KEY POINTS:
While food prices are going through the roof, signs are that it will be getting cheaper to talk on the phone and surf the internet.
Consumer advocates are calling for a pricing war on fixed line phones and broadband services now that Vodafone has revealed expansion and pricing
plans for its new Red Network.
The company yesterday became the first heavy hitter to challenge Telecom dominance of New Zealanders' phone lines.
It revealed plans to extend its existing fixed line and broadband services in central Auckland to the entire region by November, then beyond.
Telecommunications Users Association of New Zealand chief executive Ernie Newman said the announcement marked a significant step forward in competition.
The biggest phone company in the world was investing in fixed line phones, putting New Zealand ahead of other countries.
"Consumers will be better off," he said.
Red Network is the result of amendments to the Telecommunications Act 2006 which, among other things, forced Telecom to allow competitors such as Vodafone into its phone exchanges to link their equipment with Telecom lines into houses.
The change, called "local loop unbundling", means that competitors can compete directly for customers rather than reselling Telecom services.
Consumer New Zealand spokesman Marc Wendelborn said the rivalry "had the makings of a good price war".
Rules opening phone competition were already having an impact.
"Overall, prices are coming down, speeds are going up ... and customers are happier with the service they're getting," Mr Wendelborn said.
"There's no doubt Vodafone is being quite aggressive about attacking Telecom's market share, so they won't be mucking around."
Telecom bosses agree new competition would make a difference.
"Consumers will be the winner," said David Craig, Telecom's retail consumer manager.
He said Telecom had been preparing for the push of new competition as a result of unbundling. But while Vodafone was aiming at new pricing packages Mr Craig said Telecom's focus had been on added value products such as security for the internet.
Vodafone is not the only threat.
State-owned ISP Orcon launched its own unbundled services in Auckland in March, though it aims at niche market and is not a mass market threat.
But it is understood the Australian giant Telstra Clear - which runs phone networks in Wellington and Christchurch - is also planning to expand its presence in Auckland later in the year.
Vodafone is offering three price plans (Easy, Ideal and Ultimate) that take advantage of the new network infrastructure and will offer customers more freedom and choice.
Vodafone says the change to full services will improve customer service problems, which it blames on Telecom.
Vodafone chief executive Russell Stanners said the company will unbundle 41 telephone exchanges in Auckland by October, and then look further afield.
"Based on the market today we'd look at Hamilton, Tauranga, Palmerston North, Rotorua and Taupo and Wellington."
But a company spokesman said the process of expansion beyond Auckland would be subject to how Telecom reacted.
A telecommunications industry source said while the Red Network is focused on fixed line services, any pricing war with Telecom would be linked to Telecom belatedly introducing a new 3G mobile phone network, probably around November.
Vodafone already has 55 per cent of the mobile market to Telecom's 45 per cent and 23 per cent of telecommunications overall.