2 degrees makes 1 million customers
August 8th, 2012 at 4:00 pm by David FarrarJamie Gray at NZ Herald reports:
The chief executive of 2degrees, Eric Hertz, says there is plenty of growth left in the New Zealand market, despite the upstart mobile phone company passing the one million customer mark.
Hertz said New Zealand, despite having market penetration of 120 per cent, had not reached saturation for mobile phone devices.
“It’s no longer about the number of people in the country,” he said. “It’s really about the number of connections.”
I’m not a customer myself, but it is good to see 2 degrees do well. They’ve had a great impact on the market, offering cheaper deals and pushing prices down from Telecom and Vodafone.
It is worth reflecting that they probably wouldn’t have succeeded to the degree they have, if the Government had not regulated mobile termination rates.
Regulation is a last resort but sometimes a necessary evil – especially in areas where inter-connection is crucial. If incumbent telcos could demand new telcos have to pay say $2 a minute to call someone on their network, then no new competitor would ever get a single customer.
The lowering of artificially high mobile termination rates has been a great boon for competition.
Related posts:
- Mobile termination rates to be regulated
- Gifford on Mobile Market
- Mobile rates to come down
- 2 Degrees responds to Vodafone
August 8th, 2012 at 4:11 pm
DPF: It is worth reflecting that they probably wouldn’t have succeeded to the degree they have, if the Government had not regulated mobile termination rates.
Really? It works both ways: with lower termination rates, customers have less incentive to switch to 2degrees or have a 2degree simcard.
DPF: The lowering of artificially high mobile termination rates has been a great boon for competition.
A truly free market does not have artificial high mobile termination rates for long as any place where money is made is quickly swamped by competitors, look like markets with very low barriers to entry such as mobile phone apps.
DPF: Regulation is a last resort but sometimes a necessary evil – especially in areas where inter-connection is crucial. If incumbent telcos could demand new telcos have to pay say $2 a minute to call someone on their network, then no new competitor would ever get a single customer.
That’s why the internet is so heavily regulated. No company could ever connect to the internet as the incumbents would ask $1,000 GB per gigabyte to connect. Oh wait…. The internet is not regulated. There is no global authority. It’s simply a connection of many different networks. Anyone can connect at any time. And it works. And the prices are pretty competitive.
And don’t get me started that Pacific Fibre couldn’t get a cable funded because of pressure from the US. So far for consistency in connection regulation.
[DPF: I thought you had some basic knowledge of the Internet? First of all your claim lower termination rates is bad for 2degrees is insanely wrong. When you have few customers to start with, no one wants to be on a network where it costs more to call other people.
You hold up the Internet as an example. I agree it is - it has no termination rates - because the design is fundamentally different - it is not point to point. Also because it has been highly competitive from the beginning no one entity has got big enough that it could demand fees from people wanting to send data to their customers.]
Vote:August 8th, 2012 at 5:06 pm
Is anyone aware of any studies that try to estimate how much prices came down as a consequence of the 2 degrees entry?
Vote:August 8th, 2012 at 5:56 pm
berend: Did you even read DPF’s post? High termination rates are anti-competitive. Like DPF said, if Telecom/Vodafone had $2 per minute termination rates, then 2degrees would really struggle to enter the market, as they would have to pass that on to their customers. The internet has low barriers to entry, so your comparison doesn’t hold up.
Vote:August 8th, 2012 at 5:56 pm
Forgetting that Telecom was a state monopoly and still acts like it long after the time….
Vote:August 8th, 2012 at 8:55 pm
I have two 2Degrees pre-paid SIMs that I purchased and used in 2010, and have never topped up. I’m guessing that these are counted in the million.
Also, 2Degrees started out with a plan to own their network and build it out around NZ – a requirement of the mandated roaming arrangement where they can piggy-back on Vodafone’s network where they have yet to build their own. I heard that they now lease their network kit from Huawei because, buying it has proven too expensive in the short term. The longer term will be interesting.
Vote:August 8th, 2012 at 10:17 pm
Clear Communications was up against exactly this mentality back in 1990. This story in the Herald last week caught my eye:
Vote:August 8th, 2012 at 10:31 pm
Chth … you could look at this report 2degrees commissioned – probably not the most objective view but still interesting:
http://www.2degreesmobile.co.nz/c/document_library/get_file?folderId=255709&name=DLFE-6116.pdf&p_p_id=20
Vote:August 8th, 2012 at 11:19 pm
Berend you have no idea.
How could 2degrees gained customers when it would cost those customers so much to call other networks? Answer is that 2 degrees would never have had a chance at gaining market share. The interconnect was a way for tel/vod to set artificial costs on 2 degrees subscribers.
Vote:August 8th, 2012 at 11:29 pm
Quite true Wreck. Interconnection is regulated the world over and is essential for any collection of networks to work properly. Internet traffic is often exchanged for no cost at all!
Vote:August 8th, 2012 at 11:30 pm
The $2 a minute figure is nonsense. Name a single interconnection agreement in New Zealand history with such a price. Even the first Telecom-Clear one before the court case to the Privy Council wasn’t such high.
2 degrees didn’t develop because of regulated mobile phone interconnection rates, but rather because it managed to get the state to grant it below market prices for spectrum and to force a competitor to offer access to its property.
Mobile termination rates were not regulated to enable Bellsouth/Vodafone to enter the market (beyond the Commerce Act) and achieve 50% market share in a matter of a few years, so the equating of the success of 2 degrees to this is nonsense. Vodafone achieved competitive interconnection rates based upon a regulatory framework of the sword of damocles hanging over Telecom, which saw BellSouth/Vodafone get rates that enabled it to succeed and grow the market, exponentially.
2 Degrees entered the market with two enormous advantages over Telecom and Vodafone, neither of which were deserved or necessary.
First is radio spectrum, as it was set up as part of a cozy deal to placate Maori claims to a “fair share” of the radio frequency spectrum for mobile phone usage on the spurious basis that it was linked to promotion of the Maori language. Pure hogwash, which the Waitangi Tribunal upheld and Labour went along with creating a cozy little cabal between a Maori trust and some foreign investors getting cheap access to the market.
This was, in effect, a transfer of wealth from taxpayers to that trust and foreign investors, when in fact it is clear that the spectrum could have been sold for more.
Secondly, interference with Vodafone’s private property rights. Thanks to the RMA and local authorities becoming ever more vigilant about mobile phone transmitter sites (cheered on by the Greens spreading anti-scientific nonsense about the fears of non-ionising EMR), it became increasingly harder to build a new network. Never mind, Labour changed the law to force those that went to the expense of doing so to lease out access to new entrants.
2 degrees is cheaper because taxpayers subsidised its entry into the market and it gets government mandated access to its competitor’s network to provide services.
It should have paid full price for its network, and built its own network from scratch – like BellSouth/Vodafone did in the 8-15 years it entered the market after Telecom. However, that would have meant not handing a new business opportunity to corporatist Maori rent-seeking from the state and would have meant reforming the RMA to make it easier to build a network without NIMBYs getting in the way.
It’s a little like the government handing over some land adjacent to a New World supermarket to a competitor and then saying that the competitor not only doesn’t need to use most of the land, but that New World needs to set aside some space inside its premises for it to sell competing products for it.
[DPF: $2 was used as an example. However the reality was still pretty bad. Terminate rates of 10c to receive a text message which is around 160B of data. That is around 60c per KB or $600 per MB. Outrageous, and there was no market solution to it as the pricing made it near impossible for new entrants,
You had massive distortions before regulation. One telco would dominate an entire city, as people felt forced to go with them so they could talk to their friends on in house plans. This meant no competition on price or quality - just market dominance.
Vodafone managed to break in yes, but then did everything possible to stop anyone else.
As Anthony mentioned, interconnection agreements are regulated in every country in the world. It just does not work without them. Telcos are different to supermarkets where you can freely compete against each other. Unless you want a balkanised phone service where you can't call people on other networks, you need some regulation to allow interoperability.
The Internet is different because of the way it was designed]
Vote:August 8th, 2012 at 11:46 pm
Another example of the “Free Market” needing State regulatory intervention to deliver an optimal outcome for the consumer.
Vote:Telecom has more than repaid any encumbent advantage with decades of punitive “Kiwi Share”
August 9th, 2012 at 3:45 am
valeriusterminus – Yeah right! Kiwi Share has cost Telecom *nothing*. What they could not charge on local calls, they charged on line fees. Thus, light local callers have been subsidizing heavy local callers and Telecom’s bottom line has not been hit at all.
Vote:August 9th, 2012 at 3:50 am
Following on… it’s another example of the free market taking an end run around regulation and proving regulation pointless.
The big mistakes in telecoms in New Zealand were around how Telecom was sold. We’ve slowly forced changes into the structure via regulation, but it would’ve been better to sell with a structure that needed less regulation e.g. retail and infrastructure separately… but we were short of cash and basically made a decision to get cash now (in 1987) at the expense of a less than optimal price and a less efficient telecoms sector later.
Vote:August 9th, 2012 at 7:15 am
“Internet traffic is often exchanged for no cost at all!”
Not exactly true any longer. The bigger carriers exchange traffic for free but any newcomer or smaller player will have trouble negotiating traffic exchange, even at neutral IX’s. The bigger carriers have also moved a lot of local traffic to private peerings, optimized for their own network layout. Then again, if you’re small enough and can fit your traffic in a GE or 10GE, peering with a local big player will not cost too much.
This development has actually led to decrease in traffic through the national IX in our NZ-sized country, about -10% in the last 12 months (daily average about 20 Gbit/s, peaks up to 30 Gbit/s). I believe even at the busiest IX’s like AMS-IX the growth is slowing down, nowadays averaging ~1 Tbit/s and peaking at 1.6 Tbit/s. Same is true for DE-CIX, the traffic peaked in early 2012 to almost 2 Tbit/s and has been going downwards since then.
NZ is a bit different story with the data caps, huge number of peerings points, expensive national connectivity and difficult international bandwidth situation.
Vote:August 9th, 2012 at 8:30 am
The situation in NZ is very interesting – Vodafone essentially operated in a monopoly situation. Telecom exist to protect their Copper network and therefore followed Vodafone with anti-competitive practices.
Even Today, three years after the 2degrees launch they remain the cheapest network. New Zealanders have a “Warehouse mentality” and love a bargin. For too long they have been ripped off by Telecom and Vodafone. The $80 package with Telecom is less service than the $40 package with 2degrees. (2degrees package is 2500 texts, 1.1 gig of data and 220 talk anythime minutes).
2degrees have brought competion to the market with great pricing. I signed up with them three years ago as have by two daughters. It will be a cold day in hell if I ever hold a Vodafone or Telecom account again.
Vote:August 9th, 2012 at 8:39 am
Thankfully economic pragmatism won out over economic ideology. NZ is better off in regards to mobile now.
Vote:August 9th, 2012 at 8:52 am
DPF: because it has been highly competitive from the beginning no one entity has got big enough that it could demand fees from people wanting to send data to their customers.
Yep, and who afforded the monopoly rights? Who prevents stuff from being built? Who regulates the industry? You have it just backward: the internet is competitive because governments were too late to see it, and therefore didn’t have the chance to regulate it.
DPF: When you have few customers to start with, no one wants to be on a network where it costs more to call other people.
Yes, that’s why voip apps (viber etc etc) on iphone/android are such a big failure, because there are no customers, so no one wants to connect, and you need to buy an expensive iphone to call someone and, oops. Wait. They are a success.
There are many ways 2degrees could have gained market share. Just to call some specific regulation a success when the same regulator has created the context that such a regulation might even be needed, is an extremely confusing way to look at the real world.
Vote:August 9th, 2012 at 9:04 am
Liberty Scott – you ignore one important thing. Vodafone and Telecom abused their monopoly positions. 2degrees has brought real competition to the cell phone market, and as a result there are now 1,000,000 connections enjoying cheaper cell phone calls.
prior to 2degrees it cost 90cents a minutes on pre-pay for a call. people coulod not use their cell phones because of outrageous costs. Now the maximum prepay is about 44 cents a minutes (with2degrees it can be as low as 22cents). Those on low incomes can now afford to actually make calls.
While the Maori interests were allocated the spectrum, it has to be paid for. 2degrees started with establishing the networks in Auckland, Wellington and Christchurch. 2degrees also have paid a fair price to Vodafone for the ability to purchase “wholesale” capacity on their network. 2degrees do continue to roll out the netowrk through provincial New Zealand.
Vote:August 9th, 2012 at 10:10 am
As a long time Vodafone customer since 2005, I recently made the switch to 2 Degrees.
It. Is. Fucking. Awesome.
I honestly couldn’t give a shit about the economic ideologies behind it, as a consumer I am satisfied and that is all that matters. In a free market it is up to the provider to make a customer happy and that is something Telecom and Vodafone cannot do. Ever hear anyone complaining about 2 Degrees?
Vote:August 9th, 2012 at 7:29 pm
DPF – Could you please reply to libertyscott?
Vote:He made a fair, informative comment.
I would disagree with Monty who says “. Vodafone and Telecom abused their monopoly positions”.
Obviously then it was a duopoly and competition can still be very aggressive when there are only two participants in the market (isn’t it happening with Countdown and Pak n Save?). Mobile phone rates are low now but they also would have dropped even in the absence of 2 degrees. They may not be as low as they are now, but i’m pretty sure Vodafone / Telecom would have wanted to capture the huge “low income” market.
I’m not sure about all of this, but I do enjoy a good discussion about the merits of regulation and I think Liberty Scott gave a good summary of the case against it. A response please?
August 9th, 2012 at 8:11 pm
Monty- That’s a tautology. A market with two players doesn’t have two monopolies, it is at best an oligopoly and no, neither abused their market positions. Telecom had 100% of the mobile phone market in 1995, within seven year it was 50%. Nobody took either to the Commerce Commission over their activities, so your claim is spurious unless nobody wanted to enter this market where enormous profits were being made.
Yes a third entrant always stirs up competition and pricing, by why gerrymander it by discounting spectrum to Maori interests? Why force one of the encumbents (it was never going to be Telecom for technical reasons) to have to sell space on the network it had only built up to a new entrant?
Real competition could have come if the RMA had been reformed so that a third player could build a network and compete, like BellSouth/Vodafone did.
2degrees paid a discount for spectrum, less than its competitors and only because of a race based owner, an owner that took years to get its act together given it once had connections to a promises laden Zimbabwean company. The “fair price” 2 degrees pays Vodafone was not negotiated by contract, it was forced.
The prepay market didn’t exist before Vodafone. It brought it to New Zealand. A 100% foreign owned company paying a market price for radio spectrum and transformed the mobile phone industry giving enormous benefits to consumers.
However, for the sake of placating a few people with Maori ancestry, taxpayers have been ripped off and property rights gutted for some short term gain in competition.
One thing is for sure though, 2 Degrees wont ever replicate anything close to the networks of its competitors and its competitors will be wary about the extent to which they invest in infrastructure they’ll be forced to onsell to those unwilling to risk the capital.
Vote:August 10th, 2012 at 4:28 pm
I must say I am extremely happy with Two Degrees, especially the carryover minutes and the 2 gig data every month .
Couldnt give a flying fuck who it is, how it was done.
Im the customer
I am right
Vote:August 10th, 2012 at 5:28 pm
Yes. Their network coverage in greater Wellington is rubbish, but gets better further out where their customers [invisibly] switch to Vodafone’s network.
Vote:August 10th, 2012 at 5:31 pm
The mandated roaming entitlement is not open ended. 2Degrees have a plan to cover all of NZ with their own network. My understanding is that if they don’t deliver on that plan, that Vodafone is not required to continue the roaming arrangement
Vote: