Vodafone claims 2degrees has harmed competition

A war of words between network operators has seen Vodafone and 2degrees both claim responsibility for driving increased competition and reduced prices in the mobile sector.

Vodafone has gone as far as claiming price drops have slowed since 2degrees became the country's third mobile network in 2009.

The global telco giant's stance may be hard to swallow for New Zealand mobile consumers who endured years of internationally high pricing under the previous Vodafone-Telecom network duopoly.

The claims have been made in submissions to the Ministry of Economic Development over what to do with the so-called 'digital dividend' – the valuable 700MHz spectrum which will be freed up by the shutdown of analogue television broadcasting.

Rights to use the spectrum are likely to be auctioned off by the Government next year. The spectrum is in hot demand from telcos because it is a prime platform for delivering super-fast 4G mobile services.

In its submission to the MED, 2degrees said New Zealanders had 'suffered some of the highest prices [for mobile phone services] and lowest usage in the OECD prior to the entry of 2degrees'.

The company commissioned a study from an independent consultancy firm which concluded that up until the end of last year there had been $2.24 billion of direct and indirect benefits to the economy from increased competition in the mobile market, driven by 2degrees.

But in a subsequent cross-submissions to the MED, Vodafone called 2degrees' claim to have driven increased competition 'self-aggrandisement' which it said didn't stack up under scrutiny.

"2degrees' contribution is based on the assumption that all the price drops from 2007 to December 2010 occurred on the basis of the threat of 2degrees' market entry," Vodafone says.

"Their report ignores the number of bundled offers introduced by both Telecom and Vodafone during this period which reduced prices to consumers.

Vodafone said price drops had been steeper before 2009 and have slowed since 2degrees entered the market.

"This goes to show that like any other mobile operator, 2degrees has the challenge of balancing competitiveness in the market with the cash demands for future investment and the required returns to shareholders.

Vodafone praised 2degrees for doing 'a very effective job of marketing and lobbying' but said the newcomer's impact on mobile pricing and usage was 'far less impressive than claimed'.

"The reality is that Vodafone led a huge value campaign with products such as BestMates and Talk Zone Zero which increased voice volumes per customer to nearly double (184%) their 2004/05 levels and SMS to 3.6 times (362%) 2004/05 levels," it said.

"The slowdown in the trend over the last couple of years can in part be attributed to the capping of prepay BestMates to 1000 minutes and 1000 SMS in October 2010.

While the telcos' wildly differing views shed some interesting light on how they perceive their respective impacts on the mobile market, they are unlikely to have much impact on the Government's eventual decision on what to do with the digital dividend.

The MED expects to present Cabinet with a suggested plan for how the spectrum should be allocated by April next year.