Is it just a healthy dwarf or could it be a contender?

IT’S 8am. 2degrees’ US-born chief executive Eric Hertz has already been for his regular early-morning swim – 90 lengths in a 25-metre pool. He’s red-eyed, but perky, dressed in a sharp high-street shirt that appears wrinkle-free. Mr Hertz didn’t want to do this interview, but in the end, has fronted up.

The challenger company is facing a potential PR nightmare after news broke that it wants to dismiss founder Tex Edwards, who battled the regulators for years to get a third player in the market.

Mr Edwards has secured an interim injunction from the Employment Court which prevents his job as company ‘‘strategist’’ from being disestablished. A rumoured dispute about the dilution of Mr Edwards’ shareholding in 2degrees lurks in the background. Not a good look for the company that built its brand on being the friendly underdog.

‘‘I won’t comment on that,’’ Mr Hertz says, looking down. The substantive hearing on the employment dispute is due to be heard on August 22.

What he will talk about is the company’s greatest challenge – how to be truly sustainable up against the deep-pocketed market incumbents, Telecom and Vodafone.

“Until there are three entities on a strong standing, large dominant incumbents have an economic incentive to see the small, third one, as at best a healthy dwarf,’’ he says.

Industry commentators say most people, apart from 2degrees’ rivals, agree the newcomer’s success is important to Kiwi consumers. For years Kiwis paid extremely high prices for mobile calls and texts because of a lack of competition under the cosy market duopoly of Telecom and Vodafone.

The catalyst for change came in 2006 when the Labour government’s telco reforms gave the Commerce Commission wider powers to investigate the mobile market without ministerial approval.

The commission identified that mobile prices were significantly above the average for other Organisation for Economic Development Co-operation and Development countries and did a series of things to remove entry barriers for a third player.

The sheer speed at which 2degrees has picked up customers since its launch in August 2009 is surely testimony to how many Kiwis were eager to take up a more affordable mobile option.

In the first seven months of operation, the company acquired 209,000 mobile customers. By March 2011, it had 580,000. It expects to hit the one million customer market next month – 20 per cent of market connections.

Telecommunications Users Association chief executive Paul Brislen reckons 2degrees was the fastest growing third-mobile-entrant in the world. It took Meteor in Ireland five years to get a 5 per cent revenue share of the market.

“2degrees busted through that within two years.”

The company’s success, say financial analysts, is largely down to savvy marketing.

From the start, the irreverent comedian Rhys Darby fronted its TV advertisements. His quirky humour worked, according to University of Otago marketing lecturer Roel Wijland.