Tuesday, May 09, 2006

Watch out Vodafone you're next...


Following on from unbundling Telecom’s local loop, the NZ Herald reports Helen Clark has announced that the “rules of the game” for mobile telephony have to change. The government has already changed the regulatory environment, purportedly to allow competition, by requiring Telecom and Vodafone to allowing roaming across their networks for customers of any new operator that builds a network with at least 5% coverage of the population.
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It did this after the Telecommunications Bill had been through Select Committee, because its mates who it sold spectrum to at a discount (Maori company, Hautaki Ltd, which got a discount to quieten a ridiculous treaty claim for mobile phone spectrum) partnered up with Econet wireless (a Zimbabwean cellphone company – not affiliated with Mugabe) and argued they couldn’t build a mobile phone network that provided nationwide coverage economically.
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Econet was set to start a pilot cellphone network in April, but nothing has been seen. Every year it promises something soon and doesn’t deliver.
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So you see, the government has already given new mobile entrants access to the encumbent’s networks, but that probably wont be good enough. Clark is concerned that there hasn’t been much resale of the mobile phone networks (although Telstra Clear has a resale deal with Vodafone that matched it selling Vodafone its GSM spectrum), that co-siting of cellphone transmitters has not happened and new entrants are “unable” to use their competitors’ property.
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Funny that, it is called property. When I build something I own it, and I will decide what I do with it.
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So who is this big mean company that Helen is talking about?
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Let me talk about a company that in 1998 bought the mobile phone business of BellSouth New Zealand. BellSouth started by buying the radio spectrum in an open tender for a GSM cellular network in 1990, as did Telstra (which subsequently sold its network to Vodafone). From 1993 till 1998 it built a mobile phone network from scratch, while Telecom had a monopoly on mobile phone services. By 1998, BellSouth had taken about 20% share of that business and had not marketed text messaging. From 1998 Vodafone invested $2 billion in developing its cellular network and roughly doubled the number of cellsites that BellSouth had installed.
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When BellSouth ran the business, it moaned to the Minister regularly, claiming it needed number portability and for interconnection with Telecom to be regulated. Vodafone took a different approach – it built its network so it would be reliable and provide good coverage, it started selling text messaging (Telecom ultimately had to build text messaging into its CDMA network to enable it to compete) and prepay mobile. In other words, it grew the market and didn’t moan about its competitor. As a result, cellphone penetration in New Zealand soared to reach the levels of most other OECD countries.
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As much as the left moans about Telecom’s privatisation seeing its profits go offshore, Vodafone brought capital onshore. $2 billion that the state was never going to put in, and Telecom ultimately had to respond – and reduced its prices, developed a new digital network to phase out its two older networks. Telecom built the first 3G mobile network and Vodafone has followed. There is competition in mobile services.
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So are mobile phone prices in New Zealand more expensive than elsewhere? In some cases, yes they are. Why? Well, for starters there are less customers so less competition, far easier to build six mobile networks in the UK than in NZ. That competitive pressure is unlikely to happen in NZ. Secondly, councils have used the RMA to make it much harder to install new cellsite – although Telecom and Vodafone do continue to expand slowly. Some of this is driven by Green hysteria about the health effects of cellphone towers (which are nonsense – nobody asks for radio station transmitter masts to be pulled down and they have operated for over half a century). Overseas, there has also been an enormous writedown of investments in mobile telephony, as major operators spent a fortune acquiring 3G mobile spectrum from governments. The networks they are left with are priced cheaply to attract customers and because they are now substantially devalued.
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There could be a third mobile network in NZ and I do not mean Econet. Econet should sell up and let someone who wants to invest in a proper network get on with it. TelstraClear could still do it, but it is a moocher if ever there was one. So the arguments about natural monopoly do not exist, there is an ability to enter the market for mobile telephony. The government should stop talking about incentives that stop the construction of a new network.

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