New network proving worth in mobile war

Telecom chief executive Paul Reynolds said the XT results were 'sensational' when announcing the firm's result. Photo / Glenn Jeffrey

Just over two months ago, Telecom flashed images of a lolly house, sandcastle and the London Underground on Auckland's Town Hall building, announcing the arrival of its XT mobile network.

XT was vital for Telecom to dig its way out of a mobile technology hole. Its old network used technology called CDMA, which was being abandoned worldwide.

Without a switch to a network with 3G technology, as used by rival Vodafone, the company would miss out on roaming revenues and lose customers to networks offering improved handset and roaming choices.

Speaking at the announcement of the company's full-year financial results, chief executive Paul Reynolds admitted Telecom really needed to fix and to improve its mobile offering.

He lifted the lid on some of the numbers, describing the XT results to date - about 165,000 customers are using the network - as "sensational".

The figure equated to 10 per cent of Telecom's mobile base, he said, with several blue chip corporates yet to be connected.

Reynolds said Telstra, by comparison, had moved just 3 per cent of its customers at the same stage when it launched its NextG network three years ago.

Usage figures for XT show a 20 per cent lift in voice calling and data download traffic up 300 per cent compared to non-XT users.

"These are early averages," said Reynolds.

"We will see as the next quarter and quarter after comes how the statistics stabilise, but there has been a decisive shift to XT and a decisive rise of usage in the customers we see on the network."

The new network was launched in May and there had been a slowdown in connections as people waited to see what was on offer from Telecom, as well as Vodafone and new player 2degrees, said Reynolds.

The numbers of people taking their mobile phone numbers when switching networks - an indication of customer movements - drifted down in the months leading up to the launch of XT and 2degrees, before jumping more than 100 per cent in June and a further 15 per cent in July.

ABN Amro analyst Geoff Zame said while the usage statistics were encouraging, they compared the average across 2 million customers on the old network - a broad mix of high-value and low-value customers - to the usage of the relatively high-value, high-spending customers who had made the jump to XT.

"All it's showing is the higher-value customers have obviously come across first. They spend more than average across the entire CDMA base," said Zame.

But he said Telecom appeared to be broadly on track with migrating customers to the new network and the average revenue per user had generally stopped going backwards in the current quarter.

Average revenues hover around the $28 a month mark.

Telecom has indicated it aims to migrate a third of its 2.25 million mobile customers by the end of the current financial year - roughly 750,000 customers by June next year.

Telecom does have some ground to make up against rival Vodafone.

Its share of mobile revenue slipped further in the final quarter of the year and is now at 37 per cent of the market.

Reynolds put a net loss of 26,000 connections in the fourth quarter down to disconnection of "glove box" phones on prepay which had not been used in the previous 12 months.

During the same three months, Vodafone picked up 9000 customers.

Goldman Sachs analyst Tristan Joll said the move to XT appeared to be going reasonably well, "but it also looks to me like the mobile market in general was actually quite hard work".

He pointed to the economic conditions as well as the impact of the arrival of 2degrees.

"You need to see a pretty consistent and solid performance in a row before you start getting too carried away," said Joll.

Telecom is pegging its mobile growth hopes on what it calls "differentiation", particularly appealing to high-value customers - pushing the coverage, speed and roaming story that has dominated advertising.

Reynolds was clearly upbeat about the number of corporates joining the XT network, but said young people would be vital for taking the services offered over mobile broadband to the mass-market level.

"They're realising you can use your mobile phone for texting and voice obviously, but increasingly they're moving to Bebo and Facebook - that's a data revenue," said Reynolds. "Just your regular handsets now have Facebook applications and you're getting messages through your email and talking with your pals on the go."

While it lagged behind Vodafone on the switch to a 3G network, Telecom will grab first mover status with the upgrade to the next version of 3G, called HSPA+, before Christmas.

HSPA+ promises peak speeds of 20 megabits per second but customers are more likely to experience download speeds of around 4 megabits per second - on a par with current broadband speeds in urban areas.

Vodafone will have customers trying its HSPA+ network later this year with a commercial offer available early next year.

Telecom is also close to completing a network build using 2100 megahertz spectrum to provide more capacity in urban areas.

"I think the key message is they have levelled the playing field with Vodafone," said Zame.

"It's tough for the average consumer in the mass-market context to actually think that Telecom has the materially better proposition. At the end of the day they've caught up with Vodafone ... broadly speaking they do what Vodafone do now."

What was not up for discussion at yesterday's briefing was an update on Telecom's talks with Apple over the iPhone. At the XT launch in May, retail head Alan Gourdie said Telecom was in "deep discussions" but yesterday it was a strict "no comment".

Overall mobile revenues for Telecom are down $41 million, largely because of a drop in retail prices and the reduction of roaming revenues from Australian visitors with the closure of Telstra's old CDMA network last year.

CONNECTED NATION

Telecommunications in New Zealand.
* 1.9 million land lines
* 4.6 million mobile connections
* $1.98 billion spent on mobile services
* $914 million spent on broadband
* 16 billion minutes of calling time

Source: Commerce Commission, year to September 2008

XT NETWORK
* 165,000 new customers
* 72 per cent of customers on contracts
* 34 per cent are new customers
* 20 per cent increase in mobile calling