Spark MD Simon Moutter has commited the telco to a wireless future and foreshadowed significant consolidation in the fixed broadband retail market, citing low margins on the wholesale price fixed broadband retailers pay to Chorus another fixed network owners.
Moutter’s comments, made at the company’s AGM follow those made yesterday by Chorus CEO Kate McKenzie at the Chorus AGM where she told shareholders that the biggest challenge facing Chorus was the loss of connections to other networks, and committed the company to becoming a more active wholesaler in a bid to retain end user customers on its fixed broadband networks.
In November 2016 Spark announced a plan dubbed ‘Upgrade New Zealand’ to get as many of its broadband customers as possible off copper networks by moving high data volume users to fibre and others to wireless broadband.
Moutter told the Spark AGM that, of the $68 per month customers pay for its Skinny branded unlimited fixed broadband service, Spark was left with only $16 to cover “the costs associated with delivering a broadband service to the customer, including broadband management technology, national and international networking, customer service, sales and marketing, and billing and administration” after deducting GST and paying Chorus or the local fibre company for line charges. “This frankly leaves us with no real profit margin,” he said.
“We don’t believe it’s sustainable for the wholesale access or line charge to be almost three times bigger than what we get paid to run the service over that line, so something is going to have to give.”
That ‘something’, he said, would include significant market consolidation.
“There are more than 80 broadband providers in the market. I would suggest a lot of them are in a financial hole right now – and they are all hoping they can market their way out of this hole by attracting more customers and increasing their market share.
Spark expects to buy broadband players
“But that strategy clearly can’t work for all of them, so I’d expect reality to hit for more and more players,” Moutter said.
Read more: Spark brings Nokia cellphones back to NZ
“We are now at the point where it is likely cheaper to acquire a customer base from another provider through an M&A deal than it is to try to attract those customers through marketing efforts. For that reason, we expect to see, and participate in, significant consolidation of the retail broadband industry over the next couple of years.”
Moutter said the “unhealthy state – from our perspective as a retailer – of the consumer fixed broadband market,” was a key driver for the company’s move to wireless for both mobile and fixed communications.
“Customers have a strong preference for wireless connectivity. They want to be always connected, to have a seamless digital experience. Even in the home broadband space, it’s becoming a wireless world.
“After all, home WiFi is simply a radio signal travelling from your device to a modem, which connects back into our network via a cable. Our wireless broadband product works the same way. The only difference is you connect to the network via the nearest cell site.”