Kiwis still pay too much for telco services: MED

Costly mobile calling and poor, pricey broadband singled out

The Ministry of Economic Development yesterday released its telco benchmarking study that shows the lack of competition means New Zealanders pay through their noses for telecommunications services which often are not up to scratch compared to overseas alternatives.

While the report says that some progress has been made, particularly for residential telecommunications, it notes that in general there is a significant gap between New Zealand pricing compared to other OECD countries. The minister of communications, David Cunliffe, says the report suggests some significant changes are needed to meet the government’s Digital Strategy target of New Zealand being in the top quarter of the OECD by 2010.

Asked what needs to be done, Cunliffe says there is currently an industry stocktake process through which the different players are providing input to his ministry. Cunliffe says that it would be inappropriate for him to prejudge the process but promises there will be “plenty hard work done” in the first half of next year. It would be a fair to expect the process to be ready in June, he says.

Cunliffe adds that access to broadband is necessary for a first world economy and says the situation has improved over the past few years. Telecom meeting its 250,000 residential broadband users is a positive development, Cunliffe says.

Presently, over 95% of dwellings in the country have broadband access of some kind, but the MED report notes that uptake is still low. Compared to the OECD average of 20.2% or one in five households being connected to the internet with a broadband connection, the take take-up in New Zealand is only 10.9% of residences, or fewer than one in nine.

The report also highlights the low-speed upstream speed for the majority of broadband connections, which is Telecom supplied DSL. At a mere 128kbit/s, such connections do not qualify as standard residential or business broadband services, which are defined as having 256kbit/s and 512kbit/s upload speeds respectively.

However if the upstream speed issue is ignored, the report says pricing for residential broadband service is on par with the top half of the OECD. Business broadband users in comparison are getting a raw deal compared to their OECD counterparts: the slower 128kbit/s upstream service needs come down in price by a quarter to reach the top half of the OECD rankings, and by half to hit the top fourth.

The full-rate DSL service for business users which has a faster than 256kbit/s upstream is the second most expensive in the OECD, costing close to $600 a month. Only Mexico, which like New Zealand has not unbundled the local loop, charges more for fast business broadband.

The MED also says that next-generation broadband technologies for “triple play” (voice, video and data) services are being rolled out in other OECD countries. The requirement for providing triple play is, according to the MED, an approximately 1Mbit/s uplink and 20Mbit/s downlink. Typical broadband in New Zealand runs at 128kbit/s up and 2Mbit/s down, which is not sufficient to provide advanced internetworking services.

The reason OECD telcos have invested in providing Triple Play services is “vigorous infrastructure based broadband service competition”, the MED says. The ministry concludedes that the driver for triple play investment is local loop unbundling.

As in the past, mobile calls in New Zealand are the most expensive in the OECD. Medium to high mobile phone users pay three-quarters more in New Zealand than the OECD average, and residential fixed-to-mobile calls cost two-thirds more here.

A positive sign is that fixed line telephone services have become cheaper in New Zealand. In August this year they were deemed to be priced just below the OECD average according to the MED.

Telecom and Vodafone have both expressed concern at previous MED reports which use the OECD methodology to benchmark telco pricing performance. If a non-standard method of measurement as suggested by Telecom is used, New Zealand fixed line calling is substantially cheaper than average. However, the method suggested by Telecom is said to disproportionally favour New Zealand at the expense of other countries as it doesn’t take into account pricing moves elsewhere.

Vodafone’s head of finance David Sullivan says the telco is pleased that minister Cunliffe acknowledges progress has been made. Sullivan adds that the report excludes several “great value deals” introduced by Vodafone over the past few months. These include free SMS over weekends, reductions in the cost of mobile data, and a 200% [sic] reduction in the price of mobile data roaming. Most Vodafone customers are prepay users and pay 29% less this year than last, Sullivan says.

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