Mobile prices 'like 1980s'

Brad Horwitz saw an opportunity when he checked out New Zealand's mobile market. Photo / Glenn Jeffrey

When 2degrees investor Brad Horwitz saw the state of the New Zealand market 18 months ago he was stunned.

And it wasn't just the size of his roaming bill on his return to the United States.

"While I was here I went into a couple of the shops of both Telecom and Vodafone and it was like being back in the 80s in terms of what the pricing was like."

Reporting back to his colleagues at US-based Trilogy International, holders of a 52 per cent stake in the new mobile network, Horwitz was able to paint a rosy picture - free of the civil unrest, expropriation and extreme currency fluctuations associated with its investments in Bolivia and Haiti, combined with a terrific business opportunity to build a third mobile network.

"There's not a market in the world that can't profitably support three players," said Horwitz.

To break into the market, 2degrees is not only going to do battle with two telco rivals but user habits centred around texting.

"It's phenomenal. I'm surprised Kiwis have thumbs left. I've seen phones where the numbers have gone - I've never seen that before. My phones don't even do that and I live on them," said Horwitz.

Bringing talking back into the equation is the focus for 2degrees.

"The average minutes of use for a customer in New Zealand literally harks back to the 80s in terms of the volumes."

Ironically, said Horwitz, not only has the high cost of calling forced people to text, texting has the highest margin in the mobile business.

As Horwitz talks to New Zealanders he senses a pent-up demand, but the complaints about quality and price have not changed since he originally looked at opportunities in the New Zealand market years ago.

While the purchase of its original 26 per cent stake in 2degrees last year was the first we heard of Trilogy, New Zealand came on the investment radar for Horwitz in 2000.

At the time Horwitz was with Western Wireless, responsible for the finding international investments for the US-based mobile operator.

He attempted to trade assets in Africa for a piece of the newly formed mobile company, Econet Wireless, with the Zimbabwean parent company.

Tex Edwards - who alongside Maori-owned trust Hautaki, is the only remaining investor from the company's early days - contacted Horwitz in 2005 to see if Western Wireless were still interested in investing.

"We really didn't have the bandwidth to entertain something as far flung as New Zealand," said Horwitz.

Horwitz and his Western Wireless colleagues were in the throes of the publicly-listed company's sale to Alltel, now known as Verizon.

Trilogy was formed as the dust settled on that transaction.

Named after the Die Hard box-set trilogy, Western Wireless executives - now the core of the Trilogy investment team - watched when foul weather forced them to drive rather than fly from New York to Boston during an investor roadshow in the 1990s.

Essentially a venture capital fund, Horwitz said Trilogy, unlike the traditional sources of capital, has not mapped out an exit strategy.

"It's our money. It's my partners and myself, my guys that are here, everybody's got their own wealth and assets in the game and as long as the business is doing great things we're completely pleased with it."

Horwitz anticipates profitability will be a couple of years away. Currently, 2degrees is debt-free, which is more a reflection of the difficulty raising funding on the money markets, and Horwitz said it would take on a more traditional capital structure as it became established.