Telco report points to falls in revenue growth, prices

Revenue growth in the telecommunications market is down, but so are prices. So says a report from Australian research company Paul Budde Communications. The report, titled Telecommunications and Superhighways in New Zealand, finds that revenue growth declined from 10% in 1996 to the current level of 8% and that competition from new service providers is finally bringing prices down. it predicts that depending on the success of competition, consumer prices are set to drop up to 80% for fixed voice, and up to 50% for mobile.

Revenue growth in the telecommunications market is down, but so are prices. So says a report from Australian research company Paul Budde Communications.

The report, titled Telecommunications and Superhighways in New Zealand, finds that:

• Revenue growth declined from 10% in 1996 to the current level of 8%.

• Competition from new service providers is finally bringing prices down.

• Growth in mobile subscribers continues at 36%, but revenue growth has flattened to 4%.

• Depending on the success of competition, consumer prices are set to drop up to 80% for fixed voice, and up to 50% for mobile.

• Telecom is one of the only carriers in the world that has been able to successfully transform from an incumbent telecommunications provier into a market-driven customer-focused organisation.

• Hampered by a de facto local loop monopoly, alternative service providers have so far failed to make an impact on the market, although the report cites the advent of PCS as a service that might overturn this.

The report also comes to some rather surprising conclusions. For example Tele-com is described as having “successfully rid itself of its old bureaucratic culture”. This in itself is accurate, but there are commentators that might suggest that it has simply been replaced by a different bureaucratic culture. The notion that Telecom has also become customer-driven will also no doubt find its detractors.

An interesting point is made in the report with regards to New Zealand’s overseas reputation as the most deregulated telecommunications market in the world and, on the other hand, New Zealand’s notoriety as the most litigation-riddled market. The report suggests New Zealand is in fact often held as an example to convince companies overseas to opt for self regulation rather than litigation, suggesting that total deregulation does not necessarily create a more competitive market. In line with this theory, the findings state categorically that while Telecom may have some innovative strategies, and reacts strongly to business opportunities, these attributes are not necessarily good for the New Zealand market because the prices are still too high. Telecom’s dominant position does the opposite of what an open market should achieve, in that Telecom can raise prices, as opposed to dropping them in the face of competition.

New Zealand is slowly coming to terms with the world of deregulation, says the report, but once again, the government comes in for criticism with its failure to ensure a level playing field for all players. “The New Zealand regulatory environment has so far failed to bring competition into the local access market. Therefore the new competitors remain relatively small fish in a market dominated by companies such as Telecom and BT [Clear].”

The two major potential competitors, Clear and Bell South, don’t escape criticism. Clear’s initial entry into the market simply relied on natural growth arising from offering a small discount, initially disillusioning customers. The report suggests Clear is now becoming more -customer-focused and is introducing value-added products.

Bell South, says the report, has never been able to offer serious competition to Telecom in the mobile arena. Bell South’s digital service was never seen as a superior alternative, and without a regulatory environment forcing the market toward digital tele-phony, few people opted for the technology. The report also says Bell South never seriously threw its weight behind the New Zealand company, and was comfortable with viewing New Zealand as a test bed for competition and a GSM trial site.

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