A Commerce Commission investigation into mobile market competition is underway. The carriers think they've seen enough
regulation, with some justification. And yet there are areas where New Zealand's mobile market does not work as well as
it might.
Spark managing director Simon Moutter has a point when he says New Zealand's mobile market is competitive.
On the most obvious level, the mobile market works well. Prices for monthly accounts, calls and texts have fallen.
Consumers pay less and get more.
New Zealand is no longer an expensive place to own a mobile phone. Cellular voice and text prices are in line with those
in comparative overseas markets.
2degrees not lobbying for regulation
It speaks volumes that 2degrees is not asking for further market structure changes. The third carrier is profitable and
continues to put price pressure on Spark and Vodafone.
2degrees CEO Stewart Sherriff says his company invented competition in New Zealand. His company has certainly made the
mobile phone sector price competitive in a way that it wasn't before.
Prices from the larger carriers didn't start to fall in earnest until 2degrees got market traction. Sherriff's company
is often the first to move on price. 2degrees is innovative and aggressive when it comes to pricing bundles of mobile
services.
In Moutter's eyes, the tough price competition at this level is enough to prove the market works. Yet we could do
better.
Where the market doesn't work
There is one clear way New Zealand's mobile market competition isn't functioning as well as it might. Customer service
is, at best, indifferent. Often it is appalling.
If the market was truly competitive, carriers would not be able to get away with leaving customers on hold for hours or
failing to solve trivial technical problems.
That's not something the Commerce Commission can address in a direct way. Complacency about customer service is a clear
sign a market could be more competitive. We replaced a monopoly with a duopoly and then an oligopoly. From a consumer
point of view: worst, worse and not good.
Areas the Commerce Commission should address
There are three areas the Commerce Commission needs to address in its mobile market review. All three have the potential
to improve competition.
First, New Zealanders still pay too much for mobile data.
Second, there are warning signs of collusion between carriers that should worry the regulator.
Third and top of the list is the lack of diversity in mobile phone service retailers.
A lack of retailer diversity is the issue that triggered the mobile market review. Last year the then Communications
Minister Simon Bridges wrote a letter about it to the Telecommunications Commissioner Stephen Gale.
Bridges writes:
"I note that submitters raised concerns about the effectiveness of regulation at the wholesale level, particularly with
regard to the provision of Mobile Virtual Network Operator (MVNO) services. In other countries, these services are an
important part of the mobile ecosystem, and the widespread availability of such services has led to better outcomes for
consumers."
Where are the MVNOs?
The lack of MVNOs in New Zealand is beyond debate. In many markets, these alternative carriers account for a large slice of the total market. Here MVNOs barely register.
It is theoretically possible there are no MVNOs in New Zealand because the market competition is already so perfect and
the incumbents look after customer needs so well that there is no room for them.
That argument doesn't stand up for a moment.
When is an MVNO not an MVNO?
New Zealand's biggest MVNO isn't really an MVNO at all. Spark's Skinny business exists to give the nation's largest
telco a budget brand without cannibalising its core market. Skinny is not a true MVNO because its parent company owns
the network.
Skinny is Spark lite. Today Skinny customers get almost the same product as Spark customers but without the value-adds
like Wi-Fi hotspots and Spotify. Otherwise, the plans are a few dollars less each month than equivalent Spark plans.
In effect, Skinny is another Spark mobile product line.
The Warehouse
New Zealand's next biggest MVNO is the 2degrees-Warehouse tie-up. It is price competitive but hasn't caused any waves in
the market. The number of customers would be a rounding error on the numbers for the three big players.
The Warehouse isn't pushing hard with its mobile option. If you walk into a store you'll have to hunt to see where you
can buy it and sales staff don't seem motivated to emphasise it.
Vocus is New Zealand's fourth largest telco. Unlike the three bigger telecom companies it doesn't own a mobile network.
There are some Vocus MVNO customers, but not many. You could probably fit them all in a room. Vocus doesn't make much
money, if any from them and, like The Warehouse, it isn't marketed.
Full telco service
In most other western countries a business like Vocus would be able to partner with a carrier and offer its customers a
full telecommunications service including mobile. It would be able to bundle services and offer keen prices.
That's not the case in New Zealand. Likewise, you can imagine other smaller telcos and even companies that dabble in
telco like, say, TrustPower, would love to offer mobile as an add-on to power and broadband.
MVNOs perform two vital market functions. First, they often serve more specialist customer needs not catered for by the
bigger players.
MVNOs are about choice
Second, they act as a pressure valve for the market. Many disgruntled customers leave one carrier only to find their new
choice is just as annoying. The MVNOs give consumers a new set of choices.
Until MVNOs make up about ten percent of the market, preferably more, New Zealand does not have true mobile competition.
The Commerce Commission needs to look at the barriers to entry for MVNOs. If these are structural, then there is a need
for new rules.
Skimpy data plans
The second sign that competition doesn't work well in New Zealand's mobile market is the skimpy mobile data plans on
offer. In recent months carriers have begun selling what they call unlimited data, but the small print makes it clear they are anything but unlimited.
We pay a lot for mobile data. This is especially true when you look at data-only plans. We pay a lot more than, say,
Australia.
On the other side of the Tasman, you can pay A$65 a month for 50GB of mobile data. In the UK £25 buys 100GB of mobile
data. That's around NZ$50.
At the time of writing the best deal in New Zealand is 2degree's 25GB for NZ$70. That's roughly twice the price
Australians pay and, depending on exchange rates and taxes, around five times the UK price.
Economy of scale
While you can argue that Australia and the UK have economies of scale, it's hard to imagine scale means the cost of
supply in New Zealand is twice that in Australia or five times that in the UK.
It is significant that the Australia data deal quoted above is from Amaysim, a MVNO. These smaller MVNO players have put
huge pressure on the prices charged by the network owners for data.
There's another way you can look at New Zealand's mean mobile data caps. The competitive pressure in other countries
means carriers dedicate their spectrum to satisfying the needs of mobile customers. If they don't, someone else will.
Fixed wireless broadband
Spark mobile customers share the company's cellular bandwidth with 100,000 fixed wireless broadband customers. If the
mobile market was competitive, Spark could not afford to risk degrading the mobile data experience.
How Spark manages its resources is the company's own affair. It is certainly possible to run fixed and mobile broadband
on the same networks without disappointing either group of users — that happens in lots of countries. It's possible
there is enough spectrum to satisfy both groups.
Spark may have a good explanation why 100,000 fixed wireless customers downloading gigabytes each month have nothing to
do with mobile market competition. But it's something the Commerce Commission investigation needs to take into account.
Is there a cartel?
A third area the Commerce Commission needs to consider is something from left field. The three carriers have banded
together to build a rural mobile network with shared infrastructure.
The Rural Connectivity Group is an intelligent and innovative solution to what looks like a tricky problem: delivering
broadband to small remote communities and filling in the mobile blackspot on country roads.
While it makes sense for rivals to co-operate on a project of this nature, it isn't without risk. In his book The Wealth of Nations Adam Smith wrote:
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a
conspiracy against the public, or in some contrivance to raise prices.
Smith was no tin-foil hat conspiracy theorist, he is recognised as the father of modern capitalism. His name is forever
tied to the ideas of free markets.
Rural Connectivity model
The danger with the RCG is that it could become the model for the next generation of mobile networks throughout New
Zealand. There have already been whispers of the carriers considering acting together to build a 5G network.
When Chorus recently floated the idea of creating a UFB-style open access 5G mobile network the carriers were quick to
shoot it down. A line hidden in a media statement from Vodafone could be interpreted as suggesting the carriers are
thinking of building a shared 5G network:
There is no question that industry-wide collaboration makes sense in some instances, and the industry has already
demonstrated working models for this.
You could see this as getting the regulator and others used to the idea of industry collaboration when it comes to 5G.
5G networks
Moutter takes the argument further. He starts by saying Spark can build a 5G network on its own:
No industry amalgamation was required for the transition from 3G to 4G, and none is required from 4G to 5G. Based on our
current analysis, we think the investment for 5G will be manageable, as we will be able to leverage our existing 4G and
4.5G physical infrastructure.
Which sounds reasonable. He then goes on to say:
That’s not to rule out sensible infrastructure sharing where that can speed up deployment or address visual pollution
issues that might come from the deployment of more network sites – we are supportive of those models. But to jump
straight to a conclusion that we need a monopoly network would be crazy.
Sensible
Which could be another subtle softening up of the idea of a shared infrastructure. When you run a large partly
vertically integrated business "sensible" can take on a lot of meanings.
As 5G networks are understood at the moment, they will need many more towers than today's networks so the deployment
issues and visual pollution he mentions are a given.
None of this is to say the carriers are planning to build a shared 5G network, nor is it to say the network structure
will be inherently anticompetitive. It is something for a market regulator to consider and watch.
Competition or cartel?
It's not the Commerce Commission's job to second guess an as-yet-unsettled technology. Nor can it speculate about plans
that may only be written on the back of paper napkins.
Yet it strains credulity to think the three carriers put their heads together to plan the RCG without at least
mentioning how such a collaboration might work in the future.
At this point the Wikipedia definition of a cartel is useful:
A cartel is a group of apparently independent producers whose goal is to increase their collective profits by means of
price fixing, limiting supply, or other restrictive practices. Cartels typically control selling prices, but some are
organised to control the prices of purchased inputs.
No-one would suggest any of this is happening at present, but allowing the three carriers to build a shared network
would be a step on the path to a potential cartel-like arrangement.
Mobile market competition issues ComCom should watch was first posted at billbennett.co.nz.