Mobile Termination Rate regulation recommended
June 17th, 2010 at 10:29 am by David FarrarThe Herald reports:
The Commerce Commission has formally recommended that mobile termination rates be regulated to promote better competition in the market and to bring New Zealand in line with international standards.
Joyce is now inviting submissions on the Commerce Commission’s reconsidered final report.
Submissions close at 5pm June 29.
Under the Telecommunications Act, the Minister may accept, reject, or require the Commerce Commission to reconsider the recommendations.
“I will make a decision upon consideration of the report, submissions, and advice from officials. It is my intention to do this in a timely manner,” Joyce said.
I would be incredibly surprised if the recommendations are rejected, considering the Minister asked them to reconsider the earlier split recommendation, and you now have a unanimous recommendation.
Related posts:
- Mobile termination rates to be regulated
- Mobile Termination Rates cut
- Vodafone on Mobile Termination Rate Undertakings
- Mobile termination rates coming down
June 17th, 2010 at 10:34 am
Great news – I hope Joyce makes his decision quickly and implements it quickly – 2degrees will be happy – and rightly so. I see an end to the rorting by Vodafone and telecom only a short time away. Abuse of the monopoly position by Telecom / Vodafone is going to end and consumers will be the winners.
Vote:June 17th, 2010 at 10:41 am
That bloody commie Joyce again. Treading all over shareholder’s property. Why doesn’t National just stop pretending to be different? Why don’t National and Labour just amalgamate into one big party of the left?
” Regulation to promote better competition”
An oxymoron written by supermorons.
Whatever the problem, this is not the way to deal with it.
Vote:June 17th, 2010 at 11:01 am
Red showing a deep misunderstanding of how markets really work.
Vote:June 17th, 2010 at 11:01 am
Monty, consumers will be the winners? You’re having us on, mate! If the Government does regulate, consumers can kiss cheap call deals goodbye. Let them eat cake!
Vote:June 17th, 2010 at 11:03 am
I am not a big fan of government intervention but NZ rates being second only to Mexico and our phone usage worse than most of Africa suggests the market is not functioning properly. Having just spent a month in the UK it is so obvious the duo of vodaphone and telecom has been appalling for the consumer.
Vote:One can only hope if the rate is reduced to 4c then there will be a better running of the phone system, there has been no incentive for them thus far. Vodaphone is hugely profitable in the UK and they can still give you cheap phone plans with 600 free minutes.
June 17th, 2010 at 11:03 am
Expat, any chance you could explain to us mere mortals how markets really work? I’m not sure I get it, either.
Vote:June 17th, 2010 at 11:05 am
Pongo, do you think it important that it might cost a wee bit more, per user, to operate a cell system in NZ than in the UK?
Vote:June 17th, 2010 at 11:09 am
The issue in NZ at the moment is that the Duopoly that is TCNZ and Vodafone are keeping the termination rates so high that competition is impossible unless you have deep enough pockets to buy a subscriber base and get to critical mass.
If the termination rates were a more reasonable and realistic 2-4c then a small player could setup in say Auckland and be competitive on a local basis. This would lead to a number of boutique mobile vendors able to provide innovative products rather than the current two heavyweights trying to strangle 2Degrees into submission.
Vote:June 17th, 2010 at 11:16 am
MikeMan, has there been any suggestion that Vodafone and Telecom pay lower termination rates than those they receive when they terminate some other network’s call?
Vote:June 17th, 2010 at 11:16 am
See its OK to be a nanny state if National do it… regulated regulated regulated… bloody monopolies.
I’m nearly starting to be a Redbaiter convert… but its National dictatorship not National socialistism.
Vote:June 17th, 2010 at 11:18 am
DPF, expat and many others on here. Should we expect you guys to be calling for more regulation once, following the regulation of mobile termination rates, you realise Vodafone and Telecom charge customers higher prices for calls than many other countries?
Vote:June 17th, 2010 at 11:27 am
Expat, still waiting for your explanation. Any chance we might still get it or have you turned chicken once again? You needed be too scared. Although I like my KFC, I promise not to turn up the heat too much, this time.
Vote:June 17th, 2010 at 11:40 am
The MTR regime that is in place, in this market, with the existing duopoly, is in effect a price control mechanism that reduces competition and artificially keep consumer prices high.
It’s quite simple, as an example lets pretend that in your street you had two postal delivery services (odds and evens) each charging $1 per stamp (of which $0.50 is to cover the fact that odd postie has to pay even postie $0.50 to deliver a letter to an even numbered house, and vice versa. As odd postie and even posie have about 50% of the market each it all balances out in the wash for odd postie and even postie, you may now be wondering why we need this odd MTR construct).
A new postie, picture postie, comes into town and says they will give your house a picture code (instead of a number) and will also deliver to any number (odds or evens) however as they are new and have only 5% of the market most of their post (lets say 95%) is destined for an odd or an even numbered house which means picture postie has to pay loads of fees to deliver letters but as they only have 5% of the market they receive very little ‘interconnect’ fees, meaning they have to run at a loss until they gain a level of market share that balances what they pay with what they receive.
And there is the reason for the MTR regime in NZ, to stiffle new entrants & hopefully make them go bust. If they don’t go bust then the MTR regime ensures that incumbents are in a position to dictate how ‘competition evolves’ i.e. very, very slowly.
I know this is a little crude however it illustrates the core concepts at work and the motivation.
Then the Telco’s pay people far smarter than I to come up with loads of complicated reasons and models and documents to take to loads of long and drawn out meetings that are part of a long and drawn out and complicated process to discuss things about MTR’s – as you can imagine it gets awfully complicated and focused on very detailed issues and nuanced concepts that require loads of very bright lawyers to be involved. etc.
Vote:June 17th, 2010 at 11:42 am
Hold your horses Mike, isn’t a man allowed a cup of tea and slash?
Vote:June 17th, 2010 at 11:44 am
Good on you, expat. You’ve come through well! Let me take a read and I’ll come back to ya!
Vote:June 17th, 2010 at 11:48 am
Better Commerce Commission regulators than lawyers, eh Expat? I know, let’s tie down the market in regulation. That’ll be a great way of getting both; maybe one will balance out the other!
Vote:June 17th, 2010 at 11:49 am
I was wondering when I saw the press on this last night if I’d see you around on any post that DPF made on the topic.
Vote:June 17th, 2010 at 11:53 am
It is a rock and a hard place argument however a change may be good if the existing market dynamics shift slightly and forces a little more competition into the market.
I suspect that the CC regulators will be or will refer to the existing lawyers involved in the space so don’t think you’ll have to worry about marauding groups of unemployed lawyers begging and drinking sub $100 bottles of chablis on the pavement down Parnell Rise.
Vote:June 17th, 2010 at 12:02 pm
Yep, you know I’d be around, expat. How could I miss the chance to have a bit of a chat with my old sparing partner?
Vote:June 17th, 2010 at 12:04 pm
Expat did a commendable job of explaining it while I was busy.
The current system is designed to keep TCNZ and Vodafone at ~45%-50% of the market each and have them both raking in the dollars.
I wonder if the person/people that are responsible for the Vodafone plan that changed it all still have their jobs, or if maybe they had already lined up a new one at 2Degrees
It strikes me as a major screwup from an otherwise fairly savvy company in the political arena.
Vote:June 17th, 2010 at 12:04 pm
Ok, because he doesn’t serve many houses, picture postie gets paid only a little in mobile termination. He only has a few customers and has to pass of much of the fees from the postage he receives to even postie and odd postie. Ok, with you so far!
However, picture postie doesn’t have to walk as far each day delivering mail as odd and even postie. Why should he get to keep that much of the postage, when he’s not the one doing all the work? Basically, you want picture postie to get an easy deal, huh? Get paid more when he doesn’t have to do as much work. How is that fair?
Somehow, picture postie’s convinced you that regulating down termination rates would be good for competition? Looks to me like all it’s good for is to give picture postie more money for less walking!
Vote:June 17th, 2010 at 12:08 pm
You are assuming that picture posties houses are all next to each other, but what if those houses that picture postie services are all over town?
The only saving is a smaller basket on the bike, a relatively small capital saving compared to the operating costs over 5-10 years that the basket will last, also the basket needs to be scalable in case more people signup to picture postie.
Vote:June 17th, 2010 at 12:09 pm
MikeMan, the only thing Vodafone did was to give their customers better prices. Picture postie somehow sucked you jokers in and turned it all political by yelling and screaming that competitors’ lower prices was bad for competition because, as the new entrant, picture postie should get paid more for doing less walking.
Vote:June 17th, 2010 at 12:14 pm
Capitalism needs a little regulating now and again to break up or prevent monopolistic situations. That’s a good thing and one of the few weaknesses of capitalism. It’s still a great system, just not perfect.
Vote:June 17th, 2010 at 12:15 pm
Nope even postie said their letters would from now on only cost 25c as long as most of your letters were to/from other even numbered houses.
They used a semi-dominant position and their large base of customers to stifle competition and price picture postie out of the market.
Vodafone’s deal was at less than the termination rate proving that the termination rate was unfair and price gouging.
How can they charge customers 4c/min at retail when a supposedly wholesale rate to another telco is 17c/min? (Numbers are a guess as I do not have time to research the real numbers, even if they are in the public domain)
Vote:June 17th, 2010 at 12:20 pm
Come on, MikeMan, no anecdote is designed to be pushed to its logical extremities, that what’s makes it an anecdote.
Since you note my assumption, though, I’ll agree with you. I do assume that! What’s more this is IT so I will stand by it. Calling someone on the telephone does effectively make them next door! That’s why you call them rather than go around and see them!
Is your last paragraph just discussing why we should feel sorry for picture postie and give him more money for not walking so far? I don’t think picture postie having to walk further comes into it. I care only that consumers get the best deal. I think if we give picture postie a sweet ticket then consumers and taxpayers will lose out! If you want to have a cry for picture postie, I’ll loan you a hankerchief – while a little heartless, it’ll be much cheaper for consumers!
Vote:June 17th, 2010 at 12:23 pm
The other argument is that MTR’s are not necessary.
Vote:June 17th, 2010 at 12:29 pm
MTRs are not necessary? So all costs should be picked up from the calling party? Sounds like a sure fire way to get more expensive calling? You’ll have to explain to me why that will be better for consumers enough to make it worthwhile.
Vote:June 17th, 2010 at 12:56 pm
Commerce Act, 1986: “The purpose of this Act is to promote competition in markets for the long-term benefit of consumers within New Zealand.”
Long-term benefit of consumers is key. You can’t blame the Commerce Commission or Stephen Joyce for adhering to the purpose of the act.
I’m not saying they wouldn’t have regulated anyway, as the market failure does appear to be significant, but the manner in which they regulate is determined by this purpose, and this purpose is NOT aimed at overall long-run benefit to consumers AND producers.
Vote:June 17th, 2010 at 1:07 pm
You misunderstand my comment. If the only reason the MTR regime is in place is to allow the duopoly incumbents to, ‘ahem’, manage competitive pressures then there is an argument that the regime should go. Entirely another question about what, if anything, should replace it. Surely a free marketeer would advocate a spot and futures market for interconnect seconds? Worked well in the wholesale electricity market. lol.
Vote:June 17th, 2010 at 1:24 pm
Expat, you’re all over the place, mate! Whoever said the only reason for the MTR regime was to allow duopolies to manage competitive pressures? I imagine a free marketeer would advocate that you leave it up to the market; that is, you don’t replace anything with anything, you just leave it to itself.
Given you’re a proponent of replacing the MTR regime, don’t you think that you need to answer that question, yourself, or at least point to someone who has?
Likewise, the wholesale electricity market; I don’t think anyone would argue that it’s perfect. The trick is, however, finding something that’s better!
Vote:June 17th, 2010 at 1:32 pm
Jivekitty, not entirely sure what you’re getting at. Has anyone argued that anything is or isn’t in the long-term interests of producers? If anything, I think there may be a convincing case that regulation is in the interests of one producer, Two Degrees! However, the only objective we’ve been discussing is the long benefit of consumers.
And please explain to me specifically what the market failure is that so warrants government regulation. To me, it looks like, rather than market failure, there’s just plenty of government failure!
Vote:June 17th, 2010 at 2:26 pm
@mjwilknz: The failure is in the duopolistic behaviour which stymies competition (expat explained it: “The MTR regime that is in place, in this market, with the existing duopoly, is in effect a price control mechanism that reduces competition and artificially keep [sic] consumer prices high.”). If the failure is large enough, as it has been determined to be in this case – primarily because Vodafone fucked up (I don’t think they were initially going to regulate until Vodafone made an announcement of what they intended to do days before a decision was to be signed off?), then regulation can be acceptable.
My point re: the Commerce Act was to point out to RKBee and Redbaiter that the Commerce Commission and Steven Joyce were acting as required by the act, given it has been deemed there is significant market failure.
Vote:June 17th, 2010 at 2:43 pm
mjwilknz,
“Whoever said the only reason for the MTR regime was to allow duopolies to manage competitive pressures?” – Me! At the current interconnect rates it is anyway. Perhaps if the rates are significantly lower we have a framework that encourages a little more competition.
Vote:June 17th, 2010 at 2:46 pm
note: sarcasm marks around ‘competitive pressures’.
Vote:June 17th, 2010 at 2:50 pm
Don’t think so. Experience in other countries where termination rates have been regulated suggests higher calling charges and/or reduced re-investment in infrastructure. I had some material on this from my time in the industry. Will try to dig it out.
I don’t support regulation here. If something is too expensive then don’t use it. Simple. If mobile communications are deemed by Party A (ie the government) to be an essential public service then Party A should set up in competition and provide a better value service. And we all know how that would turn out, but you get my point.
Vote:June 17th, 2010 at 3:07 pm
JiveKitty does raise an interesting point re: the minister and cc consider there to have been a market failure hence the need for regulation.
Putting the boot on the other foot mjwilknz and krazykiwi, what would you propose to immediately (not a 10 year grind) achieve the same ‘boost’ in competition and allay the minister and cc re: market failure?
Even the most anti-regulation inclined must consider the existing duopoly with a jaundiced eye.
Vote:June 17th, 2010 at 3:09 pm
expat, we’re talking around in circles, mate. Shall we take a few comments back? Why is it anti-competitive for even and odd posties to charge picture postie for delivering his letters? By anti-competitive, I should clarify that I’m talking about stuff that’s positive for consumers. That is, if the free market will bring an end to one company then efforts to keep that company in business are anti-competitive by virtue of them harming the competitive process. What matters is, do customers get a better deal (without any subsidies)?
Krazykiwi, reduced investment? I don’t think this one’s been discussed. As an industry player, can you fill punters like me in on why companies invest less because of regulation? Do they get more uncertain about whether they’ll earn a return on that investment?
Vote:June 17th, 2010 at 3:23 pm
The free market argument is fine if we are talking about the long term picture however long term averages normally imply medium term cycles that don’t help the consumer in the short term. That’s what regulators are around for, to try and knock some of the sharp edges off the impact on the consumer.
Vote:June 17th, 2010 at 3:25 pm
Sorry, expat and Jivekitty, I have yet to be convinced that there has been a market failure. I certainly don’t buy it that there has been just because politicians and the CC say there has. (You guys are very trusting, aren’t you?) I was offering someone the chance to convince me that the CC and Joyce are right and there has actually been a market failure. That offer’s still open if anyone can convince me that there has been a dreaded market failure.
Expat, re: you putting the boot on the other foot, yes, happy to respond. First of all, though, I need to check why we want to boost competition? Do we want to boost competition just for competition’s sake or do we want to give customers the best deal? If your answer is the former and you don’t actually care about giving customers a better deal, then my response is: the Government should start subsidising anyone every investment of anyone who wants to enter the market for mobile services. Why, my cuzzie was talking about starting up a mobile company just the other day, I’m sure he’d make the market more “competitive”.
If, however, your answer is the latter (and I certainly hope it is) then what exactly do you think’s wrong? Aren’t consumers already getting the best deal firms can provide, given the relatively, very expensive market conditions here?
Vote:June 17th, 2010 at 3:31 pm
I am also yet to be convinced, that there shouldn’t be regulation at this point.
Vote:June 17th, 2010 at 3:39 pm
@mjwilknz – I’ve been ‘out’ of cellco-land for quit a few years now. The presentation I recall seeing in the UK was around regulation of termination charges reducing revenue, which would be partly replaced by higher calling charges. It was suggested that a lower EBITDA would lead to lower levels in investment.. with cellco’s sweatng their existing assets longer. I’m not a beanie.. so these assertions are repeated without any critique.
There’s bit of reading about Mobile Termination here and here.
Vote:June 17th, 2010 at 3:43 pm
Last time I checked, expat, this wasn’t Cuba! The presumption, in a capitalist society, is that regulating will have unintended consequences and, unless there are likely to be significant benefits from imposing one, then it’s best to hold fire. We have been strongly debating whether there is likely to be significant benefits. If a convincing case can’t be made to that effect, then a capitalist society should prefer to hold fire!
On this occasion, though, it looks likely that I’ll be on the losing side and the Government will regulate. However, I remain fearful of a) how much subsequent efforts to prop up Two Degrees cost taxpayers and consumers and b) that we’ll be debating this all over again once people realise that calling prices in NZ are higher than in other countries.
Those, to me, are the two major reasons for having this debate in spite of the likely decision to regulate, although defence of a liberal and free society probably comes in there somewhere, too. On that note, it is nice to see you take our freedom so seriously, too. Heil Hitler!
Vote:June 17th, 2010 at 3:49 pm
Thanks, Krazykiwi. What is your opinion of the waterbed effect? Do you think mobile companies will raise other prices to recover their ARPUs quickly (say, less than two years) or do you think it’s a slower thing?
Vote:June 17th, 2010 at 3:52 pm
mjwilknz,
WTF?
Engage in a bit of idle chit chat around mobile telco MTR’s with you and then you go off on a Godwin tangent implying we/I am a Communist and a Nazi.
Woop woop woop, planet woo woo dweller alert.
Vote:June 17th, 2010 at 4:13 pm
Just having you on, expat! If only all that Castro, Stalin, Mao and Hitler did was regulate MTRs the world would be a lot better off!
All I was trying to say was that we live in liberal society where it’s not common for governments to go around interfering like it’s proposed ours does, on this occasion. If you like freedom, surely you have to approach the MTR proposal with some degree of scepticism.
Vote:June 17th, 2010 at 4:15 pm
@mjwilknz – ARPU is a bit discredited in cellco’s these days. With near saturation markets.. the best way to raise ARPU is to lose the lower spending customers. The cellco I worked with decided to stop counting customers who’d not used the network for more than three months. Their ARPU rocketed! Declining real revenues due to IP-based competition may also be part of it! Incidentally, the difference between telco and internet network models makes for a fascinating, if uncomfortable business model co-habitation. Telco networks are walled with internal intelligence and dumb connected devices. By contrast, IP networks are open with little internal intelligence and all the smarts live in the devices beyond the network edge.
To your question, the waterboard effect makes sense to me. If one source of revenue is regulated down, another will be leveraged more extensively. If that is then regulated, then another will be leveraged. And so on.. until there’s a call to nationalise the whole thing and Marx starts singing ‘Oh happy day’ from his grave!
Vote:June 17th, 2010 at 4:18 pm
@mjwilknz – As for ARPU recovery, IMO telco/cellco’s that stop fighting a rearguard action to protect declining voice call revenues, and instead look for ways to develop completely new revenue sources will be the ones that survive. The rest need to read up on the life and times of the Dodo – it’s one they’ll become familiar with on a first hand basis.
Vote:June 17th, 2010 at 4:26 pm
Mañana.
Big government vs big telco…what a choice.
In this instance I think I know who has the biggest vested interest in not providing the customer with the best phone deal. Clue: They are the ones sending the phone bills out.
I’m sorry but the Telco’s in NZ have obfuscated and filibustered on MTR’s for over a decade so would suggest that all the issues are well debated and given the duopoloy of incompetence we’ve seen recently (i.e. XT and Talk) I’m pretty comfortable with the CC regulating.
Vote:June 17th, 2010 at 4:54 pm
Expat, what’s happening tomorrow? Will Joyce be announcing he’s regulating?
I’m no defender of monopolies, but I wouldn’t be so bullish about their performance versus government-owned companies, either. As a case in point, look at the improvements in the quality of Telecom’s service in the 80s versus the Post Office’s. It would take months to get a new phone under the latter and there was only ever one model to choose from and, unless you struck it lucky at the warehouse, only one colour! While quality may not be perfect under the former, it’s still a damn sight better than it once was!
In summary, monopolies might be the ones sending the phone bill out, but it appears they still perform better than governments who don’t care about bills, anyway (they just care about votes)!
Also, given none of us discussed lack of investment as an issue until krazykiwi came along, I would dispute that these issues are well debated.
Vote:June 17th, 2010 at 4:56 pm
Mañana is colloquially used to signify whatever, maybe, tomorrow, etc
Vote:June 17th, 2010 at 5:08 pm
@mjwilknz / @expat – Another comment about all this. Cellco’s are enormously capital intensive propositions. The installation of cell towers, base stations and backhaul is eye watering to investors and CFO’s alike. In NZ there are two factors that aggravate this further. They are:
1. Our relatively sparse population and hilly, undulating terrain means that the cost of supply to each individual mobile customer is significantly higher than in most other countries. At the other end of the scale are places like Hong Kong with massive coverage requiring a fraction of NZ’s network equipment.
2. Our RMA consent process has made the cost of placing cell site some of the most expensive in the world. IIRC the per-site RMA nightmare was usually more costly than the network equipment, making NZ cellsites the world’s most expensive per user.
Vote:June 17th, 2010 at 5:15 pm
Obviously cost is very important however from an analysis of the need to regulate or not point of view I suggest that this cuts both ways in terms of whether regulation is needed or not. think about it from an incumbent and a new entrants point of view.
So probably an of interest variable rather than a primary variable in the regulate or not decision making formula. imho.
Vote:June 17th, 2010 at 5:23 pm
@expat – true. But remember that new entrants now have Mobile Number Portability and Mandated Roaming… two very, very significant headstarts to creating a mobile business in NZ.. neither of which existed when BellSouth set up shop. New investors in this market need to know that their capital will be required in large gobs, and not look to the government to provide an easy road to market signifiance.
Vote:June 17th, 2010 at 5:27 pm
Expat, give the guy a break!
Firstly, what he says cuts absolutely to the decision to regulate because much of the support for regulation came from evidence that NZ’s mobile termination rates were higher than in other countries.
Secondly, other than arguing that Two Degrees are competition and therefore should be given an easy deal, you haven’t done a good job of explaining why MTRs are anti-competitive from consumers’ point of view.
In short, you haven’t set out a clear basis for regulation. Your strong views in favour of it make you look very biased against the incumbents and/or very in favour of competition for competition’s sake.
Vote:June 17th, 2010 at 6:28 pm
Best..News….Ever!!! (or, at least since helen got the boot!!).
The wireless providers will have to compete on retail pricing rather than relying on monopolistic termination fees.
Vote:June 17th, 2010 at 6:34 pm
@wreck1080 – termination fees are simply bundled into retail price. Do you think forcibly reduced termination charges will result in better service… better now, and in the future? I don’t. I just don’t buy the idea that government price regulation improves the long term consumer situation. In NZ timber is expensive. So is fish. So are dairy products. Should the government regulate their prices? Where do you draw the line? How are mobile termination charges different?
Vote:June 17th, 2010 at 7:00 pm
krazy, the difference is telcos don’t make us any export revenues.
Vote:June 17th, 2010 at 7:13 pm
@krazykiwi
*termination fees are simply bundled into retail price.*
Yes, this is exactly what makes them so evil. MTR’s are a hidden cost component which the main telcos have conspired with each other to keep high and to defer competition.
* Do you think forcibly reduced termination charges will result in better service… better now, and in the future? *
A qualified yes. Better service for the money. Competition will increase, and in the telco industry it seems that competition is beneficial for consumers.
Anyway, the government is not regulating retail prices. They are regulating the MTR only.
The telcos can continue to charge exactly the same retail price if they like.
Take your timber/fish analogy. What if all of the fish shops agreed on a common markup of $20.00/kg? They would pay the collected mark-up to the other fish shops, at the same time collecting mark-ups from sales at other fish shops. Overall, the retail cost of fish would be $20.00 higher than they would naturally be.
I’d demand the government to take action if that were the case.
Vote:June 17th, 2010 at 7:14 pm
expat, nor do we for so many other things connected with technology. What’s your point? (How’s the straw feeling today? Not too harsh to grasp at, I hope!)
Vote:June 17th, 2010 at 7:22 pm
I was watching the news tonite and saw the smarmy arrogance displayed by the Zespri guy and did think that there were more worthy targets of regulation, but that soon past.
Vote:June 17th, 2010 at 7:54 pm
Neither you nor I would buy fish. The smart ones would break ranks, and the rest would go to the wall.
Why is it ok for the government to manipulate prices so that a new entrant can start to profit? If I want a passport there is only one source, and I must pay the government what they demand for this service. Why is this not opened to competition so that you and I can benefit? Why is it ok for the government to intervene on pricing in some instances but not in others?
The intervention on Mobile Number Portability had my support though. I regard my number as just that: mine. I should be able to use it anywhere and the carriers didn’t want this. Tough.
You’re looking at the wrong side of the transaction. If YOU had your sources of revenue cut back, your business and your customers would suffer in the long term. Your competitors would walk an easier road than you did. Your investors would be less likely to provide additional capital, or of the they did, on less favourable terms. Is that fair? I don’t think so.
They are a cost to you, but revenue to your cellco. Take this away and the revenue will be generated elsewhere. See comment above about the waterboard effect.
Vote:June 17th, 2010 at 8:17 pm
@krazykiwi.
Passports can only be trusted to government. New Zealanders would be banned from travelling to other countries if we allowed private companies to print passports, just think of the huge security issues.
Assuming the telcos keep the same retail price, their MTR incoming revenue will drop by much the same amount as outgoing MTR costs . ie, it is fiscally neutral. It is a 2-way equation.
The Telcos are not having their revenue cut back. I don’t get why you would think this. Example?
There is no waterboard effect. The government will certainly not regulate retail prices.
Vote:June 17th, 2010 at 8:43 pm
@wreck1080 – you’re correct about the reciprocal nature of MTR’s. If your thesis is that net MTR’s are zero then why have them at all? Why shouldn’t the government simply regulate them out of existence?
MTR’s exist because a call has two main components; the cost of receiving the call onto the originators network, and the cost of delivering it to the recipient’s network. If MTR’s were removed it would distort the model where revenue is generated by the organization that is responsible for creating the cost. For example, when Vodafone receives my call destined to Mrs krazykiwi’s Telecom mobile, Vodafone is loading Telecom with the cost of delivering the call. It’s both fair and appropriate that Vodafone should pay Telecom to deliver the call.
I guess we could completely outlaw MTR’s and have CPP (calling party pays, as today) and RPP (receiving party pays) for each call. That model has quite a few drawbacks too.
Vote:June 17th, 2010 at 10:20 pm
@krazy :
The MTR’s should be set at actual ‘cost’. I would not advocate eliminating them since there is a cost to the telco. To date, the telcos have agreed (no competitive pricing here) to set the MTR’s such that the profit margin is excessive. This is price fixing , no other industry would get away with this.
With mtr’s at cost, Telcos must compete on retail pricing rather than relying on ‘price fixed’ MTR income.
High MTR’s favour providers with the larger customer bases. New entrants such as 2 degrees are much disadvantaged.
Effectively telecom and vodafone have been using their market share to drive 2 degrees out of business, as perfectly illustrated by vodafones now withdrawn $12 prepay scheme.
Anyway, thats all from me. I believe we agree to disagree.
Vote:June 17th, 2010 at 11:52 pm
Fixed line interconnection has been regulated for years and is almost universally regulated – where are the complaints about that being excessive intervention?
Vote:June 18th, 2010 at 12:29 am
Anyone who believes that politicians can fix market imbalances needs their head read.
Vote:June 18th, 2010 at 9:39 am
Wreck, you’re all over the place! The costs of running a mobile network are very much larger than those just related to mobile termination. Should all of these costs be picked up from callers. By arguing that MTRs are too high, you guys are in effect saying that, yes, costs should be recovered just from callers. That’s nuts, right? A great way to raise the price of calling!
I’m still waiting to see if anyone can provide a coherent argument as to why MTRs are anti-competitive. Can anyone do a better job than expat did yesterday? I’m still chuckling about him shooting himself in the foot with his postie anecdote.
Anthony, the mobile market is changing a weeny bit faster than the fixed line market. In fact, it looks like the former is going to make the latter more and more redundant as time moves on.
Redbaiter, have to agree with you there. These guys seem to believe that, in spite of being dumb enough to put porn movies on their ministerial credit cards, politicians are somehow smart enough to dictate the way an extremely complex industry recovers its costs.
Vote:June 18th, 2010 at 11:46 am
@mjwilknz
Please provide a coherent example of why reducing the MTR would raise the price of calling.
Nothing you have said makes any sense.
Vote:June 18th, 2010 at 12:04 pm
Ok, wreck. It costs a lot of money to run a cell network. MTR rates are regulated down, reducing the amount that can be recovered from termination. Mobile companies suddenly say, “crap, how are we going to earn enough to keep us investing in our network?” They look around and decide that the only way to do so is to raise other prices, particularly handsets (although these only affect new customers) and the price of calls. Bang, the price of calling goes up! Alternatively, the companies start reducing the amount the invest in networks, something that Krazykiwi suggested would occur.
Bang, NZ has a more expensive network, in terms of call prices, with a lower quality (because of reduced investment). Let’s chalk it up as another win for unintended consequences, shall we?
Vote:June 18th, 2010 at 12:15 pm
more expensive and lower quality?
sounds like an ad for XT.
Hang on a wee minute while I fetch ma waders and ma vodafone, someone might call while i’m oot fishin…
Vote:June 18th, 2010 at 1:11 pm
@mjwilknz – Wreck1080 is, I think , arguing that because MTR’s are reciprocated they cancel each other out ergo they are superfluous. There is some justification for the idea of balance. For example the number of TXT messages that originate in NZ and terminate on, say, Belarus mobile phones is approximate the same as in reverse. Same for calls. Same for most inter-network services.
My contention is that costs should be borne by the party that causes that cost to be incurred. When I use my Vodafone device to call Mrs krazykiwi’s Telecom mobile, I place some cost on Vodafone so they need to bill me. When Vodafone passes that call to Telecom to terminate it as Mrs krazykiwi’s phone Vodafone places cost on Telecom and expects a service. The charges aggregated and reflected back onto the amount I pay Vodafone.
Wreck went onto suggest that the government shouldn’t outlaw MTR, just regulate them so they a cost-recovery only proposition. My responses to this are:
1. Is there a precedent for the government intervening to set commercial arrangements between two non-state owned businesses? If the government feels that the delivery charges for getting hamburger patties delivered to Bellamy’s for Parekura’s breakfast are far too expensive.. should they regulate the delivery firm for ‘cost-recovery only’ charges, or find another delivery firm like sensible people would?
2. Telco’s are very clever with their cost accounting. Some time ago there was ‘insider’ evidence of Telecom loading staffing costs into marginally profitable regions such that they became unprofitable and therefore an income generating proposition under the TSO – former the ‘kiwi-share’. There were an extraordinary number of ‘linesmen’ *ahem* based in Gisborne for example. So how would true costs be determined if they were forced by regulation to have MTR’s determined by cost-recovery only.
Better for the government to stay out of this. They have already regulated for Mobile Number Portability and Mandated Roaming which are an order of magnitude more significant in terms of supporting competition than any frigging with MTR’s would be.
Vote:June 18th, 2010 at 2:38 pm
Krazykiwi, perhaps you are right and I was misinterpreting him. However, I can’t help but be left with the sense that Wreck, like a number of others on here, assumes that you can regulate a company’s actions and not expect that it’ll change it’s behaviour to just get the money another way. I guess, however, I should give him the benefit of the doubt, as you have done!
I’ll watch with interest people’s response to your more careful response than the one I gave. Are these guys willing to accept that maybe regulation won’t definitely make things better for consumers and may well make things worse? As I said, I’ll watch for their reception of your comments.
Also, I agree with you that it is jolly hard to regulate for cost-recovery – accounting just isn’t that objective and, to a large extent, telcos can put costs anywhere. If you regulate one thing to cost recovery, it’s like yelling and screaming, dump all your costs here!
Anyway, Krazykiwi, thanks for the insights. I appreciate you’ve seen a lot more of these arguments than I.
Vote:June 18th, 2010 at 10:33 pm
@mjwilknz – Happy to chat. It’s an area I’ve followed with some interest since departing the cellco industry (well, at least in a full-time capacity)
Vote:June 18th, 2010 at 11:59 pm
mjwilknz, you’re all over the place! Now you seem to be agreeing with Wreck!
I’m not sure you ever came back with an answer to my question ‘what would you propose to immediately (not a 10 year grind) achieve the same ‘boost’ in competition and allay the minister and cc re: market failure’, did you?
krazy raises a good argument around 1)precedence and 2) cost being born by the initiator.
Lets briefly discuss 2)
With the advent of mass takeup of LMNP in a multi opco marketplace the consumer is now ‘blind’ to the target net and associated calling costs therefore you could argue reasonably for costs to be split between caller and receiver however this seems as inherently unfair as the caller being billed for all interconnect charges (assuming interconnect charges are as outrageously high as they currently are). So factoring in the crude assumption that both models are equivalent in impact and fairness and that caller-receiver would require a lot of billing system upgrades (and we know how well cellco’s manage billing systems upgrades lol), the easiest course of action is to push down MTR’s. As the incumbents have conveniently managed prepay per minute rates to hover at $0.89 for a number of years and have ground out MTR reduction schedules to work on a decade by decade timeframe the minister and cc haven’t really been left with any options but to regulate.
Argument 1) about precedent of govt. ‘intervening to set commercial agreements between two non state owned businesses’. This is a very specifically framed statement that in context should have a comment about duopoly incumbents inserted somewhere. A more appropriate framing statement would be something like ‘is there precedent of a govt. regulator intervening in a utility commodity market to ensure incumbent duopoly players do not engage in anti-competitive behaviour to artificially create barriers to entry for new players’. I exaggerate but think this shows how careful framing of the issue can direct the ongoing argument, sometimes away from the underlying concern.
Vote:June 19th, 2010 at 2:16 pm
Expat, not quite sure how you interpret that I’m agreeing with Wreck. Krazykiwi merely pointed out I might be misinterpreting his argument and I replied, agreeing that maybe I was. However, I also said that I didn’t share my fellow commentors’ confidence that the government can intervene in one part of the market and not expect regulated telcos to react by increasing prices to another part. Please let me know where, in that reply, I even came close to agreeing with Wreck.
On your discussion of point 2, who even said the easiest course of action was to regulate MTRs down? Surely the easiest course of action is not to intervene and let the market decide which firms succeed and which don’t. Likewise, I just don’t understand why you say the CC was left with any options but to regulate. You could help me out by explaining this point and also explaining why the CC is promoting MTR regulation that is likely to increase the calling prices ($0.89 per minute) to which you refer.
On your discussion of point 1, yes, framing is an important issue. In regard to your framing, I’m still waiting for an explanation of how MTRs are anti-competitive from a consumer’s perspective (i.e. worse because they’ll likely lead to higher prices for consumers)! It is arguments over the best framing that are all important here. While any one approach to framing might support regulation when another doesn’t, that takes nothing from the argument as to which is the most appropriate framing, in this case. Would you be able to step up and provide your preferred framing with the rationale as to why you think it’s preferable?
Finally, expat, are you any closer to admitting that maybe, just maybe, MTR regulation might not lead to better outcomes for consumers?
Vote:June 19th, 2010 at 2:27 pm
@expat – Heh. Does project SAM mean anything to you?
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