Writings on technology and society from Wellington, New Zealand

Thursday, October 15, 2009

The mobile network wars

It’s a really exciting time in the development of New Zealand’s mobile phone networks. We now have two different 3G network available to 97% of the country. Choice!

I’ll be talking about this and more on Radio New Zealand National after the news today. You can read on for my speaking notes, or after the programme you can download the audio as ogg or mp3.

Q: Mobile phone carriers – this is Telecom and Vodafone?

A: Yes, recently joined by TelstraClear, Black and White and Two Degrees.

Q: There’s a lot more choice out there

A: There is, but only two of them are important in terms of driving down consumer costs and driving service levels up. That’s Telecom’s newish XT network and the new market entrant Two Degrees.

Just to deal with the others: Black and White is a company which resells access to the Vodafone network. Black and White does its own billing and customer service, but the calling services are essentially Vodafone’s. Other companies form the Internet space, CallPlus, Orcon and Compass, can sell you a mobile running on Voda’s network as well. In the jargon they are a MVNO or Mobile Virtual Network Operator. And TelstraClear doesn’t have a mobile network of its own, it’s just selling access to Telecom’s old network. It won’t roam and it doesn’t have a future.

Telecom’s XT network is important because it competes directly with Vodafone’s. Telecom hasn’t tried that for many years – it always chose a different technology path before – and New Zealand is finally a better place for them doing so.

Q: Why did the different technology it used to use matter? Surely it worked?

A: It certainly did work. The CDMA technology that Telecom introduced with its 027 launch in 2001 has done well. It had digital telephony, data transport and text messaging. Unfortunately it’s not what the rest of the world has chosen, and frankly that must have been clear even back in 2001.

Q: Why did Telecom introduce a non-standard technology?

A: Telecom chose the American mobile standards over the European ones because, initially, it was owned by American companies after its privatization. Over the years the European standards – which are loosely called GSM – have won out to the extent that even the US now has GSM networks, and everywhere else in the world is pretty much all GSM. That forced Telecom to reconsider its technology. Its phones wouldn’t work anywhere else in the world. All the high-value customers were people who wanted to take their phones overseas, and they were buying Vodafone automatically because Telecom just couldn’t supply that that. Telecom, for the last few years, was reduced to chasing teenagers with ten dollar text promotions – a market which Vodafone got started in then happily ceded to Telecom when they realized all the professionals were coming to them.

Q: That’s why Telecom decided to change technology?

A: Exactly. Telecom couldn’t buy the telephone handsets that worked on their technology any more, but mainly the more profitable customers wouldn’t even look at their network because it wouldn’t roam overseas. And, because the Telecom and Vodafone telephones were technically different, you couldn’t buy a phone from one company and take it to the other if you got fed up, as you can in many countries where they have competing networks using similar technology.

Cynics might say that having incompatible phone systems kept prices up. Certainly for many years New Zealand had the highest mobile prices in the OECD. That’s started to change, and its changed during a period when the government has forced the telcos to let people take their numbers when they move carriers, and when Telecom finally adopted the same technology as the rest of the world so there is genuine competition in the market place.

Q: So where does that leave the two players today?

A: As two of many – another thing government has done is force the two big players to accept another one – Two Degrees. Two Degrees has been about to launch for about the last decade, it seems, and its great to see them doing so. What the government did for Two Degrees is force the other players – Vodafone specifically – to allow Two Degrees to use part of the Vodafone network, so Two Degrees only needed to build part of a network to be able to get up and running. Vodafone’s response to this was to let other companies use its network, like Black and White, but I wonder if Voda would have done that if it wasn’t already forced to do so for Two Degrees.

Q: Wasn’t it a bit rich, government forcing Vodafone to accept a competitor on its network?

A: I’m sure Vodafone thinks so! But I’m sure the Commerce Commission was operating within the Commerce Act. The main aim to ensure that no player abuses what’s called “Significant market power” – defined in the Act, effectively to mean that the company can behave like a monpoly. The Com Com will take decisions that are within its power to prevent this. So, yes, Vodafone investors might feel aggrieved about that and with some reason, but they also have to accept that they operating within the law of New Zeeland, that like the law of other countries, balances the good of the country as a whole against the rights of investors.

The government also moved against Telecom a few years ago, because at the time it had significant market power and was controlling almost all broadband in New Zealand. The effect of that was faster broadband and a wider range of companies delivering it.

But the real impact, in mobile terms, has been on Vodafone. They have for several years had the only credible mobile network for high-value customers. And their sales figures reflected that. Frankly, so did their prices. To be fair, they did invest a lot by pushing out a 3G network across 97% of country, but Telecom has now done that as well. In fact New Zealand has a high degree of 3G penetration in OECD terms.

Now, suddenly, Vodafone is facing competition on two fronts – from below, by Two Degrees whish is competing aggressively on prive to offer basic phone and texting services, and from the rejuvenated Telecom network which is offering a network which it claims is better engineered that Vodafone’s network.

Q: Is the XT network better than Vodafone’s?

A: Depends who you ask. My personal experience is that XT provides better coverage in Wellington. But there are probably reverse examples as well where Vodafone has better coverage – I just haven’t found them. But we can say that XT coverage is at least as good as Vodafone’s and possibly better. So, Vodafone is going to have to invest significantly if it wants to keep its position as top mobile telco.

Q: Is it going to?

A: It says not. Vodafone’s CFO did an interview recently lamenting its reduced profitability and saying that it would be reducing network investment as a result. Now, I’m not in charge of financial decision for a major company – some might say that’s a good thing – but that strikes as just the wrong reason to drop investment. Our competitors are beating us so we are going to stop trying. It sounds defeatist, and it will lead to Vodafone’s marker dropping especially among the kind of high value customers it likes.

I asked Vodafone for clarification and I was told that Vodafone would still be investing on maintain and extending its existing assets, but would be slower to roll out new technologies as a result.

That should worry Vodafone, and it should also worry New Zealand, because we need vibrant competition to continue on this market to keep downward pressure on prices and upward pressure on services.

Q: So where is the mobile market going?

A: There will be continued downward pressure on network charges. Now, I appreciate that all this new technology we are expecting the mobile operators to come up with costs money, and they are finally under a bit of cost pressure, but that’s something we can expect the operation of the market to sort out for us.

Decreasing network charges will allow people to have more devices that are connected to the Internet all the time over the mobile network – things like your car, or the Kindle book reader that Nat was talking about the other day, or even your TV, will be able to connect over the air without you needing to fix up wired broadband services. That’s a fairly short term vision – it only needs network costs to come down – where we could get to is the merger of wireless technologies like wi-fi and 3G cell phones to give a common form of connectivity wherever you go. The next iteration of cell phone technology – 4G if you like – is called LTE for long term evolution, and that provides much higher bandwidth to handsets so you can do things like streaming high definition video over the cell phone network. And there’s a another technology out there called WiMax that Intel has been pushing. I’m not sure if that’s going anywhere – it’s been around for a while with no visible traction.

A change like this would involve rejigging every cell site in the world, and probably some technology that hasn’t been invented yet, so I wouldn’t hold your breath. But in five or ten years we may start to see that happening.


Vodafone to reduce network investment?

Next generation cell phone technology

posted by colin at 8:30 pm  

1 Comment

  1. I’m looking for a quality telecom networks provider/manufacturer.
    What do you think of Mer Telecom’s telecom network services? Do they operate in New Zealand?

    Comment by Olga Novia — 16 February 2010 @ 2:51 am

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