NZ slow to substitute mobile use for landlines: 2degrees owner

Trilogy owner John Stanton commits to NZ: "We will make it successful if it kills us."

While US-based investment company Trilogy Partners is encouraged by 2degrees' achievement of a claimed 16 percent mobile market share, it sees the New Zealand market as relatively slow in the substitution of mobile use for landlines.

"That trend has not really hit this market yet," says Trilogy managing director John Stanton.

Trilogy has been the majority investor in 2degrees since 2008. Stanton sees the company putting another $100 million into New Zealand's third mobile provider over the next year.

Stanton spoke at a function arranged by the American Chamber of Commerce (AmCham) in Wellington, which attracted industry luminaries and high-ranking politicians including Maori Party co-leader Pita Sharples and opposition ICT spokesperson Clare Curran. ICT Minister Amy Adams sent her private secretary as she had to attend a meeting related to her Internal Affairs portfolio.

When Trilogy began looking into New Zealand around 2005, the environment was not encouraging, Stanton says. Usage was low, prices were high and the market was split between the "dual monopolies" of Telecom and Vodafone. Sensible government policy has led to a turnaround in that picture, he says. Smartphone penetration has historically been comparatively low but is starting to "increase dramatically".

Market monitors predict a massive 600 percent growth in mobile traffic over the next five years. What is going to drive that?

"You only have to open your publication," he says. "The [growing range of] devices that are used now are consuming enormous amounts of data."

The new iPad will be responsible for chewing up large amounts of fourth-generation bandwidth as soon as this comes on stream in each country, he says.

Gaming will be one important stimulus for increasing traffic, he says, opening his iPad to show several word-games he is himself playing simultaneously with family members. "When I'm sitting on the plane -- I spend a lot of my life on planes and in airports -- I would say 80 percent of [fellow passengers] are sitting there with their smartphones playing [Zynga's] Words with Friends or some other game, until such time as the attendant tells them to turn it off.

"And who phones a restaurant to book a table these days?" There are websites for that, he points out, either run by the restaurants themselves or by an independent aggregator. Such small "incremental" data demand, not just from younger people but from "our demographic" (50+), will build into a dramatic overall increase.

Some guests at the lunch suggested that when everyone is equipped with the latest iPad and fourth-generation wireless communication, the concept of "fibre to the home" could become outmoded and the Ultra Fast Broadband and Rural Broadband Initiative deployments appear misguided. "There are some areas where the population density doesn't justify it," Stanton says; "but in densely populated urban areas there is no substitute for fibre." And, of course, fibre will need to be deployed at least as far as the cell towers, to provide backhaul capacity, he says

One side effect of the growing mobile traffic and app use, he predicts, will be a boom in need for security. "Our venture capital business has invested in on-line security companies. There are very few filters on the applications people are downloading and we're seeing viruses and spyware. Apple is better at controlling this than Google," he says, "but the fact is, a lot of the issues on both computers and mobile devices are the result of a leaky app store."

Stanton acknowledges 2degrees has benefited from government competition policy, so what would he like government to do next to ease its path?

"Ensure there is a fair process around the allocation of the 700 MHz spectrum," he says. "Secondly, ensure the RBI programme is fairly administered and Vodafone can't take advantage of their role as essentially a contractor on behalf of the industry to benefit their business."

Thirdly, he says, the government should continue to be available as a "referee" to ensure fair play in the market generally.

He compared competitors in an immature market to young squabbling siblings, needing frequent parental intervention. In the same way, such a market needs sound regulatory and policy decisions and from time to time, specific intervention. As children or the market mature, the need for the third party's involvement lessens; but even in the more mature market that New Zealand is becoming, he says, "you still need a referee when the other guy doesn't play fair. There may come a time when we're all big enough, bad enough and tough enough to look after ourselves and then we won't need the referee." But Vodafone, with $US137 billion market capitalisation is a very big brother, he says; "Telecom NZ is tiny by comparison, but still large compared to us. So time is important," he says; "we will get bigger and stronger."

Staff at Vodafone head office in London probably don't think often of New Zealand, he says. "To us, 2degrees is incredibly important; it's the largest market I've ever personally committed to. I care deeply about this and we will make it successful if it kills us."

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