Gifford on Mobile Market

February 24th, 2010 at 9:00 am by David Farrar

Adam Gifford writes in the Herald:

It’s crunch time for the mobile phone market.

Will the Government step in and create a competitive environment that benefits New Zealand customers and businesses, or will it continue to let giant foreign-owned companies set the rules that allow them to gouge the economy?

I think we can conclude Adam favours regulation.

What has become the commission’s main concern, and quite rightly so, is how on-net pricing has distorted the New Zealand market.

In some countries on-net pricing is illegal. Here it has become the incumbents’ main marketing strategy. When users pay almost nothing to text someone on the same network, and far far more to text to a competing network, is it any wonder that more than 80 per cent of mobile to mobile voice traffic and more than 90 per cent of texts are on-net?

Mazzoleni doesn’t believe the problem will be fixed by letting the two major telcos set the rules.

She says there will continue to be a barrier to competition in both the mobile to mobile and fixed landline to mobile markets as long as stay too far above the total service long run incremental cost, which is the tool the commission uses to assess price gouging.

The result of this lack of competition is that two-thirds of mobile customers pay some of the highest rates in the OECD.

And as I blogged yesterday we use our mobile phones far less than other countries, as we can’t afford to.

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23 Responses to “Gifford on Mobile Market”

  1. Pete George (23,676 comments) says:

    A couple of points on this.

    A downside of exorbitant termination rates is the number of people that have two phones, one for each network, to avoid the inter-network gouging – although this has established a habit of doing this, so it may make it easier for 2 degrees to get customers, even if many may be multi network users.

    Lowering prices and increasing phone use substantially will improve what? Many people seem to use them too much as it is, although at least talking on a phone in social situations is more obviously ignoring company than texting.

    Query – what’s the best way to ditch a barely used landline but retaining ADSL?

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  2. anonymouse (720 comments) says:

    Pete: It is called Naked DSL,

    There are a number of providers in NZ that offer it.

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  3. Falafulu Fisi (2,179 comments) says:

    Why are these fucktard socialists (Herald Reporters) are being hell-bent on lobbying the government to regulate a private company or bring it down to its knees? Telecom doesn’t owe anybody (except its owners/shareholders). It’s responsibility is to look after the interests of its owners (shareholders). Taxpayer dollars don’t go to Telecom. Customers are free to leave Telecom at any time if they’re not happy. Market is suppose to operate in this way.

    Respect the private properties of others. This is a concern of the owners/shareholders themselves and it has got nothing to do with users. The owners/shareholders know that they will get punished heavily by the market if they keep fuckingup. The government should get its fucking hands out of Telecom’s neck. Leave Telecom alone.

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  4. Pete George (23,676 comments) says:

    Are there any naked DSL plans that are worthwhile? When I last looked it seemed to be the usual confusion and price stacking to hardly make it worthwhile.

    Currently for two people we have two mobiles, a landline which is hardly used and Skype on DSL. That seems nuts, especially when our total time on mobile and landline each month would be less than an hour.

    Funny thing is I have never liked talking on mobile much, not sure why, but it’s handy to each have a mobile occasionally.

    The whole telecoms setup is designed to push you into having far more than you need.

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  5. aardvark (417 comments) says:

    And leaving the telcos to set their own termination rates “in good faith” is like leaving a pack or pitbulls to mind a kitten.

    Yeah, that’s gonna work! (NOT).

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  6. expat (4,050 comments) says:

    Fala,

    It is because the telco’s are profiteering by artificially keeping prices high by way of constructs like termination rates inside the cosy jacuzzi of NZ’s mobile duopoly.

    A decade of polite requests by the regulators has resulted in a decade of obfuscation and filibustering by the telco’s.

    Irrespective of the bitterness of TC shareholders who are experiencing the markets disapproval of their governance and management regulation is still warranted given the recalcitrance of the duopoly in removing the constructs supporting profiteering.

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  7. MT_Tinman (3,246 comments) says:

    And as I blogged yesterday we use our mobile phones far less than other countries, as we can’t afford to.

    And yet NZ seems to survive, business gets done, people get on with their daily lives in seemingly normal (well most people fashion.

    Could it be that the need for a mobile telephone and it’s constant use is simply just another manufacturer created myth?

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  8. JiveKitty (778 comments) says:

    @Falafusu Fili: For fuck’s sake, I wish people understood the distinction between statism and socialism. I don’t believe anyone has advocated for the collective ownership of property. Furthermore, if the Government were to intervene, I would hope they would be doing so because of some form of public economics argument. I’m not saying there is or isn’t here, although I suspect you probably can make one.

    With regard to your statement “Market is supposed to operate in this way”, you (apparently) fail to understand that in classical economics, market operation is premised on the greatest utility to the greatest number of people, and that the greatest utility will be given by a free market with perfect competition. (After all, what purpose would the market serve if it were not to deliver the greatest utility?) Perfect competition is an ideal type. Just because the market is supposed to operate in some way does not mean that it does nor does it mean that the way that it operates will give the greatest utility to the greatest number of people. Regulation/intervention is sometimes (but not always) necessary. This does not equate to socialism, or even statism.

    And you know what? Lobbying is the fucking price of democracy. Organisations lobby because they want something changed. It’s as simple as that.

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  9. emmess (1,432 comments) says:

    Think of the market like a sports match
    We need a referee ie regulation
    But we don’t need a team or teams of referees playing in the game ie state ownership

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  10. Falafulu Fisi (2,179 comments) says:

    JiveKitty said…
    I don’t believe anyone has advocated for the collective ownership of property.

    A legislation to dictate to telecom (a private company) of what they can or can’t do with what is theirs is an initiation of force. The very purpose of doing so, is to force telecom to surrender to the wishes of others (non-owners) as somehow its users of its services are the owners of Telecom. Telecom don’t hold a gun to its customers. In fact the customers are the ones that have the (market) power to dictate to Telecom. If they to leave in massive numbers to join competitors of Telecom, then Telecom is the one suffering the consequences of its fuckups.

    JiveKitty said…
    …you (apparently) fail to understand that in classical economics, market operation is premised on the greatest utility to the greatest number of people, and that the greatest utility will be given by a free market with perfect competition.

    Yes, I don’t follow classical economics (ie, neo-classical) because it is bullshit, ie premises of it formulations are false. Now, if you’re an economist, then I strongly advise that you should update your knowledge with modern economic theories, because it is people like you that give the population a bad name of your profession because of advise to your clients based on bullshit neo-classical stuff that you cling to tightly. Here is some good read for you if you want to see what I mean. PDF of Paper #1 (pre-print) is freely available for download. Paper #2 (full-article) can be bought from the publisher’s website, but if you’re interested, then I can send a copy to David Farrar so that you can get it from him or otherwise, you can email the author directly and request a free copy yourself and that’s what I did. Paper #2 will tell you why utility maximization is wrong.

    #1) Response to “Worrying Trends in Econophysics” appeared in Journal of Physica A: Statistical and Theoretical Physics Volume 371, Issue 2, 15 November 2006, Pages 601-609

    #2) Economic uncertainty and econophysics, appeared in Journal of Physica A: Statistical Mechanics and its Applications
    Volume 388, Issue 20, 15 October 2009, Pages 4415-4423

    JiveKitty said…
    Organisations lobby because they want something changed. It’s as simple as that.

    Yes, that is democracy, but lobbying in order to coerce an owner of a property (private) is called mob rule. I participated in the 2006 protest march along Queen St against Electoral Finance Act. This march was not to lobby to nationalize someone’s property but to repeal this stupid legislation. That’s democracy, isn’t it? Lobby is fine as long as you don’t tread on someone’s right. Do you see the difference?

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  11. JiveKitty (778 comments) says:

    @Falafulu Fisi: read more closely what I have said.

    My first problem was with your misuse of the concept of socialism to smear somebody you disagree with. They may be socialists. I don’t know, but what they are advocating in this case is not socialist, so your smear is redundant. It could be considered statist but again, it comes down to the intent as to why they are advocating this. It seems that they are advocating this not because they believe government is the best way to organise the economy in all cases, but because there are serious utility problems here and the market is failing to deliver upon its purpose. Where such failures occur, the government can, if the failure is big enough, intervene. (Failures must be large as intervention will be distortionary). Sometimes the market needs new legislation/to be regulated in order that the market tends further towards maximum utility.

    Secondly, with regard to the use of force by the government, any legislation/regulation is an initiation of force. Your point is irrelevant if that is the reason for opposing such legislation/regulation, unless you oppose all such legislation/regulation.

    Thirdly, I have cited classical economics as failing to guarantee maximum or even a high level of utility, and regulation where increasing utility to be good. So I am not a proponent of classical economics (which would deny such government intervention). Read my points more closely next time.

    Finally, the lobbying in this case is not to nationalise property but to legislate/regulate in order that the market is closer to an optimal outcome. This is not a case of mob rule. Furthermore, the hypothetical case you cite is not an example of mob rule, as you have not suggested acquiescence to the mob. If there is not acquiescence to the mob then it is not mob rule, is it? Do you see the difference? People have the right to lobby for whatever they want. It only becomes mob rule if the mob is acquiesced to. Also worth noting is that government is for all within the state, now and in the future. A government’s role is to balance its monopoly on coercive power with individual rights. If a government policy will increase the utility of all within its borders now and within the future then it should be made.

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  12. Falafulu Fisi (2,179 comments) says:

    JiveKitty said…
    My first problem was with your misuse of the concept of socialism to smear somebody you disagree with.

    No, sorry, but anyone (economist, lobbyist, enthusiast, etc..) who is pro-government interventionist in the economy/market is a socialist, so my labelling was correct and not a smear.

    JiveKitty said…
    Sometimes the market needs new legislation/to be regulated in order that the market tends further towards maximum utility.

    Market interference huh? You’re talking Keynesian here. Correct me if I am wrong here, was he a socialist economist or not?

    JiveKitty said…
    Finally, the lobbying in this case is not to nationalise property but to legislate/regulate in order that the market is closer to an optimal outcome.

    Again, that’s not the function of the government to establish or engineer a near market equilibrium (optimal outcome). Market is supposed to be left alone and self-emergence & self-organization dynamics will arise (Hayek’s view). All adaptive dynamical systems behave in this manner which is universal, from climate system, economic system, particle physics, population biology, cellular biology dynamics, and so forth (and this is an established fact). The job of the government is to protect the rights of the participants (& their properties) in the market/economy and not to curb or violate them. Legislating against Telecom for their rights to conduct its business of how they see fit, is a (umm) violation of Telecom’s rights to its own properties.

    JiveKitty said…
    A government’s role is to balance its monopoly on coercive power with individual rights.

    No, wrong. The primary role of the government is not to nanny but to uphold and protect the rights of its citizens (i.e., judiciary and defence). Its role is not to interfere in the market/economy or nanny its citizens. President Reagan, once quoted: A government’s role is to balance its monopoly on coercive power with individual rights and he was right. Socialists always look to the government for solutions and I can see that you hold this view.

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  13. Falafulu Fisi (2,179 comments) says:

    The correct Reagan’s quote was: Government is not a solution to our problem, government is the problem.

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  14. expat (4,050 comments) says:

    Quoting Reagan probably doesn’t help your argument, what with him and Clint Eastwood sharing the “NRA ‘bomb the commies and ragheads back into the stone age’ Redneck of the 20thC” award.

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  15. gazzmaniac (2,307 comments) says:

    What’s the problem with call pricing in New Zealand? On 2degrees it costs 22c/min to call that network and landlines and 44c per minute to call other mobile networks. That is on prepay, and it is cheaper than prepay on the Telstra network in Australia (last time I checked it was A49c/min). If you don’t make many calls (like me) it is cheaper to have a prepay cellphone (I use prepay Telstra, and have a 2degrees mobile for when in NZ) than to have a landline, due to the excessive line rental for landline.

    Pete George – three weeks ago I would have suggested using the XT network for your internet then ditch the landline altogether. Might pay to wait a few months before you do that; however I have no landline in Aussie and am entirely reliant on the Telstra 3g network. I might add that I have been using the XT network quite successfully in Westport over the last few weeks for internet, and can’t say I have noticed any serious interruptions.

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  16. Pete George (23,676 comments) says:

    Thanks gazz, but after a bit of searching I found the coverage map which shows “limited” to no coverage for me. Normal cellphone is marginal so not surprising, only 5 km from central city but in a bit of a signal shadow.

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  17. expat (4,050 comments) says:

    Gaz,

    Isn’t the 2degrees pricing model refreshing?

    I’ve recently returned to NZ & have a spreadsheet (raises hand and admits terminal geekiness) of call plans and pricing models for the three main players (TC, VF and 2degrees). Both VF and TC are guilty of pricing by stealth almost to the point of dishonesty – and both are more expensive for casual users than 2degrees. The underhand 2 year deals are however the most concerning feature of the mobile marketing strategies at the moment but what it does show is a nascent fear of what is going to happen to their marke share once 2degrees launches 3G.

    Like you I have been using XT for data quite successfully, besides their diabolical record on consistency which counts against them.

    So how do the three players stack up in my mind:

    Prepay casual voice and text user: Winner 2 degrees
    Network consistency: Winner Vodafone
    Data network speed: Winner XT (when its running).
    Fork tongued price plans: Winner Vodafone.
    Annoying ads: Winner Telecom
    Toothless regulator award: Gummy Joyce

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  18. JiveKitty (778 comments) says:

    @Falafulu Fisi:

    “No, sorry, but anyone (economist, lobbyist, enthusiast, etc..) who is pro-government interventionist in the economy/market is a socialist, so my labelling was correct and not a smear.”

    I’ll give you a basic and broad definition of socialism from Heywood: “an ideology characterized by a belief in community, cooperation, equality and common ownership; socialist theories range from communism to social democracy.” This is an uncontroversial definition. Intervention doesn’t come into it except as a part of ownership.

    As I’ve said, you could infer statism (“the belief that the state is the most appropriate means of resolving problems and guaranteeing economic and social development”) easier here, but the implication of the definition is that this belief applies in all situations. It is unlikely Adam Gifford would suggest this, given he uses a more public economics based argument to justify intervention. He doesn’t say “Government is the best solution to all economic problems so it is logical the government intervene here” or words to that effect. He basically says “The market has failed, and where the market fails the government should step in.” This suggests he is neither a socialist nor a statist.

    As for me, I am not sure (as I said above) that interference would be the correct move to make here as the failure may not be large enough, particularly given the moves towards dropping prices (brought about not by the market I should note but by the fear of regulation) over the next few years. My problem is not that you would criticise a move to regulate, but that you would assert that the motivations for doing so are inherently socialist. This is patently not the case, and a gross simplification of motivations to regulate.

    “The job of the government is to protect the rights of the participants (& their properties) in the market/economy and not to curb or violate them.”

    What is the purpose of such protection?

    Logically, it is to maximise utility. If it is not, then it is not the correct action. Furthermore, if government intervention is necessary to facilitate this, why would it not be necessary to better facilitate other processes in some cases? The line you draw is inherently arbitrary.

    Re: adaptive systems. Government is part of the system. An adaption could be regulation to get a better outcome.

    “Socialists ALWAYS LOOK to the government for solutions and I can see that you hold this view.” (My emphases on “always look”.)

    I have already stated above that Government intervention is not necessary in all cases. I guess I’m not a socialist then, huh? I will state for the record that I am not a socialist. I dislike ideological adherence. Situations call for different responses, and if one limits the available responses based on ideology, they may not end up with the best solution. My beliefs even change over time, in response to new information.

    Case in point would be Reagan. I would not quote the man as gospel, despite agreeing with parts of the policies he promoted, as because of his rigid adherence to ideology he contributed to some big problems, for example, the Savings and Loan Crisis. Hell, I wouldn’t quote any US President on government and the economy, given their hypocrisy in continuing to prop up inefficient industries (subsidies, bailouts, etc).

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  19. lastmanstanding (1,300 comments) says:

    IMHO the problem with telcos was highlightes by the famous Gattung utterance Many a true word spoken in jest.

    Remember the confusion marketing line.

    That only served to confirm a perception for many that telcos were gouging and rorting the customers.

    Again IMHO any organisation that fails to meet or better exceed its customers expectation will find no sympathy in the 21st Century.

    After all these organsiations have spent billions ion telling us FIGJAM

    Well If you cant live up to yout own hype then tough cheese.

    As a total confessed confused telco customer I still cant figure out why I cant get a signal a few kms north east of Warkworth with the new gizmo Nokia connected to Vodafone when my 6 year old Sharp handed down to she who must be obeyed and also connected to Vodafone works fine in the same location.

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  20. expat (4,050 comments) says:

    lastmanstanding, you may be able to switch it to 2G only which will solve your ph and txt problems, won’t help if you want to use the last 850 dollars worth of nokia gizmo-ness for interweb stuff.

    suggest you get a cheap 2G phone, they work better and batteries last longer.

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  21. lastmanstanding (1,300 comments) says:

    Thanks expat Sooooo the mosty expensive phone doesnt always provide the best reception.

    Ahhhh yet more confusion marketing!!!!!!

    I think Ill stick to using SWMBO old Sharp Thats as long as she has it charged and or has the bloody recharger with her.

    So thats why the neighbours have all got the same problem as we have all changed over to the new supa dupa technology then

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  22. expat (4,050 comments) says:

    yeah, the 3G network reduces in coverage size as more load is applied, the 2G network is more stable in that regard.

    i still have a 10 year old ericsson T39m that is a bit of a dinoaur but lives on as a second phone.

    check out your phone manual you may be able to turn off 3G and that may fix your problems

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  23. gazzmaniac (2,307 comments) says:

    In Aussie I have a 3g LG phone that was “blue ticked” (ie suitable for use where there is limited coverage) and it works great. I have no idea whether it will work here though. For the record there is no use switching to GSM on the Telstra network as its 3g network has far more coverage. Many of the other players switch to the Telstra GSM network when outside the main cities, so if you’re travelling regionally in Aussie stick to Telstra.

    BTW phones are so expensive in NZ – the Nokia 6120 is a basic model phone in Oz (under $100 – it’s quad band so I don’t see why the aussie device wouldn’t work on XT; I haven’t tried it as I am using it for 2degrees) however it’s about $320 from the telecom shop here. Something not right?

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