The Minister should accept the recommendation

, posted: 9-Mar-2010 18:38

It's all about money.

Ask any journalist how to get to the source of any story and they'll tell you: follow the money.

So, the options before the Minister of Communications are:

 

1: Accept the recommendation of the Commerce Commission.

2: Reject the recommendation of the Commerce Commission.

3: Send back the recommendation for more working.

 

The recommendation the Commission has put forward is to accept the Undertakings offered by Telecom and Vodafone. Unusually there is a comment from one of the three Commissioners objecting to the result, but that’s neither here nor there: the recommendation is to accept the offers.

Why has the Commission done that? It’s simple: follow the money.

Here are the alternatives – Undertakings kicking in October 1 this year delivering savings to the industry (more on that below) immediately of around 40% versus sending the report back for more work and hopefully getting a changed recommendation to regulate, coming into effect in about 18 months to two years’ time.

The difference between savings in the two options is negligible. Either you get savings from October or you get the old price for longer and potentially savings after both a reconsideration period (last one took eight months) and a full STD process (where the Commission and the industry gather to talk about the true cost of telecommunications etc which should last about a year).

So the Minister has a relatively simple job ahead of him. He has to look at the certain savings delivered by the Undertakings versus the possible savings delivered should regulation be recommended by the Commission after reconsideration and, given there’s very little difference, it comes down to a timing issue. Should he go in October or wait for regulation that MAY deliver a better deal in a couple of years’ time.

The Undertakings move TXT termination rates to zero (hybrid bill-and-keep) and voice termination rates from 15c/minute (on a minute plus second basis) to 6c/minute (second plus second basis).

The cost to Vodafone is not trivial – we’re expecting an $80m annual revenue hit in each of the undertaking’s 5 years.  But that’s better than an uncertain outcome under regulation where the entire drop could take place overnight.  At least this way we get to manage the descent and not have to deploy some of the more unpleasant things that have been discussed in this blog.

Our view is clear – the Minister should accept the Undertakings so we can get on. They’re a win for the Commission (it’s got us down into the ballpark of price it likes). They’re a win for the Minister (he gets to deliver on the promise of greater scrutiny) and they’re a win for the consumers advocates who pushed hard for regulation in this space. It’s quasi-regulation, but it’s a regulated outcome that will deliver more certain and earlier benefits for consumers.



Other related posts:
Of termination rates and regulatory holidays
Minister recommends regulation - Vodafone's response
Vodafone's response to the Commerce Commission's report








Comment by DeroyBoy, on 9-Mar-2010 20:08

Your revenue will take a hit but so will your expenses in the reduced payment to telecom so can't see you being much worse off.


Comment by Simon, on 9-Mar-2010 21:15

According to research due to the nature of system used by carriers to send text messages between phones, texting does not cost the carriers any money at all. This is because SMS messages are designed to fit inside the bandwidth alloted to the "control channel", which is used to establish communication between the mobile phone and the cellular tower. This channel is continuously active, so the messages are piggybacking on the control signal, for free.

If this is so then why charge a termination fee OR retail fee for text messages? There was an article on here about how text spam would cost the recieving carrier but it shouldn't as the service is costing them nothing anyway.

Just my thoughts..


Comment by Chris, on 9-Mar-2010 21:17

I hope he accepts it.. and then you can get on with business at hand


Comment by Chris, on 9-Mar-2010 21:23

Oh and by the way I want you people to allow my Free Mins to not roll over each month if you start charging me for in coming calls/texts.. Thats what happens from month to month in the usa, they get to keep there mins if they don't use them


Author's note by jointhedebate, on 10-Mar-2010 09:13

@DeroyBoy, not quite. Mobile to mobile is in balance between providers so there won't be much of an issue there.

But in fixed to mobile, Telecom has the lion's share of the market - over 80%. So we reduce the price landline providers will pay, the question is, will they pass that on to customers? Overseas, the answer is no - they tend to pocket most of it. But the Commerce Commission is absolutely convinced they will here. Ideally they'll do a post-implementation review in a year or so's time, but that's not required by law.

@Simon, Sure. Once you've built a network to reach 97% of the population and millions in marketing teaching the market what a TXT message is and millions more setting up billing payment systems to handle all the traffic (roughly 600m TXTs a month and climbing) then yes, from that point on the TXT itself is relatively cheap.

We've spent around $3bn in capital expense and a further couple of billion in operating expense to get to that point.

The point around TXT spam is that the only way to stop TXT spam becoming as outrageous as email spam is to charge the senders for their content. That's stopped it almost entirely until now. The Commerce Commission has taken our argument about that on board and instead of going to straight bill and keep for TXT messaging, they've opted for a hybrid model that includes a billing option should the TXT balance get out of whack. Human to human TXT messaging tends to balance out but machine to human TXT messaging is all one way. Sure sign that it's spam.

@Chris, hopefully some of the unplesantness we've discussed will be avoided by acceptance of the Undertakings.


Comment by Chris, on 10-Mar-2010 09:22

So I take it they get text spam in the US as the use the BAK system??


Comment by jointhedebate, on 10-Mar-2010 09:56

Not sure about the US market - they have the double peculiarity of charging to receive calls which makes customers reluctant to give out their number so that will skew TXT messaging.

But in India, China and in France (the only country to regulate TXT messages) all are reporting massive increases in the number of TXT spam being sent.

The problem is it only takes a few dozen spam a day to get through to your inbox to make the whole thing break down. There are plenty of customers who receive emergency TXT alerts or similar who would be impacted by any TXT spam.


Comment by Chris, on 10-Mar-2010 10:24

are you saying some networks disable txt because it puts to much load on the network?

And we can all thank Two Degrees Mobile Limited for this


Author's note by jointhedebate, on 10-Mar-2010 11:04

@Chris, no, not that networks disable TXT but that customers who pay to receive them don't give out their numbers as readily.

Hopefully the "hybrid" bit of our hybrid bill and keep model will mean we can avoid the worst of the TXT spam.


Comment by Chris, on 10-Mar-2010 11:13

@Paul one last thing, Your saying they don't readily give out their numbers, Do you mean to there mates?? or to short code services?

Because if it's the latter then the spamming wont be an issue for me as I don't use short code services in fear of spamming,


Comment by Chris, on 10-Mar-2010 11:13

@Paul one last thing, Your saying they don't readily give out their numbers, Do you mean to there mates?? or to short code services?

Because if it's the latter then the spamming wont be an issue for me as I don't use short code services in fear of spamming.


Author's note by jointhedebate, on 10-Mar-2010 11:27

@chris, they tend not to give out their number to anyone because they pay to receive calls/TXTs.

I find telemarketers annoying but if I was PAYING to receive their calls, I'd be furious. TXT spam is the same.


Comment by Chris, on 10-Mar-2010 13:31

Jusus, I wouldn't want to pay for people to call me, cold callers and stuff. However Paul, It cost them over there to receive calls/texts but can they place calls for free????

Because if that's the case then it should not be to bad


Author's note by jointhedebate, on 10-Mar-2010 16:38

Sorry, no... they charge going both ways. Pay to make, pay to receive. BUT they don't have MTRs at all - so they claim it's better for consumers.

Not sure I like that idea. I know lots of people who don't use their phones that much - they'd end up giving up their connection if they paid to receive calls/TXT.

US market penetration has topped out at around 80% while everywhere else in the world it's growing past the 100% mark.


Comment by DeroyBoy, on 10-Mar-2010 17:08

While it is true that you pay to receive calls in the US the price per minute is a fraction of what it is here.


Comment by ajw, on 10-Mar-2010 17:08

jointhedebate,

US market penetration has topped out at around 80% while everywhere else in the world it's growing past the 100% mark.

Paul are you sure about that, the USA is one of the highest users of cell phones in the world. Check out the chart via this link.


http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=7933596&story_id=15546495


Author's note by jointhedebate, on 10-Mar-2010 17:27

@DeroyBoy, I had a look at the AT&T prepay rates and you pay a lot more than you do here to make a call and just as much again to receive - even for TXT messages...

@AJW, two different measures there - that's number of minutes rather than market penetration. The OECD figures for market penetration put the US at the bottom end while countries like Denmark and Sweden are well over the 100% mark. Some would have you believe that's because they HAVE to carry two phones, but the Drop the Rate campaign's own research shows only 3% of NZers carry two phones and there's no word on whether that's a personal choice or if it's my phone/work phone etc.

I'm always cautious with US data because they tend to conflate figures and measure things in a different way to the rest of the world. I'm not sure if those figures from the Economist include incoming minutes as well as outgoing (on the basis that they're all paid for) or not. Our figures would only be outgoing minutes because that's all we count.

Cheers

Paul


Comment by ajw, on 10-Mar-2010 17:35


@DeroyBoy, I had a look at the AT&T prepay rates and you pay a lot more than you do here to make a call and just as much again to receive - even for TXT messages...



Check out this link to prepay pricing in the USA. Looks a lot cheaper in the US compared to here in NZ.

http://www.mycricket.com/paygo/prepaid-cell-phone-plans


Comment by Chris, on 10-Mar-2010 18:53

@Paul, A least in the US they get to keep their free mins and they don't expire after a month!!!

You buggers don't do that,


Comment by DeroyBoy, on 10-Mar-2010 19:39

True for prepay but try getting 1000 minutes for $NZ57 on a plan here.


Comment by simon14, on 10-Mar-2010 23:44

This plan is available on AT&T:

450 ANYTIME nationwide minutes
5,000 nights and weekend nationwide minutes
Unlimited ANYTIME Mobile to Mobile nationwide minutes

Includes rollover, so if you don't use all your minutes up, they rollover to the next month.

All this for US$39.95 per month.

OR you can go for their completely unlimited calling to anynetwork, anytime for $69.95.


We in NZ are a longgggggg way off....

http://www.wireless.att.com/cell-phone-service/cell-phone-plans/individual-cell-phone-plans.jsp?wtSlotClick=1-002SR2!CIWM01-4-1&rel=nofollow&_requestid=235598


Author's note by jointhedebate, on 11-Mar-2010 11:13

Hi all,

none of which has a blind bit to do with MTR and everything to do with having:

- 250m potential customer base
- multiple providers
- huge interest in local content instead of international content

There are lots of reasons why prices are the way they are in NZ versus the US versus Holland etc... MTR is a small component of that pricing.


Comment by Chris, on 11-Mar-2010 11:19

Who cares about Prepay, They Get cheap calling when they are on postpay in the US


Author's note by jointhedebate, on 11-Mar-2010 11:52

@Chris, the OECD says no - when you compare the US pricing with the rest of the OECD the Americans are ... dead last.

cheers

Paul


Comment by Chris, on 11-Mar-2010 12:00

Put it this way, IF the com com decide to Zero Rate MTR and ya'all decide to charge for incoming calls and texts and charge heaps for that then you will find people wont use there phones at all and they might even bin them.
Did you tell the com com that you will charge customers to receive calls if they Zero rate MTR??



You will loose out in the end


Author's note by jointhedebate, on 11-Mar-2010 12:09

We did and that's why part of our Undertaking is a glide path that manages the change so we can avoid that kind of thing.

Cheers

Paul


Comment by Chris, on 11-Mar-2010 12:16

I spoke with the bad guys at Two Degrees Mobile Limited and they told me that charging for incoming calls and texts would have to be done ONLY by the company(s)with the most to loose.


Comment by Chris, on 11-Mar-2010 12:54

@paul When are we to here back from the minster? wasn't he due to decide on what to do about MTR 3 days ago?


Comment by simon14, on 11-Mar-2010 13:21

If there was no MTR on calls and txt and Vodafone started to charging for incoming calls/txt and the other two telcos didn't, or at least 2degrees didn't, then either Vodafone would be forced to stop charging for incomign calls or everyone will move over to 2degrees.

So even if mtr's were at 0, they wouldn't charge you for your incoming calls... but it sure is a good old scare tactic to get people on their side and it works really well :)


Comment by ajw, on 11-Mar-2010 17:48



Comment by Chris, on 11-MAR-2010 12:00

Bill and Keep in the USA and they still use their phones on a regular basis as can be seen by previous posters.


Author's note by jointhedebate, on 12-Mar-2010 08:35

@Chris, the minister called for submissions by Monday. He's now going to take those and the MED's report into consideration when looking at the ComCom recommendations.

@simon14, as I've said, the rest of the world charges things like minimum monthly spend, charging to receive calls etc when they have no MTRs. We've argued strenuously against that - and offered a solution that SHOULD avoid the worst of those things. Up to the minister now.

Paul


Comment by Chris, on 12-Mar-2010 09:30

@Simon wanna bet?? Oh they will charge for incoming calls, They do it in the us and I would bet they will do it over here if they have to, I think it's outrages.


Comment by Chris, on 12-Mar-2010 09:41

@Simon If Vodafone NZ start charging for incoming calls and text and the other lot don't Voda will continue as Vodafone clam that they set the trend and the others follow, That's why their Sim's are still 29.95 casual texts still 20cents and their prepay call rate is still 89cents a min, nothing will change.


Comment by sbiddle, on 12-Mar-2010 12:16

People need to remember that a move to BAK for voice was totally outside the scope of the MTAS investigation. 2degrees want BAK for voice because it would benefit them significsntly but it needs to be remembered that NO country has made a move from CPP to BAK for mobile since the intoduction of mobile services and kept BAK. The Commerce Commission made it very clear that BAK was not being considered for NZ at present.

France trialled BAK for mobile to mobile and ended up scrapping it because the system fell apart when mobile operators strarted routing fixed line traffic via their networks.

People need to realise that there is no relationship between MTR costs and retail costs for phonecalls. Many of us are paying too much for calls but MTR costs are not the issue.


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jointhedebate's profile

Paul Brislen
Auckland
New Zealand


You’ll have heard about mobile termination rates and how the Commerce Commission is investigating whether or not to regulate them. But what is a mobile termination rate, how does it work and why is it so important?

In this blog, we’ll try to answer your questions, tell you a bit about what we think and keep you up to date with the Commerce Commission and its process.


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