Ireland escaping NZ's mobile fate

On a recent business trip to New Zealand, Andrew Kelly had some free time and wandered into a Vodafone outlet on Queen Street in Auckland. Kelly, head of corporate and regulatory affairs at Meteor, Ireland's third biggest mobile phone company, was curious about prices in New Zealand.

The Vodafone salesman showed him the rates. Kelly said: "They seem a bit high to me. How does this compare with competition?"

The Vodafone salesman replied: "We have no competition in this market. They're the best rates we can offer. You can go to the other crowd. They have an inferior network, a CDMA network, but they'll charge you a similar price."

Kelly then asked, "Isn't there a third company coming called Econet?"

This time the salesman replied: "Yeah, yeah they're coming, but so is Christmas."

Such arrogance, Kelly said, was a prime symptom of what happens when one or two big companies come to dominate a country's mobile phone industry. Vodafone and Telecom are the country's only real players, and that means customers have had to put up with high prices and lack of choice. But it doesn't have to be that way, if Ireland can be taken as an example.

"New Zealand is where Ireland was a couple years ago. It badly, badly, badly needs competition in the marketplace," Kelly said.

In many ways, New Zealand and Ireland are in similar situations. Both are small, island countries with populations of about 4 million. Both also have mobile phone markets dominated by two major players. In Ireland's case it's Vodafone and O2, which has just been bought by Spain's Telefonica. Vodafone had about 50 per cent of the Irish market at the end of June, while O2 had another 40 per cent.

In Ireland, 94 per cent of the population uses mobile phones, just under the European average of 102 per cent (figures are higher than 100 per cent because of multiple SIM card ownership). Like New Zealand, customers have also been suffering from high prices and lack of choice. The average Irish user spends €54 ($93) a month on mobile service, and mobile companies earned €48 in average revenue per user in the second quarter. That's higher than the European-wide average of €31. Only Switzerland was higher at €49.

So how did Ireland bring in more competition? The Commission for Communications Regulation, the national regulator, has been trying to pry open the market to let more competitors in, with mixed results.

Spurred by a new European Union legal framework calling for competition reviews in certain markets, the commission took a look last year at the country's mobile phone industry. In January, it ruled Vodafone and O2 were too dominant, and decided to make them sell excess airtime to other companies, known as Mobile Virtual Network Operators.

The commission's directive grabbed headlines and raised hopes of cheaper prices. But by all accounts, the ruling - which has been appealed - has had little effect. No new operators have yet appeared, although some are rumoured to be in the works.

Progress had been slow, said Dermot Jewell, chief executive of the Consumers Association of Ireland. "It's almost a year ago that there was great anticipation of progress."

Prices had fallen a little, Jewell said, "specifically because there was so much bad press and media attention to this area".

However, legal delays had allowed Vodafone and O2 to flex their marketing muscle and drown out competitors.

"They hold a significant number of prominent retail outlets, their advertising campaigns are very strong and very visual, and their sponsorship of the highest form of consumer-supported events is quite extraordinary. You can understand how hard it is for others to get their message out." he said.

O2 in Ireland did not respond to requests for comment. A Vodafone spokeswoman referred to a statement put out in the northern summer saying changes in the market meant it should no longer be considered dominant.

There may be some truth in that.

Hope for Irish mobile customers has come from two small but growing players. In July, Hong Kong-based conglomerate Hutchison Whampoa launched 3, its third-generation telephone service, to become Ireland's fourth mobile player.

The company has invested 200 million in building a new network to provide third-generation high-speed phone and data services. Graeme Slattery, head of communications at 3, said it had also been competing aggressively on prices to win over new customers.

"Ireland in many different industries is a rip-off economy", he said. "Once we launched, our competitors started lowering their prices but still haven't come anywhere close to what we're offering", he added.

For example, Slattery said 3 is offering 600 minutes a month for 60, while Vodafone is selling the same for 99.

Slattery declined to say how many customers 3 has signed up, or how big its market share is. Vodafone and O2 also hold 3G licences and a fourth is also up for grabs.

At the same time, Meteor, which has 10 per cent of the market, has also been making gains.

The company, which was bought this summer by Eircom, Ireland's dominant fixed-line phone company, cut a deal last year with O2 to get access to its network while it was building its own. (Eircom's chairman, Sir Anthony O'Reilly, also owns a stake in APN News and Media, owner of the Herald.)

Meteor's Andrew Kelly said such a deal allowed it to grow much faster than before. He said such roaming agreements should be used in New Zealand, where Econet has struggled to share infrastructure with the two major players while it plans to build its network.

Meteor was granted its mobile licence in 1998 but another company, Orange, wanted that licence and appealed against the decision. When the licence was finally granted to Meteor two years later, it took another nine months for the company to build an adequate network, covering only 50 per cent of the population. In the following years, Meteor struggled to win new customers because people did not want to sign up with a network that didn't give them total coverage. But then the company inked a deal in September 2004 with O2 that would let Meteor use O2's signal where it didn't have any.

"O2 took a view they were going to be forced to give this national roaming anyway [and] from a commercial point of view it was going to be better to be giving the roaming and getting revenue, rather than just getting increased competition from Vodafone," Kelly said.

Since the deal, Meteor's customer numbers have surged to 500,000 from 160,000 and market share has grown to 13 per cent from 5 per cent. The company is aiming for 15 per cent by the end of the year.

"What Meteor always said was what was required was a national roaming provision, [because] Meteor was bringing infrastructure-based competition to the market," Kelly said. Like Vodafone and O2, he said, Meteor did not believe the commission's decision to mandate new virtual network operators was the right way to go.

Kelly said Meteor had not been able to negotiate virtual operator deals because none of them made business sense. In Ireland, three-quarters of mobile phone customers use pay-as-you-go service, the lowest end of the market, and that's the segment new operators would be chasing.

"What that means for an MVNO is entering the market where there are already very low retail prices," Kelly said. "In order for them to come in and compete, if they don't have their own network, they've got to buy the minutes, sell them on, and still be cheaper at the retail level."

Another big factor in increased competitiveness has been the ability to keep phone numbers when switching providers. A spokesman for the commission said since number portability was introduced in Ireland in July 2003, 330,000 people had "ported" their numbers. (New Zealand won't have portability until 2007.)

He said the commission had also acted to lower prices. Later this month, the regulator will launch a tariff-comparison website that will allow people to determine which package at which company is best for them.

Finally, the commission announced last month it would force mobile operators to justify their termination charges (the fees paid to connect calls from landlines and mobiles to different mobile networks).

They're usually a big expense for callers.