FutureFive NZ - The Mobile Wars

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The Mobile Wars

The battle for the hearts and wallets of mobile users has begun. But whatever the carnage, it’s a good bet the consumer will emerge the victor, as Sarah Putt discovers.
The country’s mobile market has long been dominated by just two players, Telecom and Vodafone - each of them offering services on two incompatible technologies and both of them jealously guarding their market position. But with the building of new networks, and advent of new providers, the mobile market is set to change radically.
At stake is an annual spend by mobile users of around $1.98 billion – and rising. According to the Commerce Commission there are 4.6 million mobile connections in New Zealand; more than twice the number of landline connections. Yet despite the high number of users, mobile calling only accounts for a quarter of all phone calls. In addition, the Commission reports that 75% of Vodafone’s and 60% of Telecom’s mobile customers have pre-pay accounts.
This means there are a huge number of uncommitted customers who are not only poised to spend more on phone calls; international trends suggest (and certainly handset manufacturers and mobile providers hope) they’re ready to surf the Net with their mobile phones as well.
So, when Telecom CEO Paul Reynolds says this is an unprecedented time in the telecommunications industry, he isn’t exaggerating.
In order to cash in on mobile Internet, Telecom has spent $524 million on building a new 3G network on a WCDMA platform, which it has branded the XT Network. This will enable the company to compete on the same technology as its arch rival Vodafone. Vodafone too, has invested in upgrading its service – widening its coverage so that, along with Telecom, it can now cover 97% of the population. For consumers this means that, provided you invest in a 3G handset, you will be able to make a call, check your email and download a video from a Web site like YouTube using your mobile phone in most places around New Zealand.
With so much at stake, is it any wonder that the battle for market domination has already got so dirty? Four days after Telecom launched the XT brand, Vodafone served it with court action – claiming the new 3G build was interfering with its existing service and seeking an injunction to delay XT’s public launch. The following week both parties slugged it out in court, the accusations flying: Vodafone’s lawyer Julian Miles claimed Telecom took a gamble and didn’t install filters to minimise interference, and Telecom’s lawyer Pheroze Jagose suggested its rival was  acting liking a “comfortable incumbent” and using court action to delay competition. Both parties settled out of court just hours before Justice Geoffrey Venning was set to deliver his decision.
It meant that Telecom had to delay its launch to customers until it had completed the installation of filters on its cellsites, in order to minimise interference with competing networks. But it went ahead with the celebration party anyway - lighting up the Auckland Town Hall with an extravagant laser light show almost three weeks before it could sell any services on the new network.
However, Telecom and Vodafone are no longer the only mobile network owners. A new company called 2degrees is launching in August. It has invested $250 million in building cellsites in Christchurch, Wellington and Auckland and will run its service over Vodafone’s network outside of those cities. For now 2degrees is remaining tight-lipped about its plans, pricing, handsets - just about everything bar its name.
The market isn’t only being transformed by new networks; there’s an entire subset of providers called Mobile Virtual Network Operators (MVNO) who are busy securing their niche in the mobile market. Essentially an MVNO is a provider that offers services over networks owned by other telcos. In New Zealand the majority of MVNOs are companies that offer landline, broadband and dial-up services, who are concerned that if they don’t offer mobile services bundled together with their other offerings, their customers will go elsewhere.
For mobile providers it has never been more difficult to gain and retain customer loyalty, but that can only mean good news for consumers. The more they want your business, the lower the prices and the better the service is likely to be – making it rather nice to be fought over.
There are currently five providers in the market with 2degrees, CallPlus, and possibly Orcon, set to provide mobile services to consumers in August. Each one will have its own unique offering and there are likely to be plenty of discounted new handsets on offer to lure you into signing a long-term contract. Before you go shopping, here are some aspects about the mobile market place that you should keep in mind.

Number Portability
The good news is that when you change your mobile provider, you can keep your number. Number portability is administered by the Telecommunications Carriers Forum, but despite being available in New Zealand for more than two years, as of April 30th 2009 only 85,762 (about two percent) of all mobile numbers had been ported. The reason for the low uptake is partly because, until now, you’ve had to buy a new handset when switching networks and this barrier has kept the demand for number portability low.

SIM Card swapping
As all three networks will run on the same technological platform, you’ll soon be able to buy a handset from one provider and swap over to another provider’s SIM card. This is especially appealing for pre-pay customers. 2degrees has indicated that it will be selling SIM cards in 2000 retail outlets when it launches. This makes it likely you can go along to the shop, check out who has the best deal that day, and purchase their SIM card and prepay voucher – making switching between providers easy and cost-effective. Although, according to IDC analyst Mark Novosel – who has been following similar market events across the Tasman for several years – there is a catch. While Telecom, Vodafone and 2degrees have the same WCDMA technology, they operate on different spectrums. Telecom’s XT network is on the 850MHz spectrum and Vodafone/2degrees are on the 900MHz spectrum – however all three have capability on the 2100 spectrum. Therefore Novosel recommends consumers buy a handset with dual spectrum capability – that is 850/2100 for Telecom and 900/2100 for Vodafone/2degrees. Although he does caution that in areas outside the main centres, if you put a 900/2100 SIM card in a Telecom phone, it may revert to 2G technology – which is okay if you just want to call and text, but not so good if you want to surf the Internet.

On-net/Off-net pricing
On-net and off-net pricing basically means that every time you call a person on a network other than your own, you are charged more for the call. The Commerce Commission reports that the carriers charge each other 15 cents to terminate the other’s call on their network. It is currently investigating these fees, which are referred to as Mobile Termination Rates, because they are considered a barrier to competition. For example, when 2degrees launches it will take a long time to build a competitive customer base, so in the beginning most of the calls their customers make will incur a payment to the other two mobile carriers (the amount is part of a confidential agreement between the three telcos). Historically Telecom and Vodafone have used on-net and off-net pricing to maintain loyalty through deals such as Best Mate and Freedom, where for an extra few dollars a month you can nominate someone on the same network and every call to them is ‘free’. However, Telecom has now said XT Network customers will not be charged more for making calls to customers on other networks.

Bundled offers
Two existing MVNOs – TelstraClear and Compass – have bundled their mobile offering with their phone and broadband products. So in order to take advantage of the best mobile deals, you will need to have your landline and broadband accounts with them also.

International roaming
The ability to take your phone with you when you go overseas is referred to as international roaming – this means that when you are in another country you can use a local provider’s network because they have an arrangement with Telecom, Vodafone (and soon 2degrees) in New Zealand. It became more difficult for Telecom customers when its existing network (CDMA) ceased being available in key countries such as Australia.

Mobile Data
Surfing the Net on your mobile phone is an area of mobile expenditure that’s expected to boom in the next couple of years – if overseas experience is any indication. It’s yet another reason Telecom was forced to build an entirely new network capable of offering mobile data services. IDC analyst Rosalie Nelson says the average monthly revenue per customer is currently $9 for Telecom and $20 for Vodafone – the latter gets more revenue from its mobile users, in part, because it can offer the ability to download information from the Internet.

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