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Telecom is cutting the price of its music downloads to bolster its position in the digital music market before Apple's iTunes Music Store gains a strong foothold in NZ, say analysts.
The telco is also moving to pick up more customers on its third generation mobile phone network ahead of its introduction of video content services through its new partnership with Yahoo!7.
Telecom said yesterday it had dropped the price of music downloads via personal computer and Telecom 3G mobiles from $3.50 to $1.99.
Apple's iTunes site, which was introduced to New Zealand early this month, offers song downloads for $1.79.
Telecom's general manager of consumer marketing, Kevin Bowler, said it dropped the price of downloads to remain competitive in the market against Vodafone and Apple.
"It does make our business model more challenging, as it does cost a lot to provide these services ... We are confident that it will be a fast-growing revenue stream. Digital music sales have been going strong even when we had them at $3.50."
The market in digital music via cellphones was at an early stage - Telecom launched its online music store a year ago and last month Vodafone followed suit.
Telecom expected to see a strong lift in uptake over the next few months, said Bowler.
IDC telecommunications analyst Darian Bird said Telecom was responding to the arrival of iTunes. "Telecom hasn't focused on its music store previously, but with competition of this calibre in the digital music market it needs to protect its position.
"Telecom ... will need to improve its branding to survive now that Apple is in the picture."
Telecom's online music stores has 620,000 titles, compared to Apple's iTunes music store which has more than 2 million songs and 65,000 podcasts.
Bird said pricing was key to targeting the masses and driving volume sales in a commodity market like digital music.
Telecom's price cut brings it into line with Vodafone's music downloads of $1.99.
"They couldn't stay at the price they were at because they were well above market rate,"Bird said.
"They have to be able to compete on a similar level, even though they cannot go head to head."
While songs from Telecom are still more expensive than from iTunes, Bird said the two formats did not compete directly as the songs were played on different devices.
It would be a "dangerous game" for Telecom to try to compete directly on price with Apple, which had global music contracts and the flexibility to drop the price and offer promotions.
Telecom has been looking to diversify away from fixed line voice calls to improving customer's use of other parts of its network, such as broadband and mobile.
Bird said if Telecom managed to gain customers on its 3G network it would make it easier to pitch video content services through its partnership with Yahoo!7.
A financial analyst, who did not wish to be named, said the price cut made sense for Telecom as it faced competitive pressures and moved towards providing a range of content services. "You get a bit of a window with these high-tech things where you can charge a pretty big price, and then you bring the price down."
