KEY POINTS:
Vodafone insists its foray into broadband does not spell the end for ihug, the internet company it bought last year.
Yesterday, Vodafone started a new phone and internet service which includes one gigabyte of free broadband.
In the first scrap of an expected broadband war, telco Orcon also has a new cut-price service.
The deals, which knock up to $40 off the cost of broadband and phone packages, come as trials begin for local loop unbundling - the opening of Telecom's network to competitors - which is expected to increase competition and improve the quality and value of broadband internet.
Vodafone executive Mark Rushworth said the move into broadband was part of the shift from being a mobile company to being a full telecommunications company.
"It's going to give the market a huge, huge jolt ... particularly our competitors," said Rushworth.
Rushworth, who is chief executive of ihug, said Vodafone's move into broadband did not mean the ihug brand would be discontinued.
"This is leveraging that expertise across our Vodafone customer base using the Vodafone brand that is being supported by that ihug capability," Rushworth said.
Vodafone bought ihug for $41 million last October, saying it would use the internet and phone company to fulfil its ambitions to become a full service telco with mobile, toll call and broadband services.
Government-owned internet company Orcon's new service gives a free home phone line if customers sign up for its 20GB a month broadband and toll calling package.
Orcon chief executive Scott Bartlett said the offer could save subscribers $450 a year in landline costs.
"It's the one product that every household has to pay for and it's probably, in our view, the biggest impediment to why people haven't taken up broadband in New Zealand as quickly as they have in other countries," said Bartlett.
State-owned broadcast and network operator Kordia (formerly Broadcast Communications) bought Orcon for $23.4 million in June.
Bartlett admitted the competitive strategy would come at a financial cost.
"This is Orcon putting up the purple banner [the company brand colour], spilling a little bit of purple blood on the ground in the form of money and saying 'we're going to go toe to toe with Vodafone'," he said.
But he added that the draft pricing for local loop unbundling meant there was a future in being competitive and aggressive. Bartlett.
Last month, the Commerce Commission set a draft price for using the local loop of $16.49 a customer a month in urban areas and $32.20 in rural areas.
This is the fee rival Telecom's competitors will pay to use the Telecom copper network, which runs from local telephone exchanges to homes and businesses.
Vodafone's Rushworth also said his company would bear some of the cost of offering free broadband but local loop unbundling could be one of the options to improve margins in the future.
Last week, Orcon and ihug were the first to take up the offer from Telecom's wholesale arm for commercial trials to install their phone and broadband equipment in the two Auckland telephone exchanges in advance of local loop unbundling.
THE DEALS
VODAFONE
* Landline: $41.
* Anytime unlimited toll calling: $20.
* 1GB broadband: free.
* Total per month: $61.
* The fine print: 12 month contract. No modem supplied. Download speed reduced once data allowance has been exceeded.
ORCON
* Landline: free for 12 months.
* 20GB broadband plus anytime unlimited tolls: $79.95.
* Total per month: $79.95
* The fine print: 12 month contract if modem provided. $10 per 5GB once data allowance has been exceeded. Offer open to first 5000 customers.
