KEY POINTS:
Telecom has been splashing some bold messages across full-page newspaper ads since last week's announcement it will launch its new cellular network by June next year.
The hyperbole includes: "The mobile phone revolution begins" and "A new era in New Zealand's telecommunications is at hand".
The new network
- desperately needed to regain mobile market share lost to Vodafone - had been due to be up and running by next month. It has been delayed so it can be developed as a more technologically advanced offering, one Telecom hopes will give it a competitive edge over its rivals - including new mobile service providers expected to be in the market by next year's launch.
The plan comes with a hefty price tag: $574 million to build compared with an earlier $300 million forecast.
But will the new technology live up to the pre-launch hype and what will Telecom - and its customers - get for this investment?
What is Telecom doing?
It has contracted Alcatel-Lucent to build a new mobile network based on W-CDMA technology, a global mobile industry standard that has trumped another technology standard, CDMA, which Telecom currently uses but which has fallen out of favour with telecommunication companies around the world. (See the sidebar for more technical details.) Why build a new network? Telecom director Rod McGeoch had a succinct answer to this question when he spoke to an Australian business lunch audience last week. Technology news website ZDnet reported him saying: "The reason we're doing that is that Vodafone has a 3G mobile network and are eating our lunch and we just have to respond."
It's true. Vodafone has been picking up mobile market share from Telecom, most importantly in the lucrative corporate customer segment, in part because Vodafone's existing W-CDMA network is a much more attractive service for business users wanting to roam overseas with their mobile.
Powering up a new W-CDMA network will also enable Telecom to offer customers a faster mobile broadband data service, and with mobile internet access becoming a customer must-have, fast mobile data is seen as a high-margin way of extracting more revenue from users.
McGeoch pointed to Australian W-CDMA network operator Telstra's success in growing mobile revenue by 12 per cent in the past financial year, against the global backdrop of "an industry that nobody has an increased revenue, I promise you". What does it mean for customers? Aside from the ability to roam internationally without the hassle of buying a special dual-technology handset, as they need to at present, Telecom mobile customers will be able to use their regular phone on any of about 430 networks around the world.
The catch is they will need to replace their current handset with a new W-CDMA phone once the network is switched on next year. Telecom says it will offer free handsets to customers who sign up for two-year plans.
Mobile broadband speeds will be faster on the new network. While HSPA+, the specific flavour of W-CDMA Telecom is building into its network, can in theory deliver data at speeds of up to 28 megabits per second, the company is talking about giving users a more modest download rate of 3Mbps and a 1Mbps upload speed.
It says these speeds are three times faster than those offered over its current high-speed 3G network.
For those users not wowed by the enhanced speed potential of the new network, its global roaming capabilities, or unimpressed by the hassle of swapping handsets, Telecom says it will keep its existing CDMA network running in parallel with the new network until "the majority of our customers have chosen to migrate over to the new mobile network".
What will happen to mobile pricing? The new network should be good news for consumers because it will intensify competition between Telecom and Vodafone and should lead to price cuts for mobile services.
At the same time, the mobile network owning duopoly should face additional competition from new entrants next year. New Zealand Communications is currently building the country's third mobile network and should be in a position to launch into the market next year. "Virtual" mobile operators - who buy wholesale mobile services from network owners and on-sell them under their own branding - are also expected to become a force from next year.
TelstraClear, which currently sells a mobile service using Telecom's network, is expected to stick with that arrangement when Telecom switches to the new network.
Is the spend-up good news for Telecom investors? In April, chief executive Paul Reynolds began talking about the "mobile cul-de-sac" Telecom had found itself in as a result of its CDMA network.
While the lunch-eating McGeoch describes needed to stop, some analysts and shareholders have been surprised the company's planned spend-up on a new network has leaped from $300 million to $574 million. Together with its commitments to build a next-generation fixed-line phone and broadband network, Telecom now has a hefty $2.4 billion of capital expenditure planned over the next two years.
An immediate consequence of the beefed-up mobile network cap-ex commitment has been Telecom's decision, also announced last week, to pull its Australian subsidiary, AAPT, out of a consortium bidding to build Australia's national broadband network (NBN). The Australian Government is spending A$4.7 billion ($5.27 billion) on the NBN project to provide high-speed broadband to most of its citizens, and if AAPT had stayed in Terria consortium, and it had gone on to win the contract when a decision is made next year, it would have meant another major capital commitment.
Telecommunications Users Association chief executive Ernie Newman believes Telecom's decision to invest in a local network rather than in a "major opportunity in Australia" was a significant one.
"This is a powerful signal about where Telecom's priorities lie when the going gets tough - here in its home market," Newman says on his blog.
"This would not have been an easy decision for the company - there is a certain amount of 'face' involved in the Aussie withdrawal."
However, David Kennedy, research director at consulting firm Ovum, sees a practical basis for Telecom's withdrawal from Terria, which faces stiff competition from Telstra in its bid for the NBN work.
"Effectively, AAPT is developing a Plan B in case of a Telstra win," Kennedy says.
"The Terria bid faces significant hurdles, especially raising capital, and it is dangerous for Telstra's competitors to put all of their eggs into the Terria basket. That is why Plan B is necessary."
Certainly, spending more money at home rather than overseas is good PR for the company, which under Reynolds' leadership has been working hard to restore a tarnished public image.
Time will tell whether Telecom's punt on building an expensive, and technologically advanced, new mobile network on its home patch - in the hope of luring back customers - proves to be a good investment.
www.telecom.co.nz/newnetwork
