Stewart Sherriff: Crucial to get radio spectrum sale right

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Revenue from airwaves auction less important than benefits of competition for mobile-device consumers

Photo / Thinkstock
Photo / Thinkstock

Early next year, New Zealand will have true competition in 4G - the fastest mobile technology.

In less than five years we've seen a barely competitive two-player market become an active battleground for customers, fought between three national networks that are investing heavily.

Last week 2degrees announced it would deploy 4G services in early 2014, with $165 million of funding support from the BNZ and cash flow from its daily operations.

Having all three national players delivering the latest technology will make all the difference to consumers. Left to just one or two operators, people would miss out on the pricing and service improvements that real competition delivers.

Recent history shows that real mobile competition takes three.

It took the arrival of 2degrees to halve pre-pay calling costs and drive innovation via new services such as carry-over minutes and shared data, which let you keep unused minutes and data for up to a year.

Competitive 4G - very fast mobile data speeds - will complement the Government-driven ultrafast broadband network, ensuring consumers and business can access and share content at home and on the move.

It's an exciting time, but the job's not done yet.

Data demand is booming for all mobile operators. In the last year alone, the volume of data over the 2degrees network has tripled and shows no sign of slowing.

For the industry to meet that demand, all eyes are on an upcoming Government decision that will influence whether a great start to mobile competition continues. It relates to radio spectrum - the airwaves that provide the motorway of the mobile industry.

In future, mobile operators will need more lanes to carry the boom in data traffic their customers are generating.

The 700MHz radio spectrum band previously used for analogue TV will be auctioned this year. At stake is the right to use those airwaves for the next 18 years, which creates a series of challenges for the industry and Government.

The first is that New Zealand follows the world when sourcing phones and devices. Because this spectrum band is not being used yet in the regions we buy phones from, there are no 700MHz phones to buy.

Second, most mobile companies globally, including all three New Zealand operators, are using another spectrum band to deliver 4G. So right now, mobile users don't need 700MHz spectrum, but the boom in data demand means they most certainly will soon.

The Government's challenge is two-fold.

What and how to charge for something being sold now, but not needed just yet. And how to ensure competition is maintained.

Our submission to the Government argues that the real prize will be the savings and improved services gained by mobile users.

We believe the proceeds from selling spectrum pale by comparison when you look long-term at what continued competition can deliver.

Recently, 2degrees checked with Venture Consulting, the company the Government used to get advice on how to use this spectrum. They calculated the future value of three-player mobile competition was an economic uplift of $12 billion by 2022.

That's new investment, better prices and more services that save people money or make them and their businesses more productive - like plans letting you call Australia at local rates, as we announced two weeks ago.

It's worth noting that the Government invested $1.5 billion of public money to accelerate fast broadband via the ultra-fast fibre network, but hasn't needed to spend anything to stimulate true competition between fast mobile networks.

Good decisions pay huge dividends. Sound policy paved the way for a third mobile operator in 2009 and competition did the rest.

Consumer purchasing power has improved dramatically since 2009, with $40 now buying 11 times the calling minutes, unlimited texts and three times the data.

Business gains are equally impressive.

A business used to pay $800 for 2500 calling minutes, with no text or data. Now, just $149 buys unlimited calling and text, plus 2.5GB of data.

The right decision on spectrum and a competition regulator focused on the industry will ensure there's more to come. The alternative - an uneven allocation of high-cost spectrum - can be a showstopper. Australia's attempt to auction its 700MHz spectrum ended in failure. Vodafone couldn't bid because the price was too high, the Australian Government ended up with a big gap in its accounts and valuable spectrum will now sit unused.

The NZ Treasury has booked $119 million for spectrum, suggesting a more sensible, but still significant cost for something that only delivers consumer value when it's used in the future to carry services.

Tuanz, the telecommunications users group, has even argued the spectrum should be provided for free, so the mobile operators can deliver competitive 4G to more New Zealanders, faster.

2degrees is still building out its current network, while preparing to deliver new 4G services early next year. Funds used to buy spectrum that can't be used yet will delay the rollout of 4G network throughout the country.

We support an equal three-way split of the 700MHz spectrum, at a realistic price and with payment terms to reflect the current investment operators are making. In contrast, an uneven split and poor pricing could stifle the challenger in an industry where Telecom and Vodafone already control more than 90 per cent of the industry's revenues.

Here's hoping we get the right result: three mobile companies equipped with the spectrum they need for the future. It will prompt an even more heated battle, and customers will be the winners.

Stewart Sherriff is chairman and interim chief executive of 2degrees.

- NZ Herald

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