Telecom pioneered the mobile phone market in New Zealand, milking the rewards for its efforts until the late 1990s - when Vodafone arrived. Simon Hendery looks at the key developments.
BACKING THE WRONG HORSE
Government-owned Telecom Corporation is born as a new State Owned Enterprise telecommunications asset of the Post Office in 1987. It is valued at $3.2 billion. The new company launches New Zealand's first mobile network. Calls to briefcase-sized mobile phones using the 025 prefix cost about $1 a minute. Telecom's decision to build a network using an analogue technology preceding what would become the CDMA standard would have far-reaching consequences for the business. The battle between the CDMA and GSM technologies (later deployed by Vodafone) has been likened to the scrap between Beta and VHS in the videocassette market. Unfortunately Telecom picked the equivalent of Beta.
NEW PLAYER ARRIVES
BellSouth New Zealand, a subsidiary of United States giant BellSouth Corporation, enters the local mobile market in 1993, building a GSM network and using GSM-friendly spectrum it bought from Telecom. Telecom had acquired spectrum suitable for both types of technology, but the Commerce Commission ruled it must sell one or the other. It chose to stick with CDMA.
BellSouth New Zealand is acquired by the more aggressive international mobile network operator Vodafone in 1998. The change of ownership ushers in a major change in the market, with Vodafone attacking the incumbent's patch with aggressive marketing, managing to win over a growing number of customers, increasingly eroding its competitor's market share.
Telecom launches a newer technology network it calls T3G in 2004, with phones prefixed with 027 numbers. But the company comes under fire from critics who say the brand is simply marketing puffery and the technology behind it offers at best "2.5G" functionality, rather than the more sophisticated 3G service it implies. T3G's core technology remains based on CDMA foundations.
Telecom shuts down its ageing 025 analogue network in 2007, having migrated most customers to 027 numbers. Paul Reynolds is appointed chief executive, bringing to the role a determination to improve customer relations and to "get things right first time". Reynolds joins an organisation that is floundering on the mobile side of its business. Vodafone now has a majority share of the market and with CDMA technology falling out of favour around the world, Telecom is not able to offer an attractive selection of handsets to customers and, perhaps more important, it has difficulty retaining lucrative business customers. This is because its CDMA network is not suited to global roaming, an increasingly important factor for high-spending phoneusers.
XT GOES LIVE
To much fanfare, Telecom launches XT in May 2009, having spent around $567 million building a new network based on GSM-type technology. It has vowed to deliver a world-class network and is upbeat about its prospects for winning back market share by providing global roaming and the fast mobile broadband data connection speeds users are increasingly demanding. The XT launch is delayed by an acrimonious and expensive court battle launched by Vodafone, which claims XT will interfere with the reception on its network. The battle for the $2 billion New Zealand mobile market intensifies even further during the year with the launch of a long-planned third network operator, 2degrees.
XT GOES DOWN
XT is hit by a series of still unexplained glitches, starting in December last year, affecting customers in the lower North Island and all of the South Island. The fault is isolated to one of two radio network controllers in Christchurch. Reynolds and his lieutenants are forced to repeatedly apologise to customers, pay an estimated $15 million in compensation and are left red-faced. As engineers continue to work feverishly to fix the new network's problems, there is speculation Telecom has been undone by its rush to launch XT. The intention to win back market share through a late shift to the GSM world may have back-fired. Rather than giving it a network that is enticing to phone users because it offers a service of at least the standard attained by Vodafone, the early glitches have had the opposite effect. The all-important corporate customers, who are dependent on a faultless mobile service to survive in business, now have a poor perception of the new network and will take much convincing to switch, long after these early performance problems have been ironed out.