KEY POINTS:
Vodafone stole the march on Telecom eight years ago when it came to market and offered texting for the first time in New Zealand, catapulting it to the No.1 position in the mobile market.
Now the British-owned phone company is placing the same sort of faith in video calling, which it hopes will help it once again seize the initiative from Telecom.
Vodafone this month launched video calling with a plan called SupaPrepay, which allows users to call, video call and text each other's Vodafone number for $6 a month. It also has TXT2000, whereby 2000 texts can be made to Vodafone numbers for only $10 a month.
The combination of cheap texting, calling and video calling will have great appeal to the youth market, say industry observers. They say teenagers who currently use both a Telecom and Vodafone cellphone to take advantage of different deals from each carrier will switch to using the Vodafone phone exclusively.
Vodafone product and services general manager Kursten Shalfoon says the package allows people to communicate in different ways with their close friends for a competitive price.
Vodafone has seen a "staggering increase" in customers using video calling on its 3G network, for which Telecom did not have the capability.
Although texting will still be an important and significant form of interaction, video calling will start to supplement texting, says Shalfoon.
However, Goldman Sachs analyst Andrew White is not so sure video calling will prove to be the boon Vodafone is hoping for. Vodafone's SupaPrepay package is "probably a better offer" for people who use both a Telecom and Vodafone phone, because it offers cheap texts and calling and video calling. But video calling is "gimmicky' and people probably have not taken to it large numbers, says White.
Also, SupaPrepay is not as compelling for the mass market as Telecom's Freedom Plan, which offers unlimited calls between a landline and a designated Telecom mobile for $10 a month.
Aggressive marketing and attractive texting deals have helped Telecom gain market share from Vodafone in recent years, with Telecom winning more new customers in seven of the past eight quarters. Nonetheless, Vodafone remains the market leader, with 54.5 per cent of the market and Telecom making up the remainder.
In the three months ended September 30, Vodafone added a net 11,000 new customers compared with Telecom's 68,000. At the release of the latest figures last week, Vodafone admitted it had a quiet quarter as it prepared for an aggressive attack on Telecom's revenue base. "We were building the capability to launch a suite of new plans and we did not want to alert Telecom in advance," said Vodafone chief financial officer John Tombleson.
"We are only going to get more aggressive as well. For the past couple of years we have been hamstrung building our systems and now we have lots of toys to play with."
Indeed, the past quarter's loss was before Vodafone launched its latest video calling deal. Also, Vodafone wants to pick up as many customers as it can before Telecom can start offering video calling as well, expected to be at the end of the year.
In October, Vodafone paid $41 million for fixed-line operator ihug, transforming itself from a mobile-only company to an operator with the potential to offer fixed line and broadband services as well. The company is also planning to attack Telecom's fixed-line calling market with the launch of a cellphone that can operate like a landline home phone.
Telecom consumer affairs head Kevin Bowler said Vodafone's claim that customers were taking to video calling in staggering numbers was "desperate - Vodafone are desperately clambering to find ways to differentiate themselves.
"We are talking about the 12th biggest company on the planet, they are 100 times bigger than our mobile business and yet we are beating them," said Bowler.
Video calling was not an economically viable technology, he said. It had been an "absolute disaster".
"It costs many more times to run it then a voice call, and Vodafone are giving it away at the price of a voice call."
He said customers did not really use it much and it was a frustrating means of mobile communication. "It means you have to be on speaker phone, so you have to be somewhere private, you can't quite see what image the person is seeing and the quality across mobile is barely adequate."
Bowler rejected predictions that the youth market, which used dual handsets, would abandon Telecom plans in favour of Vodafone.
Telecom has over 200,000 customers signed to its Boost Monster Plan that offered 1000 texts for $10, he said. But customers had to commit with a $10 subscription a month to Vodafone's Text2000 plan, and pay 20c for every text beyond the limit.
"If you don't top up every three months you lose your credit balance, we don't do that on any of our plans ...
"Kids want flexibility, they don't want to commit," said Bowler.
IDC telecommunications analyst Chris Loh says video callling is just one of a host of services - such as live TV, music downloads and internet communication - that telcos around the world are offering to attract customers and increase average revenue per user.
"We're really just seeing the thin edge of the wedge of a massive proliferation of these services," he said.
Also, in April next year number portability comes into force - which will allow mobile phone users to keep their own phone numbers when they change phone companies.
Loh says Telecom and Vodafone are both trying to put together more compelling services and deals in an attempt to hold on to their customers after it becomes more convenient to change phone companies.
See it in
* 3G Vodafone purchased BellSouth in 1998 with 138,000 customers.
* It introduced texting to the New Zealand market for the first time.
* It now has about 2.1 million mobile customers and a market share of 55 per cent.
* It launched its 3G network in August 2005, which offers video telephony, music downloads and TV downloads.
* Vodafone has lost some of its market share back to Telecom because of successful marketing campaigns by Telecom.
* The 3G network is the only one in New Zealand capable of video-calling and will potentially attract more customers back to Vodafone.
