the commission that the case for regulation was "unconvincing".

"Regulation could impair dynamic efficiency by distorting investments in infrastructure," he wrote.

This would deter "some welfare-enhancing investments and inducing some welfare-reducing investments".