2degrees making inroads in low-value prepay customers

2degrees CEO Stewart Sherriff. Photo / Ross Land

Two Degrees Mobile, which broke New Zealand's mobile phone duopoly when entered the market in 2009, has largely made inroads into low-value prepay customers, but has struggled to attract more lucrative corporate clients, according to the Commerce Commission's latest sector review.

At the end of June last year, the Auckland-based company had a quarter of New Zealand's 4.77 million mobile phone connections, lagging behind Telecom Corp's 33 percent and Vodafone New Zealand's 42 percent, the regulator said in its annual telecommunications monitoring report. Vodafone was significantly ahead of its rivals in its share of prepay, and on an even footing with Telecom in on-account and business customers.

"2degrees' expansion in the market since 2009 has reduced market concentration significantly in the prepay market, somewhat less in the on-account market, and hardly at all in the more lucrative business market," the report said.

Prepay customers account for about 63 percent of all subscribers, but generate only 27 percent of total mobile revenue, whereas on-account customers are about 19 percent of the market and make up 32 percent of the revenue and corporate clients are 18 percent of subscribers accounting for 42 percent of revenue.

Earlier this year the three mobile phone operators bid for new radio spectrum allocated for fourth-generation technology to drive the use of data on handheld devices. 2degrees dropped out after the first round, deciding not to take up its full allocation, and later opposed its rivals from buying the last lot in the Commerce Commission's review of whether to clear the acquisition. The regulator is due to make a decision on Telecom's successful bid on May 30 after several delays to the deadline.

The report showed a drop-off in the number of about total mobile connections in the 2013 period, due to Telecom shutting off its failed CDMA network, through revenue climbed to $2.44 billion from $2.38 billion in 2012. Data revenues drove the increase, which the commission put down to the rising uptake of smartphones.

The increase in mobile revenue wasn't enough to offset declining revenue fixed line connections, with total telecommunications retail revenue falling to $5.21 billion from $5.25 billion. The number of fixed line connections fell to 1.85 million from 1.88 million in 2012, and revenue fell to $2.77 billion from $2.83 billion.

Still, broadband penetration improved with the number of fixed connections increasing to 1.32 million from 1.24 million.

"Fixed-line connections may be starting to slowly decline as mobile services become more attractive," the report said. "However, the increasing availability of fibre services may be starting to counter any trend to disconnect fixed lines."

Separately, a presentation by telecommunications network operator Chorus, which was carved out of Telecom in 2011, showed the company's roll-out of the ultrafast broadband fibre network was at its maximum pace, passing 238,000 premises as at April 30. The Wellington-based company aims to pass 255,000 premises by the end of June, and has already started work in some areas flagged for the 2015 financial year.

Chorus anticipates the cost to pass per premise will drop off in the 2015 financial year as it moves from priority zones into suburban areas. The company was targeting a cost of $3,100 per premise for the 2014 financial year before any 'pain' or 'gain' share with service companies.

The company has previously forecast the UFB network will cost between $1.7 billion and $1.9 billion, and the rural broadband initiative to be between $280 million and $295 million.