Market gives Econet even chance of cracking the big time

By PETER GRIFFIN technology writer

Fledgling mobile phone network operator Econet Wireless faces major hurdles in breaking into the New Zealand market, according to industry sources, who say the cost of building a network and an offering with competitive pricing will require backers with deep pockets.

Rob Mercer, head of research at Forsyth Barr, was sceptical about whether Econet Wireless could gain the toe-hold necessary to challenge existing mobile players.

"You've got to be prepared to run losses up front for several years and you can't freeload at a price lower than the infrastructure providers are able to tap into," he said of Econet's plans to use co-location and roaming agreements with Vodafone to expand its network.

Telecom Mobile spokeswoman Linda Sanders said there was already fierce competition for customers between Telecom and Vodafone in a market where mobile phone penetration was edging above 60 per cent to around 2.3 million handsets.

"It will be the best part of a year before [Econet] are up and running. There is less chance of them getting a big slice of the pie."

Vodafone spokeswoman Avon Adams said the company - which uses the same GSM technology Econet Wireless intends to adopt - had yet to be approached about co-location and roaming agreements.

But Ernie Newman, chief executive of the Telecommunications Users Association, said a third player in the mobile market would serve to break the "cosy duopoly" that keeps mobile prices artificially high.

"Markets usually only take off when there is a third entrant," he said.

"If Econet markets cleverly and competes a bit on price, consumers are likely to switch [networks]."

He expected Econet's customer uptake to be aided by mobile number portability which has remained elusive in the New Zealand market, but was introduced in Australia this week. Number portability would allow customers to switch between mobile networks but retain the same phone number.

Just how much capital Econet will need has not been revealed, but director Tex Edwards said the company had lined up investors in Britain and South Africa to shoulder the costs associated with a network build, which he described as costing much less than market estimates of around $300 million.

Despite an unenthusiastic response from the market, Maori spectrum holder Hautaki Trust has signalled its interest in investing trust funds in Econet Wireless.

In return for providing Econet Wireless access to its chunk of third-generation (3G) spectrum, the trust will be issued with shares.

And it can then invest its own money to acquire a shareholding in the company of up to 30 per cent.

Bill Osborne, chairman of the trust's commercial arm, said any profits reaped through its investment in Econet Wireless would be funnelled into Maori education and training schemes.

Meanwhile Telecom and Vodafone have nailed down an interconnect agreement that will allow text messaging between the networks of the two operators. Telecom said this would at least double or triple its text messaging traffic.

About 300,000 Telecom mobiles could send and receive text messages, 25,000 of which were connected to its new $200m cdma network.

Previously Telecom text messages were sent to Vodafone's network across a wireless internet gateway via France, which could cause delays.