New Zealand duopoly hit by a new entry

www.WirelessFederation.com/news: Formerly known as NZ Communications, 2degrees, New Zealand’s newly-launched third mobile network has made a remarkable start in its bid to break the country’s mobile duopoly.  The new network has not only taken over 50 percent of net additions which is something about 70,000 connections in the last quarter of the year but has also predicted that  it will surpass a quarter of a million connections by the end of the current quarter (Q1 2010).

The GSM services of 2degrees were launched in August 2009. It’s low-cost prepaid strategy quickly made an impact as it significantly undercut its larger rivals, market-leader Vodafone and second-placed Telecom New Zealand (Telecom). The company cut the voice calls from NZD0.89 (US$0.63) to NZD0.44 (US$0.31) per minute and standard text messaging from NZD0.20 to NZD0.09. The operator has also claimed that it has halved the country’s standard prepaid rates.

NZD250 million (US$176 million) has been initially invested by the operator to build out its new network using Huawei kit. The launch of the new network has also served to step up pressure on regulators to force Vodafone and Telecom to make significant cuts in their mobile termination rates (MTRs). Even before the regulatory intervention, the two larger operators have already begun moves to cut standard termination rates (NZD0.15 per minute for calls and NZD0.10 for texts).

New Zealand’s market leader is in the form of Vodafone with just under 2.5 million connections by year-end. However, overall connections growth is slowing, rising by just 1.2 percent in the year to Q4 2009. Meanwhile, a subsidiary of the country’s fixed-line incumbent operator and second-placed Telecom is in the process of replacing its CDMA2000 network with a new high-spec WCDMA/HSPA network running at 850MHz called XT.

2degrees deployed a well-established tactic for a new player entering a market.  Embedded incumbents controlled the operator by building a connections base around a low-cost, no-frills prepaid proposition. Currently, New Zealand has seven MVNOs, the majority of which have been launched in the last year. There is also indication that the operator is looking beyond 2G services but it is likely to find itself trapped in a competition with its larger rivals in high-speed services.

Vodafone has emerged as the clear market leader in this space and has had success in bundling up its 3G services with its fixed-line offerings via cross-channel content arrangements with the likes of Sky TV.
Telecom’s rival XT network seems to be copying Telstra’s pioneering NextG network in neighboring Australia, but it has had a first year it would rather forget. However, Telecom has engulfed itself in heavy investment in the network and it should emerge as a strong platform for mobile data services once the technical problems are resolved.