Vodafone steps up pressure on Telecom

Vodafone CEO Russell Stanners (L) and ihug CEO Mark Rushworth at the announcement of the takeover yesterday. Picture / Greg Bowker

Vodafone's purchase of ihug for $41 million poses a significant threat to Telecom's iron grip on the voice and internet market in New Zealand, analysts say.

Vodafone New Zealand confirmed yesterday that it had taken over phone and internet provider ihug to strengthen Vodafone's position against Telecom, which holds an 80 per cent share of the telecommunications market. The deal meant that UK-based Vodafone, which holds 55 per cent of the mobile market, could engage in the Telecom dominated fixed-line market for the first time as ihug owner.

IDC telecommunications analyst Chris Loh said that until now Vodafone had been fighting to take market share in fixed-line and mobile offerings from Telecom with "one hand tied behind its back".

Vodafone, which has interests in 27 countries, would now attack the phone market on two fronts, said Loh.

Vodafone would challenge Telecom with its free local mobile calling service - yet to be released - and ihug's new calling products, which allowed unlimited calls within New Zealand and overseas for a competitive price.

"It will allow Vodafone to target mass market churn away from Telecom by positioning a product that taps into the value perception around free local calling services in New Zealand," said Loh.

Vodafone chief executive Russell Stanners said the two brands were complementary because Vodafone's image was very similar to ihug's - "fun, friendly and refreshing".

Ihug chief executive Mark Rushworth said it would now be able to offer mobile products using the Vodafone network and customers would get a bundle of broadband, fixed and mobile. Also, ihug would be advantaged by its access to Vodafone's distribution stores and customers would get brand comfort by seeing the Vodafone brand next to ihug.

Telecom has been forced to open its network to wholesale customers, allowing them to install their equipment as part of Telecom's network.

Stanners said he and Rushworth still had to discuss Vodafone's level of investment in ihug's broadband products delivered via Telecom's fixed network. Rushworth said ihug was waiting for a "sensible decision" from the Commerce Commission on the pricing of local loop unbundling due out in July next year.

Stanners said Vodafone's takeover of ihug was typical of the group's strategy around the world.

Vodafone group had struck a similar deal with British Telecom, owned No 2 fixed telecommunications company Arcor in Germany, and in Egypt had just purchased a 50 per cent stake in a fixed operator similar to ihug.

Telecom shares closed down 3c at $4.13 yesterday.