Local call decision new blow for Telecom

Vodafone has been given approval to move into the local phone market, in a move analysts say will present a major threat to Telecom's phone line revenue.

The Commerce Commission yesterday issued a draft determination enabling free local calls between Vodafone's cellular network and Telecom's fixed lines within a defined geographic zone.

This will pave the way for Vodafone's two million mobile phone customers to make free local calls to Telecom's fixed phone lines. It will also enable Telecom customers make local calls to Vodafone customers in the set geographic area.

In essence, that will allow Vodafone mobile phones to act as home phones as well.

"The competition in this space is only going to heat up," said Vodafone general manager for commercial business, Tom Chignell. "While we are the mobile leader in New Zealand we only have a 20 per cent share of the total telecommunications market - the opportunities for us and our customers, beyond mobile, are enormous."

The move "will substantially accelerate the decline of Telecom's business," said IDC New Zealand analyst Chris Loh. Fixed-line revenue makes up 50 per cent of Telecom's business.

Telecom's share price fell 2c to $4.22 yesterday.

Loh said Telecom had increased its cellular and internet services to lessen the impact from the predicted fall in its fixed-line services, but would still be hit hard.

Telecom has previously announced it planned to offer a combined fixed/mobile service, but has not said when it will be launched.

Company spokesman John Goulter yesterday declined to comment on the Commerce Commission ruling. "We are digesting it," he said.

Telecom's fixed/mobile service was forecast to be like British Telecom's Fusion service, Loh said. Fusion provides a handset which operates like a normal cellphone outside the home, but automatically switches to a broadband line at home.

Vodafone's Chignell would not reveal the company's retail plans, but pointed to its third generation cellphone broadband service as part of its business strategy in the home and office.

Vodafone has 54 per cent of the mobile market versus Telecom's 46 per cent. "We do have ambitions to grow our market share substantially," Chignell said.

Telecommunications Users Association chief executive Ernie Newman said the determination would set the stage in New Zealand for the early adoption of hybrid phones.

"It will open up a lot more options for consumers in how they balance their fixed and mobile phone lines," Newman said.

Vodafone was also likely to invest more in its New Zealand operations, he said.

Vodafone has been trying unsuccessfully to get a commercial interconnection deal with Telecom since September 2003. In January, Vodafone "reluctantly" applied to the Commerce Commission to find a solution.

The deadline for submissions on the draft determination is July 3, and cross submissions on July 11, says the commission. The timing of the final decision will depend on the submissions.

What's at risk

* Telecom has a 75-80 per cent share of the total telecommunications market.

* Its fixed-line business makes up around half of its total revenue in New Zealand.