Christopher Niesche: Government must free mobile market

In announcing it will build a mobile phone network in Tauranga, TelstraClear is sending a clear message to the Government: Pave the way for new mobile entrants and we will build New Zealand's third cellphone network.

It's not a message that comes cheaply.

TelstraClear said last week that it would spend $50 million to build a third-generation cellular network to deliver phone, broadband and mobile services.

The company's ambitions clearly extend beyond providing just the citizens of Tauranga with mobile broadband and voice services.

But chief executive Alan Freeth stops short of any commitment to take the service national.

Instead, he says further investment depends on TelstraClear's being able to persuade Sol Trujillo, chief executive of Australian parent Telstra, that it is worthwhile.

"Our belief is that we will be successful in Tauranga, and the next thing we'll be doing is asking Australia, 'Can we build in other cities please?'. But we have no guarantee of that at the present time."

Trujillo has already shown he doesn't have any particular soft spot for New Zealand.

In fact, there's little indication that he even knows where New Zealand is: He hasn't yet visited this market with a potential 4 million customers, and 18 months ago he quashed plans for TelstraClear to build New Zealand's third network, despite enthusiasm for the project from local management.

Since then the New Zealand telco market has gained lustre.

The Government's shake-up of the telecommunications industry - local loop unbundling and a review of the mobile phone market - has opened up competition and made it a more attractive place to invest.

By announcing that it will start a network, TelstraClear has put the onus back on the Government.

It's telling Telco Minister David Cunliffe and the Cabinet that a favourable outcome from the review of the mobile market will see development beyond the Bay of Plenty.

TelstraClear will want one or two concessions from the review, either or both of which would make the rollout of a national network more appealing to the company.

The first is co-location: letting one mobile phone company put its network equipment on a competitor's tower.

The second is roaming: allowing a mobile phone company to use another phone company's network in parts of the country where it has no coverage.

Current rules allow roaming once a carrier has covered 10 per cent of the population with its own network. But with no regulation on pricing or access, the rules are as good as worthless.

ABN AMRO analyst Ian Martin was spot-on last month when he suggested TelstraClear would build a cellular network in New Zealand.

Martin says that with mobile penetration in New Zealand nearing 100 per cent, a new mobile entrant would increase churn - the frequency with which customers swap phone companies - and drive down prices and the all-important average revenue per user.

Future cellular market growth is likely to come from mobile non-voice applications such as the mobile broadband being targeted by TelstraClear.

This latest competitive threat will drive the incumbents into defensive mode.

Telecom is certain to do what it usually does when threatened by competition, and lobby the Government furiously to protect its patch.

And it will be joined by Vodafone, which shares the mobile market with Telecom and has similar plans to TelstraClear for mobile, phone and broadband.

It's now up to the Government to match its rhetoric about wanting more competition in the mobile market with action.