NZ broadband market at a juncture

Telco and electricity sectors under review

He had only been in the top job a couple of months, but when Spark (then Telecom) CEO Simon Moutter declared that unlimited broadband was a crazy idea he, along with most of the industry, was still operating in a pre-fibre world.

“There’s no sense at all in the idea of uncapped plans. That would be like selling electricity with unlimited supply for $50 a month. How the hell would that be efficient? It would be insane,” he told Computerworld.

But, five-and-half years after that interview in November 2012, that’s exactly the broadband market that Moutter’s company Spark operates in. Market conditions have been shaped by the roll-out of a nation-wide fibre broadband network in which there is legislated separation between wholesale and retail providers.

It is encouraging incumbent retail service providers into the content game, electricity companies into becoming retail service providers , and rural dwellers with technical knowledge into becoming wholesale and retail providers.

It is has resulted in New Zealand consumers enjoying some of the most competitive deals, and most innovative products from broadband providers. A situation that IDC, in survey of the market sponsored by Spark, says may not last: “Questions are starting to arise about the sustainability of such a competitive retail marketplace.”

There have – and there continue to be – challenges to this highly competitive market. There was the proposed Vodafone/SkyTV merger, which the Commerce Commission declined in February 2017. “To clear the merger we would need to have been satisfied that it was unlikely to substantially lessen competition in any relevant market. The evidence before us suggests that the potential popularity of the merged entity’s offers could result in competitors losing or failing to achieve scale to the point that they would reduce investment or innovation in broadband and mobile markets in the future,” Chair Mark Berry announced.

And Spark, despite embracing the need to create new products such as Lightbox to win and retain the customer loyalty, is pushing its fixed wireless broadband product, which would see it benefit from providing a vertically integrated service.

Incumbent broadband retailers are facing competition from the electricity sector, which is likely to intensify if Trustpower is, as rumoured, a successful suitor for Vocus’s New Zealand assets, and becomes the third largest broadband provider with a combined 18% market share.

According to Vocus NZ CEO Mark Callendar, while the electricity and telecommunications sectors are regulated industries, the regulation is designed to produce different outcomes. The electricity sector is regulated to incentivise investment in power generation to help ensure stability of supply, while the telco sector is structured to enable competition so that the companies that wholesale broadband, can’t also be retailers.

Both sectors are under review - the Government announced yesterday the panel to review of retail electricity pricing and the Telecommunications (New Regulatory Framework) Amendment Bill is currently before Parliament.

There is plenty to consider as the broadband market arrives at a new juncture.

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