Cash versus competition

Say what you like about the mobile market in New Zealand, but competition has finally arrived and it’s been worth the wait.

With 2Degrees joining the fray, we finally have a market that’s beginning to deliver results in favour of the customers.

Roll over minutes, shared data, more realistic pricing for roaming – all of this has come as a result of 2Degrees entering the market.

Having three network operators has meant a healthy tension between parties. With one player you get ripped off. With two you get the cosy duopoly, but with three you have a natural balance that means the telcos can never sit back and relax but instead must always fight for market share.

So why has the government decided to give all that away in favour of raising a few million dollars more for the consolidated fund?

One of the key bedrock components of a mobile network is radio spectrum. If one network has a lot of it, they can jam more customers onto your network than a network that doesn’t have a lot of it.

It’s simple really – more customers or more speed or, if you’ve got enough of the stuff, both.

Currently the 4G wars are just starting out. Vodafone launched first, and Telecom has just jumped in as well. Both offer 4G services on existing spectrum, but both they and 2Degrees want to move to the holy grail of spectrum, the 700MHz range, as quickly as possible. Most of New Zealand would be considered “rural” in any other developed country and the lower the radio spectrum range, the further the signal propagates. That means 700MHz is much better for 4G than 1800MHz or 2600MHz or any of the other bands the telcos have bought.

Spectrum is sold in pairs and Vodafone and Telecom have both bought the maximum they could – 2x15MHz each. Newcomer 2Degrees has only bought 2x10MHz, which leaves 2x5MHz sitting there.

Instead of waiting till later to sell the chunk, the government has decided to allow Vodafone and Telecom to cage fight until only one is standing. And it will be a fight, because neither company can afford to allow the other one to have that advantage in the market.

Currently both have paid $66m for their chunks. Whoever wins this fight will have to pay considerably more per megahertz for the next block and that’s just stupid. That’s money that is better spent on the network itself not on a piece of paper.

Telecom has already said it would rather not fight over the remaining spectrum and supported putting it on the shelf. Vodafone, however, was happy to remain in the competition and since Vodafone has said it will bid, Telecom has kept its options open by saying it will as well, if forced to.

It means this government is quite happy with a 4G world where one player has double the spectrum of another player, with all the downside that means for the third entrant and for the customers as a whole.

Another way to look at the spectrum share is to consider the entire sub-1000MHz category. Telecom and Vodafone both have a huge chunk of the available spectrum and 2Degrees is battling along with only a fraction. This extra auction does nothing to address that imbalance, instead it exacerbates it.

It will be very difficult for 2Degrees to challenge the big two in the 4G world now. It was always going to be difficult because it’s late to the 4G party, has a smaller marketing budget and still needs to build out its network coverage. Now it has to win market share with a lesser allotment of spectrum as well.

From a competition point of view this is the worst outcome on offer.

3 replies
  1. Chris O'Connell
    Chris O'Connell says:

    The logic of the auction was based on a degree of equivalence between the operators because the incumbents have been talking up the challengers market share rather than their revenues!

    I’m worried that we’re heading for a new dominant telco! Mobile dominance, aided by the ability to offer a full quadruple play (fixed broadband, mobile, voice & pay TV) means that the market looks quite barren from a competitive point of view moving forward.

    2 Degrees need to expand their offerings and their presence to survive being ghettoised as a low cost pre-pay niche provider.

    Sadly the solution requires a more robust approach to our market structures and the regulatory regime.

    • Paul Brislen
      Paul Brislen says:

      You’d have to ask 2D that. This stuff isn’t cheap and money spent on licences has to come from somewhere. That means less money to spend on network deployment, at a time when the pressure is on to build a bigger 3G network that you can actually use today. The 700 spectrum won’t have devices until late next year so…

      Also, 2D faces the issue of getting into the landline market somehow. That’s also an expensive business.

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