Adam Gifford: Real competition rings changes

New Zealand's mobile calling prices are below the OECD average for the first time. Photo / Greg Bowker

After years of phony war by the Vodafone-Telecom duopoly, real competition has broken out in the New Zealand mobile phone market with the entry of a new operator willing to throw disruptive pricing into the marketing mix.

Add a regulator who looks increasingly intolerant of the major companies gaming the system, and it's an interesting time to be a consumer.

The Commerce Commission's latest telecommunication market monitoring report pushed out its reporting of the mobile phone sector to September, so it could capture some of the activity generated by both the Telecom XT network launch at the end of May and 2Degrees' entry in August.

The commission says the entry of 2Degrees into the 2G prepaid market, which is the service the bulk of mobile phone users are still using, has brought prices down below the OECD average for the first time.

2Degrees charges 44 cents a minute for calls to mobiles or landlines, and to 21 countries.

Having three networks which use the same technology means users can switch without having to buy a new phone, and they can take their number with them.

Until July the number of customers porting their mobile numbers between networks was between 2000 and 5000 a month. That jumped to 17,300 in September. The Telecommunications Carriers Forum reported about 3000 of the September ports were Vodafone customers switching to Telecom's XT network, with a similar number going from Telecom to Vodafone. The remaining 11,000 were probably Vodafone customers switching to 2Degrees.

The effect of this showed up in the report of Vodafone's parent company for the quarter to the end of September, which showed a net decline of 27,000 customers to 2,484,000.

Unscrambling the raft of different conditions and add-ons in the various plans, the commission estimated low users on a Vodafone Supa Prepay plan were spending about $600 a year, compared with just under $400 for Telecom customers on the XT OneRate plan and $200 or so for the 2Degrees customer. The OECD prepay average is just under $350 a year.

Vodafone's medium prepay users are shelling out $1200 a year, and at those rates a high user would spend about $2600, or $50 a week.

It's at that point we have to ask why 70.8 per cent of Vodafone's New Zealand customers are on prepay.

The commission estimated low-use customers on Vodafone's Easy 20 postpaid plan were spending under $200 a year, compared with almost $400 for Telecom's OneRate 50 plan and the OECD postpay average of about $260.

For high users, Vodafone's Easy 150 plan will cost under $600, just under the OECD average and half the Telecom rate. Keep talking over the allotted minutes and the costs mount up, with Vodafone charging 99 cents for any extra peak minutes.

There could also be an element of uncertainty. Customers may be unwilling to commit to a two-year contract because they're waiting to see what the next offer is going to be.

Mobile virtual network operators are starting to emerge selling services on Vodafone's network, and news that Telecom Wholesale will open up access to the XT network by mid-2010 should increase activity on that front.

In the fixed-line market, resellers are chipping in to Telecom's base, with one in six of Telecom's residential lines and one in four of its business lines wholesaled to another retailer.

Broadband competition was supposed to increase through unbundling the copper local loop.

Vodafone and Orcon were quick off the mark last year to put their equipment in Telecom's exchanges, but Telecom effectively discouraged other operators from buying unbundled lines from Chorus by offering discount prices to retailers who sourced 90 per cent of their services from Telecom Wholesale.

Earlier this month the Commerce Commission issued proceedings against Telecom alleging these "loyalty" offers are likely to have breached its obligation not to discriminate between service providers under the Telecom separation undertakings, aimed at promoting competition.

The previous month it laid charges that various Vodafone broadband and mobile phone promotions breached the Fair Trading Act.

This willingness to take the majors to court indicates telecommunications commissioner Ross Patterson, back at his desk after a long absence for personal reasons, has lost patience with their tactics.

His frustration can be seen in the commentary on the deal struck between Telecom and Vodafone by the previous government for a voluntary phased reduction in the rate charged for calls from landlines to mobile phones, rather than allowing the commission to regulate.

The effect, according to the commission, means headline prices have stayed high and calling volumes have decreased.

* adamgifford5@gmail.com