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Topic # 60134 20-Apr-2010 09:05 Send private message

Just received:


In response to a query from the Minister for Communications and Information Technology, the Commerce Commission has invited the Minister to consider the launch of Vodafone’s Talk Add-on product in his assessment of whether Telecom’s and Vodafone’s mobile termination access services (MTAS) undertakings should be accepted.

In February 2010 the Commission recommended that the Minister accept undertakings from Telecom and Vodafone as an alternative to regulation.

In April 2010 Vodafone launched a new Talk Add-on product offering up to 200 minutes to Vodafone New Zealand mobiles and landlines for $12 a month for certain pre-pay plans. This plan is promoted on Vodafone’s website as “just 6 cents a minute to Vodafone NZ mobiles and landlines in New Zealand”.

The Minister has requested the Commission’s view on whether Vodafone’s new on-net plan is material to concerns identified in the Commission’s final report relating to the issue of whether smaller operators could compete with Telecom’s and Vodafone’s on-net retail rates.

“Since becoming aware of the launch of Vodafone’s new Talk Add-on product last week, the Commission has reviewed the details of, and the type of market behaviour exhibited by, Vodafone’s new Talk Add-on product. The Commission’s initial view is that such a plan, and any market outcomes which may arise from it, may be material,” said Telecommunications Commissioner Dr Ross Patterson.

“Further, the Commission’s initial view is that such a plan may have the potential to affect the basis for the Commission’s recommendation in the final report. The Commission recommended acceptance of the final undertakings as an alternative to regulation on the basis that Telecom’s and Vodafone’s final undertakings would address the competition issues which the Commission identified throughout the MTAS investigation,” said Dr Patterson.

“The Commission has invited the Minister to take account of the Talk Add-on product in his assessment of whether Telecom’s and Vodafone’s final undertakings should be accepted, or whether it is appropriate to request the Commission to reconsider its recommendation in light of the potential impact of Vodafone’s new Talk Add-on product,” said Dr Patterson.

There will be no further comment from the Commission at this stage.

Background
Mobile termination prices are the wholesale charges mobile phone companies charge for terminating calls or texts from other fixed or mobile networks.

Undertakings. Under the Telecommunications Act 2001, parties can submit undertakings, which are an offer of terms and conditions for the supply of a service as an alternative to regulation.

Requirements of the Telecommunications Act. The Act requires that the Commission makes a recommendation which best promotes competition for the long-term benefit of end users.

Reconsideration of Commission’s recommendations. Under clause 6(2) of Schedule 3 of the Act, the Minister can require the Commission to reconsider its recommendations or any aspect of its recommendations, for any reasons specified by the Minister.

MTAS investigation. On 6 November 2008 the Commerce Commission commenced an investigation under Schedule 3 of the Act into mobile termination access services (MTAS). The MTAS incorporates mobile-to-mobile voice termination (MTM), fixed-to-mobile voice termination (FTM) and short-message service termination (SMS). The investigation considered whether these services should become regulated services under Schedule 1 of the Act.





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  Reply # 320587 20-Apr-2010 10:49 Send private message

This new Vodafone plan was obviously part of their long term business strategy, but you've got to wonder if they knew the backlash it would create and if someone in Vodafone is getting kicked. Bad timing or just bad luck?

The simple fact that this new add on package has caught the attention of the ComCom and they have actually written to the minister to review is pretty serious. Although I expect 2Degrees have been working hard in the background to make sure this doesn't go un-noticed may have helped.

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  Reply # 320597 20-Apr-2010 11:06

The Commerce Commission has raised some points and we hope to discuss it with them as soon as possible.




Paul Brislen
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Vodafone

http://forum.vodafone.co.nz


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  Reply # 320598 20-Apr-2010 11:10 Send private message

I'm not entirely sure why the new voda plan is relevant.

voda could just as easily launch the same plan in a market where MTRs were zero, or 1c per minute - since under ANY mtr scenario on-net calls do not cost them any money.

Likewise, there is nothing in the MTRs to stop 2D launching an identical onnet plan (since MTRs don't affect on-net caling) e.g. 200 mins to any 2D mobile for $12 per month,

secondly, voda already (and XT) has massive differentiation in on vs offnet in the form of txt2000, best mates, my family etc, so this plan brings nothing new to the table in that sense

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Wannabe Geek


  Reply # 320599 20-Apr-2010 11:27 Send private message

I think the plan is very significant to the extent that the main incumbent in mobile prepay is using termination charges to (in effect) create network lock-in, By only offering "on-network" discounts, the major competitors make it very hard for new entrants to compete. I know from discussions with my own three teenagers that they would not consider switching to 2degrees, despite the cheap rates etc, because they and all of their friends are on Vodafone prepay, and so the best deals for them are on Voda as a result.

The original recommendations (and one dissenter out of the three reviewers) did note the high rates of "on-network" calls and txt's compared to other markets. From memory it was around 80% or so and this is a reflection of the lock-in that high mobile termination rates create.

Oh for a plan like Vodafone has just launched but supporting calls to ANY network - then we may see true competition in the New Zealand mobile market!
 

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  Reply # 320602 20-Apr-2010 11:35

There seems to be some confusion over what Talk is.

$12/month.

200 minutes to Vodafone mobile and any landline in the country.

Any landline from any provider - Telecom, TelstraClear, Orcon, Slingshot, Vodafone... all of them.


Paul




Paul Brislen
Head of Corporate Communications
Vodafone

http://forum.vodafone.co.nz


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Ultimate Geek


  Reply # 320607 20-Apr-2010 11:45 Send private message

gopher: I think the plan is very significant to the extent that the main incumbent in mobile prepay is using termination charges to (in effect) create network lock-in, By only offering "on-network" discounts, the major competitors make it very hard for new entrants to compete. I know from discussions with my own three teenagers that they would not consider switching to 2degrees, despite the cheap rates etc, because they and all of their friends are on Vodafone prepay, and so the best deals for them are on Voda as a result.

The original recommendations (and one dissenter out of the three reviewers) did note the high rates of "on-network" calls and txt's compared to other markets. From memory it was around 80% or so and this is a reflection of the lock-in that high mobile termination rates create.

Oh for a plan like Vodafone has just launched but supporting calls to ANY network - then we may see true competition in the New Zealand mobile market!
 


But 2D has on-network pricing now so by using your argument they are restricting entrants to the market?
On network pricing is simply good business practice.

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  Reply # 320618 20-Apr-2010 12:10 Send private message

Something I posted yesterday that is of interest is that 2degrees or the Commerce Commission have never (to my knowledge) raised ANY issues with Telecom's $1+GST fixed rate for calls up to 60 minutes from a Telecom landline to a Telecom mobile.

No other provider can terminate calls on Telecom's network for close to the 1.875c per minute this represents for a 60 minute call.

I have no issues with either plan but purely from a purely objective and fair perspective if 2degrees and the Commerce Commission have issues with Vodafone's plan they surely they must also have issues with the Telecom pricing?

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Ultimate Geek


  Reply # 320643 20-Apr-2010 12:49 Send private message

The thing is landlines are becoming increasingly irrelevant, especially for the target market of these deals - teenagers who don't have their own housing don't really want to call landlines, or be called on them.

And the difference between 2degrees on net deals and Vodafone's on net deals is a question of market share and the cost difference between on net and off net pricing. With Vodafone they have a large enough share of the market that they can afford to charge a large amount for off net texting and calling while providing cheap on net deals. Not only that it helps to retain their large marketshare by creating a disincentive to switching away. 2degrees with their small userbase can't afford to charge a large amount for off net because then they wouldn't attract customers at all.

It's not black and white and it's rather frustrating to see the argument "but 2degrees has on net, therefore it's the same".


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  Reply # 320664 20-Apr-2010 13:16 Send private message

A telco can only act anti-competitively in the market if it has a significant market-share which enables it to do so without risk of losing custom, and the effect of which is to the overall detriment of the market as a whole.

2degrees does not have sufficient market share compared to the two main incumbents, such that any anti-competitive pricing that it may engage in has a negligible impact on the market overall. One could argue that it does have a detrimental impact on its own customers, however they have the option to leave as the barriers to move are away are very low.

Its really drawing a very long bow to compare the on-net deals between 2degrees and Vodafone in that sense.


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  Reply # 320666 20-Apr-2010 13:20 Send private message

According to 2Degrees the plan shows that vodafone can terminate calls on its network for <6cpm, and thus proves why MTRs should be priced below this.

this argument is BS because:

1) They could be pricing it as a loss leader to get customers to spend money on other services (offnet calling, international calling, mobile data, sms, premium sms, mms, premium rate calling, mobile tv, music store, landline, fixd broadband etc etc).

2) the vast majority of people will not use anywhere near the 200 minutes they are able to. Voda know this and price accordingly. If, for example, people only use 50% of the minutes on average this means the efecitve rate is 12cpm, not 6.

and, like I said in my previous post in this thread, even if the argument makes sense, the offer brings nothing new to the table since they already price a large porion of offnet calling at an efective rate of 0cpm anyway with unlimited calling plans like best mates and family packages.

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  Reply # 320668 20-Apr-2010 13:22 Send private message

PaulBrislen: There seems to be some confusion over what Talk is.

$12/month.

200 minutes to Vodafone mobile and any landline in the country.

Any landline from any provider - Telecom, TelstraClear, Orcon, Slingshot, Vodafone... all of them.


Paul


yes, and termination rates to landlines is in the region of 1cpm.


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  Reply # 320694 20-Apr-2010 14:19 Send private message

walt12: A telco can only act anti-competitively in the market if it has a significant market-share which enables it to do so without risk of losing custom, and the effect of which is to the overall detriment of the market as a whole.

2degrees does not have sufficient market share compared to the two main incumbents, such that any anti-competitive pricing that it may engage in has a negligible impact on the market overall. One could argue that it does have a detrimental impact on its own customers, however they have the option to leave as the barriers to move are away are very low.

Its really drawing a very long bow to compare the on-net deals between 2degrees and Vodafone in that sense.



Sooo its not anti-competitive until your a big company?? So I can continue to price fix until I am big enough?

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  Reply # 320698 20-Apr-2010 14:26 Send private message

MikeyPI:
walt12: A telco can only act anti-competitively in the market if it has a significant market-share which enables it to do so without risk of losing custom, and the effect of which is to the overall detriment of the market as a whole.

2degrees does not have sufficient market share compared to the two main incumbents, such that any anti-competitive pricing that it may engage in has a negligible impact on the market overall. One could argue that it does have a detrimental impact on its own customers, however they have the option to leave as the barriers to move are away are very low.

Its really drawing a very long bow to compare the on-net deals between 2degrees and Vodafone in that sense.



Sooo its not anti-competitive until your a big company?? So I can continue to price fix until I am big enough?


Anti-competitive market behaviour and price fixing are two totally different issues.

Price fixing can be anti competitive but requires multiple parties to all enter into an agreement. There are many things that can be seen as anti-competitive that do not involve price fixing.

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  Reply # 320756 20-Apr-2010 17:00 Send private message

The issue with MTR fees is that they will naturally form a baseline price for calls between networks. yes you might have some sort of bundle that will allow you to get calls bellow cost due to making up revenue from some other stream. But if network A has to pay 12c per min to terminate calls on network B they will never have a casual retail rate bellow 12c per min otherwise it would be very easy for someone from network B to very legally make alot of continuous phone calls from a network A mobile they purchased to a number in their own network B and therefore gain alot of income and financially cripple its competitor.

If you combine this issue with the issues of significant market power and as previously mentioned by other posters, large companies to risk very little with on net pricing due to their customer base. a smaller carrier will in some ways be fored to match the on net pricing deals to stay competitive. This however will still not make people move accross as there is the issue of lock in and customer 'inertia' as a customer will not move if it is offered an equal product there must be some reasonable insentive for the customer to make the effort of changing carriers.

This has all been covered by many regulators etc around the world and 80% of OECD countries have decided that due to the complexities involved the key benifit of lowering or removing MTR fees is that they simplify the interconnect market allowing for more flexible and competitive offers in the retail space to occur without any of the networks involved having to worry about potential impacts of MTR.




Any posts are personal comments and not that of my employer

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  Reply # 320767 20-Apr-2010 17:17 Send private message

MikeyPI:
walt12: A telco can only act anti-competitively in the market if it has a significant market-share which enables it to do so without risk of losing custom, and the effect of which is to the overall detriment of the market as a whole.

2degrees does not have sufficient market share compared to the two main incumbents, such that any anti-competitive pricing that it may engage in has a negligible impact on the market overall. One could argue that it does have a detrimental impact on its own customers, however they have the option to leave as the barriers to move are away are very low.

Its really drawing a very long bow to compare the on-net deals between 2degrees and Vodafone in that sense.



Sooo its not anti-competitive until your a big company?? [snip]


Basically, yes.  When Telecom decided that they wanted to charge their customers who phoned Vodafones new landline number but using the cellular network, this was found to be anti-competitive.  With over a million landline customers, this was a big deal.  On the other hand, if it were some small company that wanted to try it on, basically no one would care (except their customers who'd be paying the bill).

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