Is our telecommunications industry really competitive?

 One of the
main goals of TUANZ is to encourage competition in the market place. Why?
Because more competition means more choice, a better range of products and
services and better prices.

So how do we
measure competition? The Commerce Commission measures it by looking at the
number of customers each provider has.

That’s OK
but doesn’t really tell the whole story. Better to look at the revenue share
each company has to determine just how the market is shaking out.

In mobile,
that means we have two giants (Vodafone and Telecom) and a minnow (2Degrees)
and a raft of also ran virtual operators that have a minute market share.

In landline
broadband, that means we have two giants (Vodafone and Telecom) a small number
of minnows (Orcon, CallPlus and Snap) and then the rest, mostly niche players
and resellers of service.

IDC Research
has released its annual telco report (oddly not available online in any form
that I can find) which shows a flat to slightly declining market across the
board with no sign of relief for many years to come.

In addition,
despite increased demand for broadband services, revenue shrank slightly and
looks set to continue on that path for some time.

In the
mobile space there’s little better news for telcos. Telecom’s shut down of the
CDMA network, says IDC, means it is now the third place mobile operator by
number of customers, but still number two in terms of revenue.

Yet the
telco market is as vibrant as we’ve seen in many years. Multiple players,
differentiation, all the things that appeal to a wider range of customers and
prices to match.

So is the
market working or isn’t it?

In mobile we
are starting to see competition at its finest. Infrastructure-based competition
is the best we, as customers, can ask for and we have two national networks and
a third on the way.

What’s
important in this space is that we make sure we continue to have three viable
networks, which is why the idea that the government can settle for only two
players in the 700MHz auction is unacceptable to us. We need three or we settle
back into a cosy duopoly with all that entails.

Currently
the mobile market isn’t working quite as well as we’d like. New entrant
2Degrees is still fighting for revenue market share and the dominant players are
learning to respond more rapidly to the changing nature of the market. The new
$19 price point is a great example of this – unthinkable a few years ago and
now hotly contested.

In the
fixed-line market we really do see very little differentiation between ISPs.
Certainly there is some – mostly relating to the thorny issue of content
provision – but for the most part we have monthly plans with an “all your line
can handle” speed and a relatively low data cap. You can find some competition
at a structural level with Vodafone’s recently purchased cable network and from
the fixed-wireless providers and unbundlers, but for the most part it’s any
colour you like so long as it’s black.

That’s only
going to get worse as we move to the UFB, where all inputs are more or less
identical, unless the retail service providers recognise the problem and go out
of their way to shake things up.

As we’ve
said before, telcos spend a huge amount of money on central city offices, on
marketing teams and sales managers and on retail outlets. You’d think they were
selling high-end cars, yet their business model will shortly be closer to that
of the electricity companies and their business costs should move in that
direction as well.

The trick for
customers will be to shop around. I know that sounds easy but the inertia that
we see all too often in the market is an ugly and pervasive thing.

Don’t just
settle for what’s familiar, really consider your needs and what you want from a
telco and see what else there is in the market.

We need to
support and encourage those players that are dynamic, that are offering new and
interesting choices and are really trying to win our business. They tend to be
the smaller players (they’re far more willing to try something new in this industry)
and oddly, they’re the very ones that are most at risk from the copper tax.
They’ve invested in new technology, they’ve tried to shake things up and now
they’re facing increased input costs at a time when they’re yet to reap the
rewards of increased revenue.

Without them
in the industry we’ll all be worse off.

4 replies
  1. Paul W
    Paul W says:

    Reg said "Comparisons between telco and power are difficult to make" That’s true but in the telco market there is true competition where as in the power industry it’s all smoke and mirrors and mostly owned by the government. The power operators seem to be able to increase price every few months with no oversite. If the telcos tried it I’m sure that the Com Com would have something to say about it..

  2. Reg
    Reg says:

    Comparisons between telco and power are difficult to make – but there are some In the electricity sector there has been an increase in competition at the retail level for many of us. In that regard It would be interesting to see the 27% referred to broken down between wholesale costs and retail costs.
    In the telco sector there has also been an increase in competition at the retail level – 2 degrees in mobile and unbundlers in the fixed line business. At the wholesale level there has been some slight increase in telco competition. 2 degrees has some mobile infrastructure but will continue to pay Vodafone for co-location and roaming in many areas. The UFB participants will start to compete with Chorus at the fibre end of the fixed line business in their selected areas. But for the vast majority of us Chorus will continue to be the monopoly fixed copper wholesaler and the fibre wholesaler. As in electricity the ability of telco retailers to innovate and reduce costs and provide better services to end users is constrained by the inputs they have to purchase from the wholesaler. That is why monopoly providers wholesale prices / services are regulated and why they should continue to be regulated on a cost basis related to the cost of the service they provide – not some arbitrary cost that is dreamed up to subsidise one service at the expense of another service.

    Reg

    • Paul Brislen
      Paul Brislen says:

      Hi Reg, I couldn’t agree more about the regulation of monopolies (or near monopolies). It’s imperative such pricing be cost-based and heavily monitored. Unfortunately we seem to be moving away from that to a lassez-fair approach that allows monopolists to pick their own price.

  3. Matt
    Matt says:

    Yeah, Telco is not where you want to be if you want to make money….funny thing is the spotlight is always firmly on the telcos…yet the power companies can bump their prices up multiple times each year (up 27% over the last four years) and nobody bats an eyelid. Why is that? My power bill is considerably higher than my telco bill, I’d like to see some decline on that front

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