2 degrees makes 1 million customers

August 8th, 2012 at 4:00 pm by David Farrar

Jamie 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.

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Mobile Termination Rates cut

May 5th, 2011 at 12:00 pm by David Farrar

At long last, we have a final decision from the Commerce Commission.

The termination rate for mobile phone calls between networks is going to reduce as follows:

  • Today – 15c to 17c
  • Tomorrow – 7.48c
  • 1 Oct 2011 – 5.88c
  • 1 Apr 2012 – 3.97c
  • 1 Apr 2013 – 3.72c
  • 1 Apr 2014 – 3.56c

And the termination rate for text messages between networks will reduce as follows:

  • Today 9.50c
  • Tomorrow 0.06c

This move is long overdue, and congrats goes to the Commission and Steven Joyce who made the decision to regulate.

It will be interesting to see the impact on retail prices. It won’t be immediate, but it means we should eventually see people choosing their network based quality and price, not based on which network their friends are already on.

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The spam red herring

February 9th, 2011 at 8:20 am by David Farrar

Tom Pullar-Strecker reports:

Consumers could be deluged with spam text messages unless the Commerce Commission has a change of heart and lets mobile phone companies charge other telcos a token amount for routing texts to their customers, Vodafone and the Telecommunications Users Association have warned.

The commission is considering outlawing such charges as part of its long-running investigation into mobile termination fees, which Vodafone said yesterday could slash its pre-tax profits by $69 million next year.

The Telecommunications Users Association said in a submission to the commission that the main reason that up to 90 per cent of all email was spam was that it cost people virtually nothing to send. Text spam was a “small but growing problem” that the commission risked exacerbating, it said.

Oh bullshit (with all respect).

Almost all spam comes from overseas. The regulated mobile termination rate will only apply to texts sent between NZ telcos. And NZ telcos under the law have to kick spammers off their networks.

“The single best weapon in the fight against spam is cost. Remove the cost entirely and New Zealand mobile users will find out just how quickly the world of email spam can be replicated in their SMS inboxes,” it said.

With this viewpoint, Vodafone are saying they’d also like to be able to charge ISPs for receiving e-mail in order to stop spam. Can you imagine having to pay your ISP a per e-mail charge?

The reality is that NZ telcos arrangements with overseas telcos for receiving text messages from overseas are outside the MTR regime. And any locally based spam can be prosecuted.

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Mobile termination rates coming down

December 23rd, 2010 at 3:00 pm by David Farrar

RNZ report:

The Commerce Commission says the cost of switching phone calls and texts between mobile networks should drop sharply from April next year.

In a draft decision, the regulator says the cost of mobile termination rates should be cut from about 17 cents a minute to 4.7 cents a minute.

The price would gradually drop to 3.9 cents by April 2014.

For texts, the commission is recommending what is known as a “bill and keep model”, under which phone companies do not charge each other for routing messages, partly because the cost is already low.

This means that telcos can now afford to do text packages that won’t be restricted to recipients on their networks only.

Just under 5c a minute for phone termination is not too bad either.

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Mobile termination rates to be regulated

August 4th, 2010 at 8:59 am by David Farrar

Steven Joyce has announced:

The Minister for Communications and Information Technology, Steven Joyce, has accepted a Commerce Commission recommendation to regulate mobile termination rates.

He says regulation will improve competition in the mobile market and result in lower prices for mobile phone users.

Mobile termination rates are the wholesale prices charged by a mobile network operator (such as Telecom, Vodafone and 2degrees) for providing services to customers from other network operators.

Under Section 19 of the Telecommunications Act the Minister is required to make the decision that best gives, or is likely to best give, effect to the purpose of Part 2 of the Act – that is, to promote competition for the long-term benefit of end-users of telecommunications services.

Mr Joyce says he considers that accepting the Commission’s recommendation meets this test and in this case will lead to lower mobile termination rates and more competitive mobile pricing plans for consumers.

This is no surprise at all – but still a welcome decision. I believe it will lead to more competition and better pricing plans. The current MTRs act as a price floor and deter competition.

Consumers in Auckland should be choosing their mobile phone provider on the quality and price of the services they offer. Instead far too many have been forced into choosing a provider based on  the fact most of their friends are with that provider, and they can’t afford to be on another network.

Imagine if one had to choose your ISP, based on whom you send and receive most of your e-mails from. Imagine having to pay say 5c an e-mail if it was to someone on a different ISP.

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Mobile Termination Rate regulation recommended

June 17th, 2010 at 10:29 am by David Farrar

The 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.

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Own goal confirmed

May 12th, 2010 at 10:54 am by David Farrar

My prediction that Vodafone’s new calling plan for on-network calls was a massive own goal, has been proven correct. Launching the plan just days before the Minister was due to decide on the recommendation not to regulate mobile termination rates will go down as arguably their biggest stuff up to date.

To be fair, their competitor Telecom, has many to choose from – CDMA, XT, AAPT etc etc.

The Herald reports:

Vodafone’s latest marketing deal has pushed the Commerce Commission to backtrack on an earlier decision and it is now recommending the Government regulate mobile phone ‘termination rates’. …

In a draft report out today, the commission says earlier undertakings offered by Vodafone and Telecom would not address competition concerns.

Considering the Minister asked the Commission to reconsider its 2-1 recommendation to accept commercial undertakings rather than regulate, what is the chance he will now turn down the new recommendation to regulate? I’d say close to zero.

If Vodafone had held off their new pricing plan for a couple of weeks, I reckon there was an 80%+ chance the Minister would have gone with the recommendation to accept the commercial undertakings.

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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 Vodafone on the issue of mobile termination rates 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, 2 Degrees 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.

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Vodafone responds

April 23rd, 2010 at 4:38 pm by David Farrar

Vodafone have sent a response to my recent post on their pricing change:

Got a prepay mobile with Vodafone? Give up your landline

Last week we released a new add-on called Talk that lets Vodafone Prepay customers talk for up to 200 minutes a month to landlines or to Vodafone mobiles for $12.  We want to encourage our mobile customers to use their voices rather than their fingers, and their mobiles rather than their home phones.

Certainly Talk has got a reaction.  A range of parties have expressed a view, including the Minister, the Commerce Commission, TUANZ, 2degrees, and the blogosphere.  Even DPF himself has weighed in.

I want to make three points.  First, why we are launching Talk.  Second, why it is good for competition.  And third, what the implications are for the Minister’s decision on mobile termination rates.

Why Talk

Talk is a great deal.  In particular, you should buy Talk and give up using your landline.  You pay too much for it anyway.

We all know that New Zealand mobile users are very keen on text messaging.  New Zealand has amongst the lowest prices and highest usage for text in the world. But the same enthusiasm doesn’t extend to talking.

Our research tells us that three quarters of customers wait till they get home to make a call longer than five minutes.  Talk is part of our response, letting customers get on with what they want to do with their mobiles.

This is not the only change we are bringing to prepay this year.  Recently we introduced cheap international calling rates for our top destinations, but it began in 2006 with Best Mate TXT2000, $2 for 2 hours off-peak, and the introduction of Family in 2008. There is much more to come.

Competition

2degrees has argued for years that it cannot compete without a laundry list of regulatory concessions.  2degrees has not deviated from this line despite the numerous changes that have been made to accommodate it. But with several hundred thousand customers after just over six months, 2degrees is already one of the most successful new entrants in the world.  I see the Commission this morning reported 2degrees’ market share at 4% as at 31 December.  Five percent market share in a year would be very good performance.  So 4% percent in around six months is remarkable.

The real question is not what our competitors think, but whether they can match or better Talk.  Clearly they can, and they will if they think that doing so will gain them an advantage in the market.

Comparison between headline retail rates and mobile termination rates is not helpful.  Operators offer lots of different products, some are higher priced, others are lower priced.  All three mobile network operators offer products that are cheaper than MTRs.  Some examples:

•             Telecom offers calls from a Telecom fixed line to a Telecom mobile for sixty minutes for no more than a dollar.  If calls are long this could easily generate a very low average price (hat tip: Steve Biddle).

•             Vodafone allows unlimited calling between all connections on one business account in return for a monthly fee per connection.   Clearly this also generates a very low average price if usage is high.

•             2degrees offers its customers text messaging to any other 2degrees’ customer for 2 cents a text.  Under our agreement with 2degrees, we are required to pay more than four times that amount to text a 2degrees customer.

The Commission does have a cross-check between mobile termination rates and retail prices in its final report.  It’s not based on the level of any particular retail plan; instead it compares industry average retail on-net mobile prices with mobile termination rates.  Talk shouldn’t affect that average.

Decision

The Minister needs to decide what to do with the Commission’s termination rate recommendation.  He can send it back to the Commission for more work or accept the undertakings as recommended by the Commission.

Accepting the undertakings means lower mobile prices from October.  Voice termination rates would fall from 14.4 cents (already lower than the UK) to just under 10 cents, and then again to just over 8 cents on 1 January with more falls over time.  The undertakings cut text prices to zero.

Sending the report back to the Commission for more work means termination rates stay where they are for a longer period.

The Minister’s decision is quite straightforward.  His best choice is to take the money on the table now, accept the undertakings and reduce mobile prices from October.  If the Commission wants to look further at retail pricing and the relationship with mobile termination rates there is nothing to stop it doing so.

Hayden Glass
Public Policy
Vodafone NZ

We all await the Minister’s decision with interest. In the meantime, the debate will continue!

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A possible own goal

April 21st, 2010 at 8:02 am by David Farrar

The Herald reports:

Vodafone’s new Talk plan for pre-pay customers has raised a red flag for the Commerce Commission on whether mobile termination rates should be regulated.

In February, the commission recommended Communications Minister Steven Joyce accept Vodafone and Telecom’s proposal as an alternative to regulation on the basis the final undertakings would address its competition concerns. The proposal is to reduce rates to 6c per minute by 2014.

But Vodafone’s new Talk pre-pay plan, launched last week, has raised questions whether an industry solution will hinder smaller companies.

The Talk plan offers customers 200 minutes on its network and to landlines for $12 a month on certain pre-pay plans. This works out to about 6c a minute.

It costs 89c per minute to call a Telecom phone from a Vodafone phone. The current termination rate between the networks is 14.4c.

2degrees chief commercial officer Bill McCabe said Vodafone’s new plan made it 15 times more expensive for a Vodafone customer to call a 2degrees phone than to call its own network.

Telecommunications commissioner Ross Patterson said it was the commission’s initial view that the Vodafone Talk plan may be material and have the potential to affect the basis for its recommendations in the final report.

Joyce said: “I wrote to the commission to ask them their view on whether Vodafone’s new Talk Add-on offer to its prepay customers is material to the decision on mobile termination access services. They replied that it may be the case.”

Vodafone’s move may be one of the more stupid commercial decisions in recent times. The Government is days or weeks away from making a decision on mobile termination rates. The Commerce Commission was split 2 to 1 on its recommendation not to regulate, so it is a close call.

And then Vodafone comes out with a plan which absolutely undermines their commercial offer on termination rates. They set a retail price for on-network calls which is half the current wholesale termination rate between networks and will be higher or equal to the termination rate even in 2014, under the commercial undertakings.

If you asked me to sit in a room and think up a stunt that is most likely to push the Commerce Commission and Government away from accepting the commercial undertakings, and towards regulation – this is what I would come up with.

The fact the Minister has written to the Commission and said “Does this changes things” and that the Telco Commissioner has already said “Yes” is significant – especially that the Commissioner was one of those who voted not to regulate.

If the Government does now decide to regulate, they only have themselves to blame. I’m amazed they didn’t hold off any pricing changes until after the Minister made a decision.

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The mobile termination rates decision

March 11th, 2010 at 3:00 pm by David Farrar

Labour yesterday announced a formal position on mobile termination rates:

The Government should put consumers first and regulate mobile termination rates to keep call costs down, Labour spokesperson for communications and IT Clare Curran said today.

“High mobile termination rates are a barrier to entry for new players in the market, which leads to less competition and higher prices,” Clare Curran said.

“While Vodafone and Telecom have now offered to lower termination rates by around 80 per cent, it still does not go far enough to reduce the major issues for new entrants.

I think it is a good thing that Labour have learnt from their mistakes, when they did a deal with the two telcos in 2007, rather than accept the advice to regulate.

Slightly amused that their formal policy stance comes just days after Clare had a whack at Matthew Hooton for implying Labour support the Drop the Rate, Mate campaign.

The Drop the Rate, Mate campaign also yesterday released their submission to the Minister, including some research done by Curia of 400 mobile phone users. Key findings were:

  • Only 18% of respondents wanted the Government to accept the binding promises of Telecom and Vodafone, while 78% wanted the Government to regulate
  • 79% agreed that Telecom and Vodafone are overcharging New Zealanders
  • 85% agreed with the proposition that it should cost the same to call someone on a different network, as to call someone on your own network

The full results are here – EXCELTIUM MOBILE PHONE RESULTS MARCH 2010 PUBLIC.

Chris Barton in the Herald is not shy with his opinion of what the Government should do:

So far, you have to say, Joyce has played with an exceedingly straight bat. But it won’t be easy negotiating the quagmire of a split recommendation by Commerce Commissioners on mobile termination rates. Two argue for putting heads in the sand while one voice of reason says enough is enough – Vodafone and Telecom have had more than enough time to sort this out and have, time and again, shown they can’t be trusted.

Joyce will be familiar with the sordid last-minute deal stitched together between new mobile entrant 2degrees and Vodafone last year. While the public isn’t allowed to know about this venality, anyone who cares to can find it online (search under “NZ Cellphone racket”). It shows that Vodafone will move if it has a gun to its head. Joyce will also be familiar with www.droptherate.org.nz and www.fibretothedoor.co.nz – two campaigning websites where the public is helping the minister make up his mind.

Go there at once.

What fed-up consumers want minister, is Clint Eastwood’s Dirty Harry. For some of us, it’s so bad, we don’t just want Clint to pull out his .44 Magnum and ask whether the punk feels lucky. With Telecom and Vodafone, we want him to pull the trigger.

The challenge for the Minister, is how quickly can a regulated price be established, if he chooses to regulate. The undertakings would take place more quickly. However the likely regulated price would see prices by 2011 drop further, and remain lower.

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Vodafone on Mobile Termination Rate Undertakings

March 9th, 2010 at 2:00 pm by David Farrar

Paul Brislen from Vodafone has offered me, and I’ve accepted, a guest post on the mobile termination rates issue. I’m happy to run both sides of the argument:

The Commerce Commission has recommended to the Minister of Communications that he should accept the Telecom and Vodafone undertakings rather than regulate the industry any further. Those that want regulation at all costs would have you believe this is a travesty and must be overturned, but really they should be celebrating. This is a big win for those that think termination rates are too high.

So what is a termination rate and why should you care? When you call a Vodafone mobile from a Telecom phone you’re paying Telecom a fee for that call. Vodafone doesn’t get paid for that call by the customer – it gets a cut of the earnings from Telecom directly. This is called a termination rate and it’s got very little to do with the retail price you pay. Think of a newspaper publisher – it earns its money from two sources: the cover price paid by the consumer, and the advertising rates, paid by the advertiser. The two are related but not directly linked. It’s a two sided market and so is telecommunications.

Over the past six years termination rates have fallen by 46% and the Commerce Commission feels they should be even lower. Part of the process is this idea of seeking “undertakings” from the industry – that is: what will you give us, industry players, to avoid regulation. It’s quasi-regulation that gives the industry the ability to offer a solution that will be quicker than regulation and still provide the solution the Commission is looking for.

In this case the Commission asked Telecom, Two Degrees and Vodafone, to submit undertakings to avoid regulation. We did, but the Commission asked for a unified undertaking from all three players to give it a benchmark with which to compare its own regulated solution. We tried, but there was no way the three players were going to agree on one solution – so Telecom and Vodafone put forward a combined best offer. After some wrangling, the Commission has recommend the government accept that offer.

The undertaking reduces the termination rate for voice calls from 15 cents to five cents per minute over five years. It happens in stages – so from October 1 it’s a 35% drop, followed by a further 10% drop on January 1, 2001 and further reductions in the years after that.

The second major part is that TXT message termination rates will drop immediately to zero. That is, aside for some wiggle room to stop TXT message spam, companies will charge customers directly for TXTs and won’t pass anything on to the other telcos.

The Commission’s job was to compare that offer with what it could best hope to obtain under regulation. Any regulation from this point on is at least 12 months away from implementation because of the Commission process, so the Commission has to weigh up these savings from October 1 versus potential savings delivered in 12 months time.

The undertaking is so close to the regulated outcome that any extra savings delivered under regulation clearly aren’t enough to outweigh the delay in delivering them.

So what’s in it for the telcos? Did we simply offer these deals out of the goodness of our hearts? Well, no. No company likes to be regulated and no company wants to be forced into a corner. Vodafone doesn’t like the Commission’s modelling, doesn’t trust its numbers, doesn’t like the outcome. But at the end of the day, the Commission is the regulator and we have to operate in that market and if it comes down to a commercial undertaking that offers a controlled descent or a regulated solution that includes revenue dropping off a cliff on a given day, I know which I’d prefer. We need some certainty around investment strategies otherwise it all becomes too hard.

We’ve offered to reduce rates dramatically. The Commission has recommended the Minister accept them and the customers will benefit sooner from the undertakings than they would from direct regulation. The telcos win because we have a solution in place and can get on and the consumers win because they can open their newspapers without having another story about MTRs rammed down their throats.

The Drop the Rate Mate campaign put together to influence this decision, ran a survey which looked at the public’s perception of the telco sector. One of the interesting outcomes of that research was that when asked whether they would change their political vote for a party that regulated MTR, only 20% of participants said they would. So in answer to my earlier question (why should you care) the answer is you shouldn’t. But finally we can all get on with our lives.

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Labour on Mobile Termination Rates

March 1st, 2010 at 5:57 pm by David Farrar

Clare Curran at Red Alert has blogged that Labour is not supporting the Drop the Rate Mate campaign, about mobile termination rates, and is annoyed at a statement from Matthew Hooton which implies they are.

Matthew commented in response that he has met with many Labour MPs who are supportive but apologises for any misunderstanding if this has been taken as presuming to speak on behalf of Labour formally.

Clare has responded that there is a difference between a public position and “what individuals may say in a meeting about an issue they don’t know much about”.

Amusingly if you go to the Facebook page for Drop the Rate Mate, a prominent friend is David Cunliffe – who was IT and Comms Minister for Labour in the last Government.

I hope Clare is not suggesting David (who did an excellent job in my opinion in the portfolio) was one of those MPs talking about an issue they don’t know much about :-)

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Editorials 25 February 2010

February 25th, 2010 at 2:29 pm by David Farrar

The Herald editorial is on mobile termination rates:

New Zealand’s “light-handed” regulation of markets is sometimes astonishingly tolerant. Never more so than in the long-awaited final report of the Commerce Commission on the amount telephone companies charge for admission to their mobile networks. …

But the commission’s majority view is probably the right one. Regulators have to be fair to suppliers as well as customers and potential competitors. Networks are costly to build and maintain and newcomers that want to sell services into them must expect to pay a fair price. The price must maintain the network owner’s incentive to invest in it.

Clearly, the termination rates in this country were much higher than they needed to be to maintain the investment. Telecom and Vodafone have been using them to subsidise their subscribers and protect their equal market shares.

But their latest undertakings will more than halve their charges by 2014 and give a newcomer a fighting chance. Their undertakings can be policed by keeping the regulatory alternative in reserve.

Heavy-handed regulation usually has unintended consequences that are not in the interests of competition or consumers. Persistent shepherding and constant monitoring are best.

So the Herald favours giving the benefit of the doubt to the telcos. As I said previously, a tough decision for Steven Joyce.

The Press focuses on what it calls the XT debacle:

When members of the public dial 111 they have the legitimate expectation that their call will be answered promptly and emergency services quickly dispatched.

But on Monday, when a Christchurch man attempted to alert the police to an attack on a Japanese man outside a suburban mall by four skinhead thugs, who were accompanied by two pitbull dogs, the failure of Telecom’s troubled XT cellphone network prevented him from doing so. …

It is utterly unacceptable that its much-vaunted $574 million XT network, which lured customers to join with claims that it was state-of-the-art technology, could have failed four times in recent months. On one occasion some customers were cut off from XT for three days. …

But it is even more serious that in parts of the country, including Christchurch, a switching process which is supposed to have allowed XT phones to use other networks did not work and, as a result, 111 calls could not be made.

The unavailability of the 111 number could create dangerous situations. It means that crimes, accidents and fires could not be reported to emergency services, unless a landline was within immediate access, and conceivably lives could be put at risk by the problem.

If the faults with the XT network cannot be swiftly resolved, and there is no guarantee that this will occur, the Government will have little choice but to regulate to ensure that 111 calls can get through when networks become unstable.

The failure of 111 calls is the most serious aspect.

The Dom Post also focuses on XT:

If you believe the ads, Telecom’s new XT network provides unmatchable cellphone service in the Mt Victoria Tunnel, on remote farm tracks and in shipping containers floating off the coast of the North Island.

Sadly, its record is not so good in living rooms and city streets. The technical fault that prevented 220,000 Telecom customers from making calls on Monday was the fourth major outage in the past 10 weeks. It is not often that an advertising campaign blows up so spectacularly. …

In the wake of the latest outage, there have been calls for the Government to further regulate the industry.

That isn’t necessary, although ministers would be wise to bear in mind the gap between Telecom’s rhetoric and performance when they consider the phone company’s offer to host the Government’s proposed $1.5 billion ultra-fast broadband network. This is an occasion on which the market is actually working. There are two other mobile network providers in New Zealand – Vodafone and 2degrees – and mobile phone users have options.

The fibre to the home network build is significant. I have never thought Telecom would get to win the tender in all 33 regions, but if they failed to win any region, it might lead to a perception of unfairness. However it is a political reality, that these XT outages makes it less of an issue if Telecom do not get any major aspects of the FTTH rollout.

The ODT editorial is on ministerial credit cards:

Credit cards and politicians go together like oil and water: which is why there will be much gnashing of teeth at the latest folly concerning our Parliamentarians and their inability to follow the most simple of rules relating to expenditure.

The present matter involves ministerial credit cards, a facility granted to MPs of such rank, to give them access to money should they be required to spend it in the course of their official duties. …

In this context, Housing Minister Phil Heatley must have used up about as much rope as Mr Key will lay out to him. …

For his part, Mr Key may need, sooner rather than later, to put away his smiling Mr Reasonable personage and show at least a glimmer of the inner steel that all successful leaders must possess.

Anyone who thinks the PM doesn’t have inner steel, will not enjoy finding out that they are wrong.

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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 mobile termination rates 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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Mobile Termination Rates

February 23rd, 2010 at 11:00 am by David Farrar

I stole this graphic from the Dim-Post who stole it from the Economist.

I think this is the perfect illustration of the impact the artificially high mobile termination rates have had on New Zealanders. We use mobile phones only one quarter as much as Canada and one tenth of the US. In fact we are around the level of Kenya.

The Herald reports:

Mobile phone customers will end up paying the price if the telecommunications industry is not regulated, an industry lobby group says. …

After six years of consultation, even the three commissioners considering the complex subject do not agree.

In the report, Telecommunications Commissioner Dr Ross Patterson recommends the industry regulate itself voluntarily.

Associate commissioner Gowan Pickering agreed but commissioner Anita Mazzoleni was in favour of regulation.

Their report will be considered by Mr Joyce, who is calling for submissions on the topic by March 8.

Consumer NZ chief executive Sue Chetwin said it was disappointing that two of the commissioners had backtracked from their views that termination fees were too high.

“I don’t think they’re coming down far enough or fast enough … [but] it’s not the end of the game yet.”

Sharing her view was Ernie Newman, chief executive of the Telecommunications Users Association of New Zealand (TUANZ), who said the recommendations were “anti-competitive”.

“It very much favours the big established operators and is hugely detrimental to any small player or new entrant,” he said.

“If the minister accepts these recommendations then long term it’s a bad outcome for consumers.

It will be a tough call for Steven Joyce – does he go with the advice of the two Commissioners or the advice of the other Commissioner.

I was rather surprised that two of the Commissioners changed their mind from the draft (no doubt partly due to better undertakings from Vodafone and Telecom), because the last time this happened it was over local loop unbundling, and almost everyone one today says that in hindsight it was a mistake not to do LLU at the earlier opportunity.

I’m also bear in mind that Trevor Mallard went for undertakings over regulation when he was the (Acting) Minister. I’m not sure he is of the view that with hindsight that was the right decision – I note Labour have reserved their position on the issue for now.

I’m just glad I’m not the Minister who has to make the decision!

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Mobile rates to come down

February 22nd, 2010 at 11:33 am by David Farrar

The Commerce Commission has decided (by a rare 2:1 split) not to recommend regulation of mobile termination rates, as the undertakings by telcos is deemed satisfactory.

The Government is consulting on the recommendation. Regardless of whether it goes with commercial undertakings or regulation, it means prices should drop. The mobile termination rate is the rate charged to receive and terminate a call to a mobile phone, so it acts as a floor on charges.

The mobile termination rate is 17.53c a minute for Telecom and 17.90c for Vodafone. Under the final undertakings these will drop to 10c in 2011, 9c in 2012, 8c in 2013 and 6c in 2014.

That is good for consumers, but not so good for competition as it means it is not until 2014 we get them to 6c. If they recommended regulation then one might get to that level in 2011.

As for text message termination rates, the final undertakings are to move to bill and keep (ie no termination rate) so long as traffic is balanced within 7%.

Reading the executive summary, I was interested to find out that 80% of all voice calls and 90% of all SMS traffic is on the same network. This is much higher than in other OECD countries, and is a result of the high MTRs we have had.

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Guest Post: Vodafone on MTR

October 6th, 2009 at 1:00 pm by David Farrar

I’ve blogged a few times on mobile termination rates, and Vodafone have offered a guest post to give their view (which is somewhat different to my view) on the issue. Always happy to have the debate. The guest post is:

Vodafone has made an Undertaking as part of the Commerce Commission’s investigation in to Mobile Termination Rates (MTRs) that dramatically changes the telco environment for all concerned. Instead of charging 15c/minute to terminate a voice call, Vodafone will move to 3c/minute. Similarly, to receive a TXT we are cutting the rate to 1.2c/TXT.

These are enormous cuts to the current rates:  an 80% drop in voice termination and 87% drop in TXT.

So why would Vodafone voluntarily make such an offer? Surely the cost of reduction – we put it at $450m over five years – is too much for a business to bear?

The short answer is: the alternative is regulation and any company will tell you regulation is bad for business – and sometimes consumers too.

The longer answer is that we want certainty and that regulation doesn’t deliver that.  Regulation also involves a very messy, drawn our process involving complicated cost models.  The business, the Commission and industry could well do without this if we can possibly avoid it.

In 2007 we had a deal with the government and contrary to popular opinion it wasn’t a last-minute smoky back-room deal designed to circumvent the process. When a minister of the Crown says “boys, sharpen your pencils or I’ll regulate” by crikey you sharpen your pencil.

Vodafone and Telecom agreed to drop rates over a period of time, to start immediately and (very importantly) to pass all those savings on to customers. The minister saw that getting a resolution immediately and having the money go to customers was better than anything the Commission could offer and he accepted the deal.

Job done, five years of certainty, let’s get on with business, we thought.

Eighteen months in, the Commerce Commission re-opened an investigation and removed any certainty we had from the deal.

Certainty is everything for investment and regulatory certainty is a must-have.

Instead we have a Commerce Commission that has changed its method of benchmarking termination prices three times during the last few years and which has assumed much higher levels of consumer benefits under regulation without really explaining why. And in New Zealand there’s nothing Vodafone or anyone else can do about it. There’s no merits review process for telecommunications, there’s no court of appeal, all we can do is seek a judicial review and frankly that’s a bad idea on many levels.

But do you know what? That’s the way this game is played. The Commerce Commission gets to ask the questions and the Commerce Commission gets to make the recommendations.  Today we need to tackle the issue in front of us right now.

So we set about trying to find an innovative solution that would work for all parties. We’ve accepted that while we have major issues with the Commission’s analysis on this issue, there’s nothing we can do that will change the Commission’s view, so we need to work with them to come up with the next best thing: some level of certainty over the large scale regulatory changes we are about to experience.

Which brings me to our new Undertaking.

Vodafone wants certainty and currently the only thing certain is that when the Commission reports in to the Minister in December it’ll opt for some of the most aggressive regulation in what used to be called the western world.

By putting in an Undertaking that offers to deliver better outcomes than regulation, we hope to do three things: avoid regulation; give the Commission the rates it wants and give Vodafone’s investors the certainty they need so we can keep investing heavily in the local market.

By lowering our TXT rates immediately (April next year, which is as immediate as things get in this discussion) we deliver ahead of the Commission’s timetable (which would see regulation taking effect in 2011 at the earliest).

For voice calls we’re offering a glide path from current rates down to 3c/minute by 2015. That’s slower than the Commission has laid out, but gets us to a lower number than the Commission has indicated. The glide path means we can plan better year on year for the next five years (and that’s good for us) and it’s a lower number, which is good for the Commission’s process. The Commission wins by forcing rates lower, and we get to do it in a business-like  manner.

The next step is for the Commission to report to the Minister in December and then Steve Joyce has to make the call. If we go down the regulation route we face two years of conferences and submissions on cost models and frankly that’s not something I’d wish on my worst enemy. If the Undertakings are accepted, by April next year we’ll be done and we can get down to doing what businesses should stick to: making products and selling them to customers.

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