2 Degrees responds to Vodafone

April 27th, 2010 at 10:00 am by David Farrar

I carried last week a guest post from Hayden Glass of on the issue of and Vodafone’s new calling plan.

As I predicted, Vodafone’s move was an own goal, and Steven Joyce has announced:

Communications and Information Technology Minister Steven Joyce has asked the Commerce Commission to reconsider its recommendation on mobile termination access services.

Last time the Commission split 2:1 in favour of commercial undertakings over regulation. Will this tilt the balance towards regulation.

In a fit of good timing, Chief Operating Officer Bill McCabe has sent in this guest post responding to Vodafone.

Kia Ora Hayden,

Thanks for your kind words about 2degrees’ success so far. We put it down to the great value that 2degrees offers when compared to the Vodafone and Telecom charges.

People who move to 2degrees tend to either save a lot of money, or get far more for their money so it’s not surprising that over 200,000 people have joined us. It’s also good to hear Vodafone respond to 2degrees’ lead and start to acknowledge the value of talking.

What I find deeply concerning though is that your article tries to explain MTRs and in many places states as fact information that is plainly wrong and risks misleading consumers and Kiwiblog readers.

I tend to let Vodafone’s spin merchants get away with all sorts of exaggerations – most of which are picked up by the more inquisitive and informed Kiwiblog community, but the scale of the misleading information that you have provided here demands a challenge and that we set the record straight.

First, the UK average MTR is 4.3 pence per minute. That’s 9.2 New Zealand cents. As you well know, virtually all countries except New Zealand charge MTRs on a second plus second basis. The 14.4c that you mention equates to 17.7 NZ cents when adjusted for per second billing (according to the Commission) and should be the figure used for comparative purposes. So, perhaps you could explain how 17.7c is less than the UK rate of 9.2c?

Secondly, it won’t have escaped your attention that Ofcom, the UK regulator has conducted a review of MTRs and proposed that rates drop considerably to 2.5 pence next year and 0.5 pence in 2014 largely to avoid the competitive distortions that favour large mobile operators under the current UK rates. That’s also relevant to your comparison with the UK.

Third, the rates recommended by the Commission are not ‘just under 10c’ from October, but 12c. And not ‘just over 8c from 1 January’ but 10c. Now, exaggerating by around 20% is not hugely significant given the disparity between the undertakings and the UK regulator’s assessment that rates should be so much lower but it does seem that Vodafone are misleading Kiwiblog readers unnecessarily here.

Forth, Text message prices. Complex it is, zero rate MTRs it ain’t. You say that the undertakings ‘cut text prices to zero’ but fail to point out that the rate is only zero for the network that is a net receiver of text messages and is 4c for net senders unless traffic is less than 12% out of balance. So, the price is zero if an operator is a net receiver of text messages and that operator can send incremental text messages at no cost, but an operator that is a net sender of text messages can quite quickly be paying 4c for all incremental messages. I know it’s complex but that’s the Vodafone and Telecom proposal so you should be familiar with it. We advocated real zero rate termination rates but you came up with this very odd construct.

Fifth, you complain that you have to pay 2degrees several times your retail price for text messages but fail to point out that 2degrees has tried to bring wholesale text message rates to zero – that’s the real zero, not the 4c zero that you are trying to portray, for a long time. Are you now saying Vodafone supports Bill and Keep?

It’s very interesting that Vodafone takes one position when protecting a dominant position – as is the case in the majority of Vodafone’s territories, but where it tries to enter new markets it argues for low MTRs. I’ll jog your memory if you like. Here in New Zealand Vodafone argued for zero rate termination in the local calling market in 2006 and asked for (and received) regulation to prevent Telecom from charging its customers more to call a Vodafone number than a Telecom number arguing that without this competition would be ‘hobbled’ before it could commence. Overseas, Vodafone’s most recent ‘new entrant’ mobile investment has been in Qatar where again it argued for Bill & Keep. 2degrees’ success in New Zealand is eclipsed by Vodafone’s success in the Qatari market – well done, you did a good job of arguing for a pro-competitive regulatory environment there.

Bill McCabe
Chief Operating Officer
2degrees

Great to be getting both sides of the debate. A very robust response. Vodafone have responded to a similar post at Geekzone, so the debate continues.

Tags: , ,

25 Responses to “2 Degrees responds to Vodafone”

  1. krazykiwi (9,189 comments) says:

    That is an outstanding rebuttal from Bill McCabe

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  2. jinpy (237 comments) says:

    I don’t understand this latest issue. It seemed to me that people were complaining about Vodafone offering lower prices. Isn’t that what we want… Can any one explain this issue in basic lingo?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  3. kaya (1,360 comments) says:

    I must invite those two round for dinner one night to discuss this further – not…….! Basically we are getting ripped off with our mobile rates.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  4. lastmanstanding (1,278 comments) says:

    And yet more evidence that much and all as we of the Far Right Wing hate government intervention when it comes to monopolies or near monopolies we need our governments to protect us from the rape pillage and burninginflicted on the good citizens by these telco parasites.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  5. Monty (974 comments) says:

    Excellent response by 2degrees. I know Stephen Joyce will be reading this. I am pleased it looks like he is growing some balls (by asking the Commerce Commission to reconsider their decision). I hope that he now listens to the arguments and regulate (because Vodafone and Telecom are abusing monopoly positions).

    Jinpy – Vodafone are offering $12 per month calls to only their customers – 2degrees and Telecom cannot call into Vodafone network at that rate – ie the retail rate for Vodafone customers is cheaper than the wholesale rate of terminating the call. This is an ant-competitive practice and perfectly illustrates and proves that Vodafone (and Telecom do the same) are abusing their monopoly positions and essentially preventing 2degrees becoming competitive in the marketplace.

    As Bill McCabe also points out – where it suits Vodafone internationally, they do in fact argue for nil termination rates – proving themselves to be hypocrites.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  6. krazykiwi (9,189 comments) says:

    @jinpy – Lower user pricing combined with high mobile termination rates advantages the incumbent and massively disadvantages a new entrant. (Mobile termination charges are what Vodafone pays to Telecom when I use my Vodafone mobile to call a Telecom number, what 2Degrees pays to Vodafone when you use your 2Degrees mobile to call a Vodafone number etc)

    Incumbents often respond to new entrants with lower prices to try to starve the new entrants of new customers and revenue. Airlines are good examples of this behaviour. However, there aren’t many industries where a big chunk of the cost side of the business is at the mercy of the competition. This is the case in Telco-land, because mobile termination rates are agreed between carriers, and at the moment neither Telecom nor Vodafone will be overly keen on seeing these drop as it would help 2Degrees gain market share.

    So the big carriers are quite happy to drive their end user charges down temporarily in an attempt to starve 2Degrees. If 2Degrees were to succumb, then it’s pretty clear what would happen to end user charges: Look skyward.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  7. MikeNZ (3,234 comments) says:

    So Mr Voda Phone and Mr Telecom,
    why can’t we have 0c rates between all suppliers so that all call costs are the same between networks?
    Why can’t we have a phone no and migrate it across networks at our choice forever?

    Do we have to make this an election issue for National, for if they can’t get this right why should we expect them to get anything else done?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  8. Fletch (6,240 comments) says:

    What is funny is that 2Degrees phone reception is only strong in a few main centers (Auckland, Wellington, etc) and for other parts of the country it defaults back to the Vodafone network. I guess they have some kind of deal with them. My brother discovered this when he bought a new 2Degrees SIM card and when he got home the network I.D said ‘Vodafone’. He had to do a Google for ages to find out that 2° is only strong in a few main centers and that they use the Vodafone network in other places.

    Of course, the calling rates etc will still be 2°, but if VF suddenly decided they didn’t want 2° using their network, I don’t know where 2° would be.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  9. Monty (974 comments) says:

    MikeNZ – you show your ignorance
    There is no problem with different rates for different plans – the problem is the termination rates keeping the new entrants out (abuse of monopoly position)
    You can retain you same number no matter what network you are on. Many people on 021 or 027 have done this. It is called number transferrability

    This will not become an election issue because we are 18 months out from an election and most people do not understand the issues involved. If Joyce makes the right decision it will of course be a help – but never an election winner.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  10. ben (2,418 comments) says:

    Communications and Information Technology Minister Steven Joyce has asked the Commerce Commission to reconsider its recommendation on mobile termination access services.

    This is ludicrous. What does mobile termination rates of 12 cents have to do with a 90 cent retail price for off-net calling that sparked all this? About nothing I would say. Does the minister really think Vodafone is setting those prices because of termination, and these differentials will magically disappear if another few cents will come off mobile termination rates?

    And, again, why is the Minister stepping in here? His job is to protect competition, not competitors.

    How the fuck is New Zealand ever going to get anywhere when mob rule prevails and companies can be regulated on the whim of the minister and based on such plainly faulty reasoning?

    [DPF: Easy. Without MTRs, new competitors will be able to profitably offer off net rates of under 40c, and compeition will force down off net rates]

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  11. ben (2,418 comments) says:

    Monty

    There is no problem with different rates for different plans – the problem is the termination rates keeping the new entrants out (abuse of monopoly position)

    Monty – I don’t want to argue with you on your second point, but your first point is correct. There is no problem with different rates for different plans. But that is exactly what has sparked Joyce’s interest here. It is plainly illogical to take issue with retail prices and respond with regulation of wholesale, when the two are just about unrelated. We should not expect a small reduction in MTR to translate to large reductions in retail prices.

    Joyce is out of control.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  12. expat (4,048 comments) says:

    Ben, yes, I agree with you! It is mob rule. The Telco Mafioso.

    Joyce is being very measured. It is VF that is out of control, clearly evidenced by their arrogant anti-competitive behaviour.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  13. JiveKitty (869 comments) says:

    @lastmanstanding: Perhaps some on the “far right” consider government intervention acceptable if the market failure is significant enough?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  14. ben (2,418 comments) says:

    Spoken like a true mob leader, expat. Well done. Yes in a country of four million spread over two large rocky islands with some of the most over the top resource consent laws outside of Europe, these telcos have dared to set prices around 20% higher than their US and European counterparts, and – god forbid – priced some of their on-net calls too low.

    Oh the humanity.

    And now at the behest of said mob, an ambitious Minister will wave his hand and wield his nearly unlimited powers to cite one problem and regulate another.

    I’m sure New Zealand will have no problem at all in attracting all the billions of new investment required in the coming years to get 4G in such a business friendly environment.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  15. expat (4,048 comments) says:

    >>I’m sure New Zealand will have no problem at all in attracting all the billions of new investment required in the coming years to get 4G in such a business friendly environment.

    Not from any new players if VF and TC have their way, correct.

    And that’s why, I imagine, the Minister is concerned about the anti-competitive behaviour of the incumbent duopoly.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  16. JiveKitty (869 comments) says:

    Much higher than the competitive prices? Priced too low in order that new competitors can’t enter and compete – i.e. artificial barriers to entry brought about by exploiting present market power? Leading to significant market failures?

    Consider the purpose of the market: to facilitate the flow of goods and services. But why through the market instead of elsewhere? Because it offers the maximal benefit to all society. If the market does not offer maximal benefit to all society because of significant failure, why should society not do something that gets it closer?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  17. ben (2,418 comments) says:

    Well I think anybody who seriously charges that a company is simultaneously charging prices too high and too low in the same market doesn’t have a working theory of anything. Half the people here are throwing about terms like monopoly in a market with three players! Duh.

    And that’s why, I imagine, the Minister is concerned about the anti-competitive behaviour of the incumbent duopoly.

    Duh again. Three players. More if you count resellers.

    What other than competition inspires Vodafone to set such low on-net prices on one of its call plans? Some monopoly.

    Not from any new players if VF and TC have their way, correct.

    That is obviously total bullshit. These alleged monopolists (LOL) managed to build AMPs, D-AMPs, GSM, CDMA and now the XT networks without the benefit of government stepping in, for entirely commercial purposes, and to the great benefit of New Zealand. So – what – now it’s different? Please explain.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  18. jinpy (237 comments) says:

    @KrazyKiwi,

    Thanks for that — I get it, pretty cheeky behavior and ultimately designed to kick out competition. No surprises I guess…

    Ben, monopoly and oligopoly are pretty much the same thing eh with such a few number of players, its being used as a concept rather than a formal definition I think…

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  19. expat (4,048 comments) says:

    >>>Not from any new players if VF and TC have their way, correct.

    >>That is obviously total bullshit.

    Please, explain the obvious bullshit in its totality.

    VF and TC do not want competition because it erodes their market share and duopoly pricing power. They are quite happy to hinder and kill new entrants thereby stopping potential investment by new entrants in a 4G network.

    So far you’ve been the one blustering and bullshitting, matey potatey.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  20. expat (4,048 comments) says:

    Word Count: Monopoly or derivation .10 (excluding this post)

    Posters arguments. 6
    Ben. 3
    Posters reply to Ben. 1

    Highest use in one post. Ben. 3

    LOL.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  21. GJ (329 comments) says:

    As one who runs both vodafone and 2 degrees I have to say that the quality of calls and the zero to date dropped calls I have experienced with 2 degrees gives me a lot of confidence in them.
    Whenever I travel on the Auckland motorway system and have to make an important call I will use 2 degrees.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  22. ben (2,418 comments) says:

    Ben, monopoly and oligopoly are pretty much the same thing eh with such a few number of players, its being used as a concept rather than a formal definition I think…

    There are three companies in the market and they obviously compete. Monopoly is the wrong word both in definition and concept. I would like to know how the mob is divining what prices should be. Being angry because reality differs from some personal ideal isn’t a reason to regulate and take.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  23. ben (2,418 comments) says:

    expat, you are right: no company likes competition, we can agree on that. Less competition raises profits.

    What is the primary effect of regulating what companies can charge? It is to lower returns, limit entry, and thus reduce competition.

    Telstra Clear explicitly linked their decision to stop rolling out their cable in Christchurch to the new opportunity to lobby government to regulate access to Telecom’s network in 2002. Those regulated wholesale prices may have created competition for Telecom’s copper network, but it destroyed the far more important competition between technologies. New Zealand is poorer for that regulation.

    Because regulation lowers returns to investment, we will get less of it. New Zealand may have to wait longer for a 4G network, for example, because the threat of regulation and of regulated access to competitors’ infrastructure undermines the case for investment.

    We both want the same thing: up to date access to technology at the lowest possible price. Where we differ is in the long run effect of the regulation Joyce and the mob is cheering for, and in philosophical respect for property rights for everyone, even shareholders. I believe that regulating things is a short run game. Sure, your mobile prices go down now and everyone’s happy. But if the cost of that is delayed access to smarter technology – that trade off has to be made clear. That trade off is missing, and it is important. There has to be a business case for new investment for it to happen – if Joyce interferes too much he will kill the goose laying the golden eggs. That matters. What he is doing now does not make sense, but in NZ he can do it with near impunity. Investors notice those things. New Zealand is already so far behind the world on so many dimensions, and this directly threatens to put us even further back. A few cents a minute of mobile phone calls is not worth it IMO.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  24. Anthony (789 comments) says:

    Ben if the costs in NZ for mobile operators are so high how is it that Vodafone can offer calls to its own customers at 6 cents a minute. You and them can’t have it both ways – costs are high so termination rates have to be high – well the termination costs to themselves should be just as high!

    Regulation of monopolies is done everywhere in the world – this is nothing radical or socialist. Get a grip!

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  25. jinpy (237 comments) says:

    I thought Ben’s arguments were well put and am interested by the idea that government regulation may lead to a reluctance to invest in smarter technology. We should acknowledge too that the current technology we have was set-up by the same companies. But from the other side, its obvious these companies are not going to benevolently just cover costs and are going to try to maximize their profits, and being until recently a duopoly, have a lot of power in doing so.

    I don’t understand the ins and outs but have a few points from the humble consumer:
    — phone calls and texts cost me more than gas and power and I barely use my phone — I actively avoid ringing people when possible.

    — In the basic way I use my phone I haven’t noticed amazing technology improvements in the last 10-15 years — my phone still cuts out, I’m often in areas where I have no coverage. And I don’t use it any more than I did previously because of cost. Are these companies really optimizing their technologies for our benefit?

    — The most obvious focus of these companies from my perspective is marketing and price obfuscation.

    — Why couldn’t a private/public partnership do the job adequately — is the technology really that hi-tech anymore, or could we have a basic state run service and let the companies do what they want. Kids are programming robots now, is network/telecoms technology actually that hard?

    I’m tired of this market solves everything, hallelujah! attitutide. Economic theory is not set in stone, and there are no reasons why creative new ideas can’t overrule previous doctrine. Large companies possess considerable power and they have one motive, which they often pursue cynically rather than for public good. We need to have some form of regulation to combat this power.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote

Leave a Reply

You must be logged in to post a comment.