Telecom deal shakes up mobile market

Matt Crockett (left) and Blair Stewart. Crockett says the deal will help Telecom gain on rivals.

Telecom has opened the door to more competition in the mobile phone market, signing a deal with Auckland company Digital Island that will allow the niche business communications provider to on-sell Telecom mobile services under its own branding.

Under the agreement, however, Digital Island will not gain early access to Telecom's soon-to-be-launched new 3G mobile network, which the incumbent plans to keep to itself until 2011.

The agreement with Telecom means Digital Island becomes a "mobile virtual network operator" enabling it to sell mobile products and services without the need to build its own physical network at a cost of hundreds of millions of dollars.

The MVNO model is popular in overseas markets and has been touted as one way of upping competition - thereby reducing costs to phone users - in the New Zealand mobile arena.

Black + White launched a MVNO service focused on the consumer market in October last year after finalising an agreement to use Vodafone's mobile network. Two other telco operators have signed similar agreements with Vodafone though neither has yet launched its planned service. TelstraClear markets mobile services which run over Telecom's network.

The Digital Island deal is the first negotiated through Telecom Wholesale, the operationally-separated wholesale arm of the company set up in 2007 as a result of Government moves aimed at raising competition for fixed-line telecommunications services.

While operational separation requirements were not imposed on the company's mobile business, Telecom Wholesale chief executive Matt Crockett said the company was applying the same principles when dealing with its wholesale mobile customers.

"We think that's a good way to operate. It gives our [wholesale] customers confidence that they are being treated independently and that they can trust us with confidential information."

Crockett said while Telecom was not required to provide MVNO services, at a group level it made business sense to do so.

Adding more users to its network would increase its strength against rival Vodafone and newcomer New Zealand Communications, which is expected to launch the country's third mobile network this year.

"Telecom may be the fixed-line incumbent but we're no longer the mobile incumbent, so part of it is [about adding] channel partners to market to get scale on our network versus other networks," Crockett said.

Digital Island has grown strongly since its launch in 2004 and now provides communications services to several thousand small and medium-sized businesses. General manager Blair Stewart said the MVNO agreement would give the company an important edge by allowing it to offer a full suite of products to customers.

Stewart said the company expected customers would be able to cut mobile costs by about 20 per cent as a result of moving to its service.

Digital Island would also sell mobile handsets and offer customers its own range of phone numbers, although it was expected most would bring existing numbers from Telecom or Vodafone accounts to the new service.

Telecom is due to launch a new faster, more advanced 3G network based on W-CDMA technology on June 1, which will run in parallel with its existing CDMA until at least 2012.

The company has previously said it would not allow competitors access to its new W-CDMA network until 2011 and Crockett said yesterday that policy would apply to Digital Island.

"Telecom has decided that it is most appropriate to have a period of exclusivity to allow for a differentiator for its retail and Gen-i units."

Stewart said the arrival of MVNO agreements, together with the upcoming launch of New Zealand Communications' third network could mean there would effectively be six or seven mobile service providers competing for customers this year.