Two big telcos too close for comfort

By PETER GRIFFIN

Effective telecommunications regulation is essential in New Zealand as mobile network operators Vodafone and Telecom drift towards a duopoly, says Australian telecoms analyst Paul Budde.

The Sydney analyst said the two mobile companies' focus on winning each other's customers would wane as Vodafone's share of the market hit 50 per cent - something he expected to happen within the next 18 months.

Vodafone has a 43 per cent share of the mobile market.

Mr Budde believes it will emerge the clear winner in the New Zealand mobile market, profiting from a strict focus on its GSM customer base of more than one million, and its lower costs.

But duopoly pricing would emerge as mobile rates peaked.

This would create a situation similar to that in Australia, where Telstra and Optus divided the bulk of the mobile market between themselves, leaving Vodafone and Hutchison unable to compete effectively.

Mr Budde estimated that Vodafone's costs of providing mobile services were up to 35 per cent less than Telecom's, and he expected Telecom's share of the mobile sector to slide to 53 per cent next year, a long tumble from the 80 per cent slice of the market it held in 1998.

"Telecom has two different networks and an extremely risky 3G [third generation] adventure with Hutchison Australia, all of which makes it difficult for it to stay ahead in the mobile market," he said.

The emerging duopoly had some hope of being disturbed by the appointment of a telecommunications commissioner and potential competition in the form of new mobile company Econet Wireless.

But Econet would struggle as a new entrant caught between the might of the incumbents and effective regulation would fail to make an impact for at least a year.

"They're planning to enter at a time when mobile phone penetration is approaching 65 per cent.

"The only way it will go higher is by targeting the low end of the market which is worth less," he said.

But New Zealand looked to have mandatory roaming and cellsite co-location provisions introduced through the Telecommunications Bill.

The provisions still did not exist across the Tasman.

Mr Budde said Vodafone's sister company in Australia was struggling to find its way with just over 2 million GSM customers.

t The company would probably retreat from the Australian market.

"They'll find an exit strategy. They might form a joint venture or become a minority partner," he said.

"Vodafone New Zealand is making the profits for Vodafone in the Pacific region."

The New Zealand telecommunications market was now worth $5.5 billion and would grow to $15 billion by 2010.

Broadband services would account for 90 per cent of revenue by the end of the decade.

Telecoms companies would redefine themselves as IT players, managing data centres and developing software to satisfy the growing thirst for broadband services.

The telecoms market had grown 5.2 per cent in a "very difficult year", comparing well with Australia's market, which decreased by 0.1 per cent.