Mobile rates cut could mean market share erosion

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Telcos who fail to drop their prices in the wake of yesterday's decision to slash mobile termination rates in half, will find it difficult to lure new customers and could see an erosion in their market share, a brand expert has warned.

The Commerce Commission made the call to cut calling rates from 14c to 7.8c per minute and texts from 9.5c to 0.06c per message, in a bid to stimulate competition within the industry.

Mobile termination rates are the fees telecommunication companies charge each other for a call or text message that comes from a rival network.

Despite calls from consumer groups, Vodafone, Telecom and 2degrees have all indicated they will not be lowering their retail prices in response to the announcement.

Massey University brand loyalty specialist Professor Malcolm Wright said the attractiveness of Telecom and Vodafone could be harmed by their reluctance to reduce costs.

"There is a powerful incentive for the big players to keep fees as high as possible. They will count on inertia to maintain their customer base, and extract super-normal profits from the market."

2degrees and Telecom said they had already factored the rate cuts into their retail prices, while Vodafone labelled the move 'extreme' and significantly below cost.

Wright said new entrants to the market, such as 2degrees, have a 'golden opportunity' to win market share as a result of the decision to cut fees.

CallPlus and Slingshot chief executive Mark Callender said consumers could save as much as 30 - 40 per cent on their phone bill as a result of the regulation, provided they shopped around.

"Consumers will definitely benefit from this change with the chance to save money, but they need to look around particularly at the offerings of some of the smaller competitors, such as CallPlus and Slingshot who have a track record of offering the best deals around."

Wright said the threat to larger players including Telecom and Vodafone was not so much that their existing customers will defect because existing customers would be reluctant to leave behind a network of friends on the same provider.

"The danger for anybody who doesn't drop their price is rather that they will fail to acquire new customers, leading to erosion of their market share over time.

"It's like a leaky bucket - if you don't keep filling it up, it will eventually wind up empty," he said.

Telecommunications Commissioner Ross Patterson said yesterday the changes were intended to address significant competition problems in the wholesale mobile market.

This had resulted in high retail prices - particularly for prepay customers - a low number of mobile calls and high rates of people switching networks, compared to other countries, he said.

"We continue to be concerned about the extent to which the price of calls and text messages between people on different networks are significantly higher than calls and text messages between people on the same network."