Opinion: It's not a duopoly, it's two monopolies

Sarah Putt looks at the granting of the RBI tender to the Telecom-Vodafone partnership

Following the decision by ICT Minister Steven Joyce to select the Telecom/Vodafone bid for the Rural Broadband Initiative, I contacted him to ask if he had just entrenched a duopoly.

Of course he denied it. He said that open access and equivalence measures would ensure all mobile players could locate their equipment on cell towers built by Vodafone as part of the RBI. He then described the mobile market as “a three-way argument between Vodafone, Telecom and 2degrees”.

Oh if only that were the case. It is seriously debatable if it is even a two-way argument. Reading through the submissions to the Commerce Commissions draft determination on mobile access termination access services, it’s clear that Vodafone has the Auckland market by the throat.

Digital Island – a mobile virtual operator (MVNO) on Telecom’s XT Network writes in its submission: “An example is in the Auckland business market where Vodafone has upward of 76 percent market share in the SME/ME segments and a standard Vodafone On-net and Off-net rate of 13 cents + GST and off net of 28 cents + GST. It is extremely difficult for another network operator to create a competitive offer with equal variance to On-net and Off-net rates as less than 25 percent of the customers calling is going to their own network.”

That’s the competition, what about the consumer’s view? Nestled amongst the submissions is a letter from the Auckland Netball Centre, which states: “Our experience and media reports indicate that for young people in the Auckland area there is one dominant mobile provider which continues to have over 90 percent of the student/under 21 market. Members of Auckland Netball make their mobile provider/phone purchase based on the network their peers are on, to reduce the cost of calls and text messaging or on best mates and family programmes.”

Clearly Auckland belongs to Vodafone.

The rest of the country, it is often said, belongs to Telecom. In other words the two mobile operators don’t compete in the same geographical areas.

They enjoy monopoly status in separate locations, with Vodafone getting the lion’s share of the most profitable patch.

So what’s this got to do with the RBI?

By awarding the contract – and it hasn’t been inked, negotiations have just begun – to Telecom/Vodafone the Minister, and the MED who advised him, may have missed an opportunity to create a more competitive mobile environment.

They are using taxpayer money to help pay for these two monopolists to extend their mobile coverage to marginal areas. But what about the co-location and open access provisions – doesn’t everyone get access to the towers? In theory this should promote competition, but in reality I doubt that it will – what’s the business case for serving remote customers? Answer - pretty slim, otherwise the RBI wouldn’t be needed in the first place.

There will be regulatory oversight from the Commerce Commission, which offers some comfort. It’s my understanding this includes ensuring equivalence of price on layer two services across both fixed and mobile infrastructure. Offering an MVNO-type service on the RBI network may be a more realistic way for Telecom and Vodafone’s competitors to reach rural customers - thereby offering at least some kind of comeptitive environment in the rural areas - rather than expecting them to install their own gear.

And, maybe, as part of the negotiations, the MED could force Telecom and Vodafone to create a separate company for the RBI build – one that had full transparency around accounting (similar to what Telecom has to disclose as part of operational separation).

It is very difficult to get any kind of insight into Vodafone NZ, as it is a subsidiary of a global company.

Although Vodafone in its submission provides an insight into how the proposed dramatic reduction in mobile termination rates will affect the company’s business. “The Commission’s current proposal would cut Vodafone’s revenues by $141 million a year, and cut our profits before tax by $69 million relative to current rates.

Compared with our 2010 results, this would be a nine percent reduction in revenues and a 34 percent cut in profits before tax. Mobile sector revenues as a whole would fall by up to $290 million” its submission states.

Wow – who knew closed networks could be so lucrative — $141 million a year for shutting every other player out of the largest regional mobile market in the country.

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Tags RBISteven Joyce

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