Making sure mobile stays competitive
month cost $132. It had fallen to $29 by August last year.
‘‘A basic $49 (monthly) plan provides Spark customers with 400 minutes, unlimited texts, and 1.25 gigabytes of data,’’ the discussion document says. ‘‘In 2009, the same package would have cost over $700 every month.’’
Vodafone chief executive Russell Stanners sounded hopeful when he said last month that it seemed as if prices might now be stabilising.
Mobile operators have invested billions of dollars to create competing national infrastructure and secure rights to mobile radio spectrum that lets them offer increasingly fast and sophisticated services.
From a consumer’s perspective, this is brilliant but, as an investment proposition for a telco, it sucks. Making a return on those investments, even with massive data growth, is getting harder and harder.
While Spark’s result in the latest earnings season won market plaudits, it was on falling revenues and tighter margins. Rival Vodafone reported a $121 million loss.
Granted, most of that was the last one-off costs relating to its purchase of Telstra Clear’s operations in 2012, but it’s a fair bet the local unit of the global provider will be showing reduced earnings compared to three years ago, once the Telstra impacts stop clouding the underlying picture.
Vodafone NZ’s revenue fell 4.4 per cent to just under $2 billion at the same time as 100 per cent growth in data demand.
Because of these dynamics, this week’s discussion document pays particular attention to what it calls the ‘‘vulnerable’’ state of competition in mobile telecommunications, seeking views on how to make sure this continues to deepen.
Between the lines, the document makes better reading for the third wheel in the mobile market, 2degrees, than it does for the current largest mobile provider, Vodafone, or for Spark, its closest competitor.
Respectively, each provider was claiming 24 per cent, 35 per cent and 41 per cent of the market respectively in August last year, with the latest earnings season suggesting that Spark has been closing the gap on Vodafone.
Likewise, 2degrees’ network offers about 88 per cent coverage, compared with 97 per cent for Spark and Vodafone.
The race now is not for greater coverage, but to invest in infrastructure to support the next generations of mobile technology, known as 4G and either F5G or LTE, standing for ‘long-term evolution’ technology.
Given the costs involved and the diminishing returns per GB of data, the discussion document warns ‘‘the gains from encouraging further infrastructure competition might diminish from this point’’.
‘‘As mobile technology develops, the investment cycles in mobile networks appear to be getting shorter, with shorter periods for gaining returns on these investments.
‘‘It may be challenging for the three mobile network owners to all deploy ubiquitous 5G networks’’, let alone deploy existing technology into high cost rural areas.
‘‘It would seem efficient for market participants to roam or share infrastructure and/or spectrum, rather than deploying three sets of mobile towers across the country.’’
Likewise, competition in rural areas may be less important than ensuring good quality service. The document suggests mandatory sharing of rural cellphone towers and infrastructure could be a valid approach.
A new approach to regulating access to radio spectrum is also proposed. This should all be music to 2degrees’ ears, since it has complained vigorously about the difficulty of competing against much more deep-pocketed peers and about the process that saw 2degrees allocated far less 4G spectrum that it believes it will ultimately need in the last auction round.
As it is, the paper notes that all three mobile providers may be dragging the chain when it comes to letting ‘‘virtual’’ mobile competitors set up to compete with them through keenly priced access to their existing infrastructure.
‘‘After investing considerable sums in their mobile networks, the three mobile operators appear to have little incentive to offer competitors to their networks in a way, or at a price, that would allow them to compete effectively.’’
Finding the right balance between allowing mobile operators to make money and keeping the boot on their throats to be competitive emerges as one of the biggest challenges in regulatory reforms that seek to future-proof one of the fastestchanging sectors of the economy.