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Vodafone has always painted itself as the underdog, nipping at the heels of phone giant Telecom.
Until now, many would have thought it impossible for any firm to topple the company that has a 76 per cent market share of the New Zealand telecommunications market.
But times are changing. Vodafone - which has 20 per cent of the market - is getting ready to make an unprecedented attack on Telecom's phone and internet revenue.
This was clearly indicated last month, when Vodafone bought fixed-line internet and tolls provider ihug for $41 million.
The purchase starts the transformation of Vodafone from a purely mobile phone company into a full-service telco.
It means Vodafone, which has 55 per cent of the mobile market, can engage in the Telecom-dominated fixed-line market for the first time.
Ihug's share of the telco market is between 5 and 7 per cent, lifting Vodafone's total share to about 27 per cent, still a long way behind Telecom.
Vodafone chief executive Russell Stanners says his company's "big hairy audacious goal" of becoming New Zealand's top telecommunications company has been behind its decisions, directions and projects since 2000.
He is aiming to take the top spot in five years, but knows it will be a big challenge.
"We are going to give it a good crack," he says.
Vodafone and ihug have wasted no time in targeting Telecom's market with a range of plans allowing unlimited national and overseas calls for a competitive price.
Vodafone and ihug have also boosted the speed of their broadband services to match their rival's.
By buying ihug, Vodafone has positioned itself to compete with Telecom products that have mobile and fixed-line components.
Chief executive Theresa Gattung says Telecom knew Vodafone was preparing an attack on its fixed-line business, and responded in April by changing its focus from separate mobile, IT and calling services to putting together mobile and fixed-line services for homes and businesses.
"No way did I think they were going to buy an internet service provider," she said. "But they had been so clear that they had moved into that phase and were going to attack our fixed-line customer base."
Telecom started its first mobile and fixed-line offer, called Freedom, in April and now has 66,000 customers.
Vodafone's goal of knocking over Telecom may seem audacious, but Vodafone Group is one of the largest mobile companies in the world with a market value last month of about £65 billion ($184.3 billion).
Stanners will not reveal how much it intends to spend over the next few years on its challenge but says it is investing heavily in its 3G (third-generation) digital network which includes global roaming and high-speed transmission.
"'We've made $200 million in capital investment ... Our challenge is to get customers to use our network."
Goldman Sachs JB Were analyst Andrew White says Vodafone is capable of doubling its share of the telecommunications market by 2011.
"A key factor to achieve this growth will be an effective execution of its integrated [mobile and fixed-line] service.
"It certainly has secured elements required to attack the fixed-line market, including local interconnection at no cost, full number portability and increased network capacity now backed up by its ownership of ihug."
White says Vodafone could become New Zealand's largest telco, but the task would be "exceptionally challenging".
Vodafone's purchase of ihug is not its only strategy. The company has also had regulatory wins this year.
A Commerce Commission ruling allows Vodafone to attack Telecom's residential and local calling market - which gives it about 25 per cent of its revenue - through what is called local interconnection.
From February, Vodafone's two million mobile phone customers will be able to make free local calls to Telecom's fixed phone lines.
Telecom fixed-line customers can make local calls to Vodafone customers in a set geographic area.
"That is pretty compelling," said one analyst. "It means they will be able to replicate Telecom's residential local pricing if they chose to do so."
Telecom customers will also be able to switch to Vodafone and keep their Telecom phone numbers.
This is the result of a separate Commerce Commission ruling allowing number portability from next April.
And the Government is weeks away from finalising legislation to force Telecom to open its network to competitors and provide naked DSL services - broadband without a phone line.
The Government's announcement in May of the proposed regulation wiped $2.7 billion off Telecom' share value.
The company's share price fell from more than $5.50 to $3.95. Yesterday, it was at $4.67.
The introduction of naked DSL means customers will be able to buy a broadband service without having to pay for Telecom's phone service.
IDC telecommunications analyst Chris Loh says Vodafone will be also be able to tap into the local calling market through phone calls over the internet.
Vodafone is already attacking Telecom's toll market - roughly 20 per cent of its revenue - through ihug's launch of competitive toll calling plans.
Vodafone's general manager of customer-based marketing, Shelley Watson, says the company is also looking at services which will enable customers to make toll calls on mobiles at landline rates.
And Vodafone introduced a range of mobile broadband services in September with average speeds of 300 to 400 kilobits a second. It says these have faster connection speeds and are more convenient then Telecom's fixed line.
Analysts predict these will challenge Telecom's residential internet market but will not be enough for large companies with high bandwidth needs, as the mobile plans have a one-gigabyte data limit.
Vodafone New Zealand has a history of setting big aggressive goals and achieving them.
It bought Bell South in 1998, inheriting 138,000 customers. This year, it has 2 million customers and 55 per cent of the mobile market.
Now it will push hard to expand its capability in all areas.
Stanners says Vodafone is no longer purely a mobile phone company, but it believes mobile voice and internet data is what people want.
"My proposition to the biggest companies in New Zealand is that the future is mobile," he said.
"If we bundle in fixed services, and the majority of the voiceover mobile and data to the individual, not the desktop, you can do that only through mobile."
Vodafone would not succeed if it were to only follow Telecom's lead.
"If we do that we would look exactly like TelstraClear. If you look at TelstraClear's strategy of copying Telecom, it is a losing strategy," Stanners says.
The biggest challenge was working out how to change people's dependence on the fixed phone.
"It took seven years to get people to use texts. That's the kind of time frame we are looking at. We do not expect that people will abandon what they know and love overnight."
Also, Stanners says, it is "increasingly difficult" to get Vodafone's parent group to invest in New Zealand, mainly because of uncertainty over regulation.
Vodafone's regulatory manager, Hayden Glass, says the most challenging regulatory items on its list are the Commerce Commission's moves to investigate setting prices for rivals' access to Vodafone's cellphone towers.
The commission's investigation is focused on why New Zealand has only two mobile phone operators and barriers to entry of other operators into the market.
Vodafone's national network spectrum rights are also up for renewal in March, says Glass.
Stanners says the Government should not "constrain" Vodafone.
"We have a track record. New Zealand is the only market in the world where the challenger has grown past the incumbent in any sector.
"If you had a Vodafone in the fixed world, there would be no need to unbundle the local loop, no need whatsoever."
Threats to Telecom
* The ihug deal means Vodafone can tap into Telecom's local, national and international fixed voice market, which produces nearly half its revenue.
* The Commerce Commission has ruled that Vodafone's two million customers will be able to make free local calls to Telecom's fixed lines. Telecom customers can make local calls to Vodafone customers.
* This will mean Vodafone can attack Telecom's local calling market.
* Telecom customers will be able to switch to Vodafone without changing their phone number.
* Vodafone has introduced competitive mobile broadband services.
