[UPDATED]: Telecom’s new SMS pricing is the first aggressive mobile offer to hit the market, and 2Degrees CEO Eric Hertz says it’s the direct effect of the increased competition a third carrier brings to the mobile market.

This is just the beginning, he says.

“I would say that the Telecom action is a reaction,” he says. “But I think we’ll see more change leading into the holiday season over the next two months. We’ll see some real aggressive competition."

And in a year, mobile consumers will be amazed at the change, Hertz told the TUANZ After Fives audience last night.

After 90 days in the job, Hertz says he is out to prove all those who told him there was no need for a third carrier in New Zealand to be wrong – including ICT Minister Steven Joyce.

When he started in August he was told competition between New Zealand’s two mobile providers was “vigorous”. However, this wasn’t evident in the pricing, he says.

“Both Vodafone and Telecom were charging 89c per minute for calling and 20c per text on prepay,” he says. “No competition.”

But by cutting those prepay rates in half by offering 44c per minute calling and 9c per text, 2Degrees opened up the market for competition, he says.

And with 70% of New Zealand mobile users not under contract to either provider, the opportunity for a third carrier to create its place in the market is huge, he says.

While he declined to detail the number of users who have moved to 2Degrees, Hertz says the company “have exceeded expectations by two to three times” since their inception.

The company now had to build on this good response by building a strong brand around aggressive pricing.

“We will be the price leader,” he says. “Ours will be the lowest cost provider.”

Hertz says he hopes to build a market share of 20% over the next 3-4 years based on this premise.

By moving towards lower mobile termination rates (MTR), he says pricing will become even more competitive, prompting a big shift in the ratio of mobile to fixed line users.

“Prices will drop,” he says. “It would be crazy for anyone to sign a contract today.”

UPDATE: Hertz says 2Degrees are currently preparing their Christmas pricing offer for prepay customers.

The offer will be released within the next 30 days. He expects them to be "competitive" in the market place.