Large telcos make a splash in saturated market

Telecom and Vodafone are racing for mobile phone customers. Photo / Alan Gibson

Telecom and Vodafone are racing for mobile phone customers in a market with 110 per cent market saturation - in other words there are more mobile phones in circulation than there are consumers.

Growing such a saturated market will not be easy and grabbing market share from rivals never is.

This week Telecom launched the "teaser" advertising campaign for its XT Network offering internet-friendly 3G services.

In the swished-up ad that promised high speeds, the BBC's Top Gear star Richard Hammond talked about test driving a new network which uses WCDMA technology. XT Network will take the starter's flag on May 13.

Vodafone - the world's biggest phone company and Telecom's main rival - is scoffing at Telecom's late start in the 3G market and says it has no plans to change its marketing strategy.

Spokesman Paul Brislen says Vodafone has had 3G since 2005.

"Telecom is playing catch up. We have no need to change our approach."

Vodafone has a high-powered marketing operation but Brislen insists people are realising it is more than a funky brand.

XT - which will run alongside Telecom's existing and more limited CDMA network for several years - introduces real competition for Vodafone's virtual monopoly.

It is a major new initiative for Telecom, which has been usurped by Vodafone as dominant player in mobile. Vodafone has 53 per cent of subscribers to Telecom's 47 per cent.

More significantly Vodafone's share of revenue is ahead 69 per cent to 31 per cent, according to figures supplied from IDC based on Vodafone and Telecom information.

Vodafone says it dominates Auckland but cannot specify figures.

And a pilot survey for three Auckland secondary schools found that Vodafone has a 90 per cent share of traffic.

In contrast Telecom - with wider coverage - is more popular in rural areas.

Vodafone is now also moving into Telecom's core business and its biggest earner - fixed line services.

Meanwhile, Telecom was stuck with its unfashionable CDMA, which had a choice of handsets and was becoming obsolete.

It took a a long time but a 3G network was inevitable.

"They left it extraordinarily late. If they had left it any later it may well have been impossible for them to come back," said Ernie Newman, chief executive of the Telecommunications Users Association - representing the the telco's big-spending customers.

Greg Main, an analyst with First NZ Capital, says: "When you have a fixed line company and you do not have a strong mobile offering, your business is at risk."

Bruce Sheppard of the Shareholders Association says the XT Network is more than a catch up in the mobile market. He believes it is a genuine attempt to signify the new customer-centred change in management approach at Telecom.

With the arrival of the XT Network consumers have a choice but key aspects of XT - such as pricing and deals bundling mobile with other Telecom services - are still to be released.

Newman says it is not in the interest of Telecom or Vodafone to compete on price for domestic consumers.

Flash marketing campaigns will have an impact.

But it may not be easy. Telecom will have to convince its CDMA customers - many of whom have happily existed without the new smart phone and data downloads - to spend more.

Rosalie Nelson, at research firm IDC, says: "Internationally a lot of 3G networks launched with very optimistic views that there is pent-up demand.

"In New Zealand the average monthly mobile spend is just $20.

"The reality is that most markets are price sensitive and if you have a high proportion of prepay customers - as New Zealand does - it is particularly price sensitive."

The good news was that the use of mobile phones was growing rapidly and the adoption of number portability in New Zealand - which allows people to easily change network provider without changing numbers - would make it easier to attract customers.

What does that mean for consumers? Nobody is expecting a price war for residential customers but Newman says Telecom and Vodafone are making deals for big commercial customers who previously only had a 3G option.

First NZ's Greg Main says there is "quite a bit of upside for Telecom" - attracting more high-value customers who use their mobiles to obtain data. And Telecom will want to be seen at the technology frontier.

But as the telcos launch marketing campaigns with a wide variety of claims, Rosalie Nelson says consumers will have to look carefully at the offerings.

"There is a lot of bamboozlement out there."