Droptherate - How about telling us the truth?

By Steve Biddle, in , posted: 11-Aug-2009 19:48

Today marked the launch of a campaign called droptherate - a campaign lead by 2degrees mobile to force the Government to drop mobile interconnection rates in New Zealand.

But what's wrong with our rates? A lot if you're to believe 2 degrees.




Now lets start pulling their graph apart.

How convenient that they forgot to mention that in the four countries that have zero that they do not operate under the CPP (Calling party Pays) business model. Oh, they also happened to forget that it's common to pay for incoming SMS messages and voice calls on some networks.. but I guess that just slipped their mind.

How conveient as well that the rates quoted on the site are actually for a 20 second call and make it look like the NZ figure which is based on a per minute rate is significantly higher?
 
To quote from EU figures from January 2009 that are in effect until new EU MTR rates take effect in early 2010.

Sweden €/min 0.393       $NZ 8.2c
France €/min 0.685         $NZ 14.3c
UK €/min 0.721               $NZ 15.1c
Germany €/min 0.818      $NZ 17.1c
Ireland €/min 0.1293 peak and 0.622 offpeak average = 0.956     $NZ 20.0c

NZ = approximately NZ$ 15c per minute.

2degrees has a discounted rate from the 15c - anybody who read the NBR last week will know what it is but for legal reasons I will not publish it here.

Rates in Ireland also differ between carriers - Vodafone and O2 have interconnect rates that are slightly less than that of Meteor who were the 3rd player to enter the market. MTR costs for Australia are also very hard to compare since they have flag falls and 30c billing blocks which can't be directly compared.

In some countries MTR rates are billed per minute and some are billed per second. Comparing a graph showing per second billing with a per minute call in New Zealand is blatently misleading.

MTR rates in New Zealand based on the current 15c per minute rate are very much in line with those in EU countries. A 3 minute call between 2 mobile numbers in Ireland would result in MTR costs of NZ$ 60c being paid between networks. Here in NZ approximately NZ$ 45c would be paid in interconnection costs.

NZ is NOT overcharging on MTR's like the graph shows.

What 2degrees also failed to mention (and what the NBR are no longer allowed to tell you) is that they are being billed per second for their interconnection with Vodafone. This means that their cost for a 20 second call to a Vodafone customer would be roughly equal with Sweden, the lowest CPP based operator on their graph.

Come on 2degrees - you're up to your old tricks again spinning us yet more rubbish. I guess a leopard never really does change it's spots.











Other related posts:
Air New Zealand launches Flexitime Membership (and how it can save you $$$)
Have an interest in retail payments and credit card interchange rates? Here’s your chance to have a say.
Fairfax takes journalism ethics and integrity to a whole new low with Stuff fibre








Comment by Dratsab, on 11-Aug-2009 22:11

Interesting that the Commercce Commission (who are supposed to be a champion for the consumer) forced NBR to withdraw the story from their website.  Unfortunately (for some) the internet is an insidious place... http://www.natcom.co.nz/index.php/vodafone-secret-deal-with-2degrees


Comment by Richard, on 11-Aug-2009 22:19

I think if you torture the numbers enough they'll confess to anything! If the interconnect rate comes down then the consumer, you and me, wins not the telecommunication companies.

Torture those figures all you want 2Degrees!


Comment by DarkShadow, on 11-Aug-2009 22:25

I don't really care how they do it as long as they make mobile rates cheaper.


Comment by benedictx, on 11-Aug-2009 22:26

How about the other countries like Singapore and the US then? Is it true they don't have MTRs? 


Comment by juha, on 11-Aug-2009 23:01

@benedictx In the US and SGP, you pay to make and receive calls.


Comment by peteremcc, on 11-Aug-2009 23:14

Maybe if 2degrees and the other companies focussed more on providing a good cheap service, rather than lobbying the government?

Of course you can't blame them. When you've got a government that's determined to interfere in the market whenever anyone complains about something being unfair, then it makes sense for companies to lobby.

What's wrong with free contracts and competition? Time to get rid of the commerce commission.


Comment by Omfg, on 12-Aug-2009 00:25

You sir are an idiot. You want accurate information yet you fail to provide it yourself. 2degrees is not the sole company behind this, you are just slinging shit at them. Telecom and vodafone are no better at providing accurate information (e.g. Vodafones "we have the fastest 3g network in nz*) followed by (*based on current 3g networks) when XT was still in testing.

I doubt the ComCom would be backing them if it were all BS

perhaps you are not the genius you clearly think yourself to be. Perhaps they are privvy to some information you are not.


Comment by George, on 12-Aug-2009 02:22

Wouldn't it be nice if telcos stopped with all the smoke and mirrors and just offered us a good service for a good price. All the advertising (and telemarketing) of the smaller companies chasing the big guys seems to be "we're better because they are rubbish" instead of actually giving us any real reasons about why the service they offer is worthy of our dollars. "The other guy sucks" isn't a marketing campaign!


Comment by Thug cruncher, on 12-Aug-2009 07:24

Boy, am I sick of all the BS I hear from the fat cat incumbents at Vodascum / Telethug. Those filthy, underhanded, money-grubbers have sucked every red cent out of the Kiwi mobile using punter from day 1. NOW, when there's a serious competitor in the markekplace, who is exposing them for the daylight robbers the rest of the country have known them to be, they cry foul,and try to tell us WE'RE being misled. They don't even warrant a response...let alone any kind of loyalty. I and all my buddies are so through with there smoke and mirror crap and their arrogant sense of entitlement in the telco and NZ business world, they can undercut the new network for all we care, we're through with the pair of them!


Comment by freitasm, on 12-Aug-2009 07:50

It looks like Thug Cruncher didn't read the blog post. Or didn't understand. Or can't be bothered trying...


Author's note by sbiddle, on 12-Aug-2009 07:55

There is no disputing we are being ripped off by Telecom and Vodafone.

The problem here however is not the MTR costs. Our MTR costs ARE competitive by world standards. The problem here is that MTR passthrough is not occuring.

As MTR costs have reduced over recent years carriers have not passed these reduced costs on but have instead absorbed them.


This doesn't make their wallets fatter as the reduced inbound call revenue is cancelled out when somebody makes a call off network.

The Commerce Commission NEED to focus on enforcing MTR passthrough. This is the only way call costs will drop. Dropping MTR rates hasn't significantly dropped call rates in the past and won't do in the future.

I also hope those that have supported the 2degrees campaign understand what they are actually campaigning for.

When they say they want MTRs dropped do 2degrees want MTR costs reduced (dropped) or eliminated completely (reduced). Eliminating MTRs completely and moving away from CPP means a fundamental business model change that would probably mean paying for inbound calls or SMS messages. I hope people realise that.


Comment by Paul Brislen, on 12-Aug-2009 08:14

Pass through is critical. If we're just taking money off one telco and giving it to another in the hope that somehow the customer will be better off, that's just nonsense.

If you're going to regulate, make sure the customer gets the benefit. That makes sense in my view - we can then compete for the extra cash the customer has and if we offer a good competitive service, the customer will spend more with us.

Today in the fixed-to-mobile space we have 100% pass through from both Telecom and Vodafone because we signed our legally binding Deed with the government. No other country has that level of pass through and the ACCC in Australia has pointed to the New Zealand example as being something they'll look at.

In Australia, Telstra doesn't pass through 100%. It passes through around 25% and pockets the rest. That's a $700m windfall for Telstra over the past five years. What's that done to the fixed line market in Australia? Is there more competition than before? No. What about mobile - is there more competition in mobile? No, there's less. Three network players instead of four.

The European pass-through rate averages out to around 50%. In the UK it's 65%. The Commerce Commission says ours will start at 75% and go up to 100% but doesn't explain why. Under the Commission's own model if pass through were to fall to "only" 65% then the cost of regulation brings in a net loss for all concerned and regulation wouldn't be appropriate. That's not much of a fall and without any evidence as to why pass through would be 75% and rising I'd be asking some hard questions on that.

Cheers

Paul


Comment by ockel, on 12-Aug-2009 09:47

You should send your link to Chris Keall at the NBR and/or the parties that have signed up for droptheratemate.  I doubt that they will realise the propaganda that they've signed up for - probably TUANZ doesnt realise it.


Author's note by sbiddle, on 12-Aug-2009 09:50

@omfg

Since you're obviously privvy to information that the rest of us aren't would you mind pointing out what information in my post is inaccurate?


Comment by langi27, on 12-Aug-2009 10:09

I think we all agree that the MTR costs should represent the actual cost incurred, and that Telco's shouldn't make profit out of this.

Can someone tell me if the current MTR rates are actually a true reflection of cost?

I've not heard or read a good argument from either Vodafone, Telecom (or 2Degrees for that matter), that breaks down the cost as an actual expense where cost is incurred that would justify the current 15 cent charges, similarly 2Degrees also have not produced enough evidence to the public anyway that justifies their 1-3 cents claim.
All I see is smoke and mirrors from Vodafone and Telecom and a lot of crying from 2Degrees. Nothing really to make a educated decesion.





Comment by PhilM, on 12-Aug-2009 10:29

Good post, I don't think sbiddle has insider knowledge he generally brings a very good moderated perspective to any technicial converstation, he does have a more indepth knowledge base than do most users on this site, which is why he works as a moderator. @omfg ...He is only trying to show both sides of the story and points out some valid facts, it is very easy to get caught up in the glossy details but when you drill down you may be in for a suprise, is MTR to high ... yes I believe it is.. does it need come down that much, maybe not as much as people want but thats my own opinion. sbiddle just raises some good points for people to beaware off ... there is always 2 sides and he is just showing another point


Comment by roberto, on 12-Aug-2009 13:27

well well well! THANK YOU FOR SUCH AN INTERESTING ARTICLE :-) however, while i totally accept your 'informed' point-of-view, i'd like to ask what's wrong with leading the EU/RotW in the area of low (NOT no/zero!) MTRs? looks to me, aka the sucker that has to pay the bills that fund vodafone's SHOCKING (in my personal experience on MULTIPLE occasions) customer service, that many new zealanders have indeed been 'ripped off' for far too l-o-n-g cordial regards robert


Comment by Paul Brislen, on 12-Aug-2009 15:38

re: cost of providing service. This is a fundamentally important point: the whole Commerce Commission process is devoted to finding out that fact. How much does it cost to deliver calls/TXTs in New Zealand. The Commission is doing it like this: it's drawn up a list of nine countries that use world's best practice and have done a cost model to show costs in their jurisdiction. The Commission isn't going to do its own cost model for NZ: instead it's got those nine countries and... it's picked the middle one. Currently New Zealand is "Israel". I cannot begin to explain how stupid this is. The range runs from 12c/min in the UK down to about 4.5c/min somewhere else. Clearly there's enough variation in cost from country to country to support that kind of range. Fortunately, I don't have to. We asked Analysys Mason, the company that drew up seven of those nine countries' models, to review the Commerce Commission approach. You can read the report here on the Commerce Commission's site. Just read the opening sentence of the report: "The Commission's benchmark analysis ... is simplistic and produces a result that risks being inaccurate." No kidding. Chose nine countries, pick the middle one. I feel a Tui's moment coming on. I hear what you're all saying about value. Truly I do, and I'm not alone. But MTRs have nothing to do with retail rates in the way that Two Degrees is saying. Have a read of Juha's blog today. He's better at this kind of thing than I am. cheers Paul


Comment by Paul Brislen, on 12-Aug-2009 15:46

And all my links have fallen out. Sorry about that. Juha is at: http://www.geekzone.co.nz/juha/6696 and the AM report is at: http://www.comcom.govt.nz/IndustryRegulation/Telecommunications/Investigations/MobiletoMobileTermination/mobiletomobiletermination.aspx have a look under the Vodafone submission on the draft report and you'll see the Analysys Mason report.


Comment by ajw, on 12-Aug-2009 16:27

SBiddle

I note Mr Brislen is slinging as much spin as possible to maintain the status quo.

Please note the same campaign is also running in the UK to lower MTR's. Why doesn't Paul explain why VFNZ is the best performing subsidiary in the Vodafone empire. Nobody minds a good return on investment but VFNZ are ripping us all off. And by the way Paul concerning your article in this mornings Herald since when were prepay phones subsidised and why are your 2G GSM phones a lot dearer than the phones offered by 2 degrees.


http://www.terminatetherate.org/Pages/Homepage.aspx


Comment by ajw, on 12-Aug-2009 18:06

Mr Brislen

Please take note of a recent speech by Vivian Redding to the European Parliament concerning high mobile termination rates.
Perhaps Messrs Biddle and Brislen have not also explained that MTR's will be regulated to a maximum rate of 0.03Euro by December 2012.



"Today's Recommendation on termination rates is about customer welfare...".
...
"At a time when many face financial difficulties, it is especially important to end bad practices and rectify market failures.
The obvious problem is mobile termination rates, which are in most Member States 4 to 5 times above the cost of providing the service."
...
"Why did the Commission act? How do mobile termination rate problems affect competition?
Firstly, each mobile and fixed network operator has a monopoly for the provision of termination services on their own network and like all monopolists they have no incentive to reduce these rates.
On the contrary, they want to not only maximise their own profits but also make it as difficult as possible for rival fixed and mobile operators to compete."
...
"Unlike roaming rates, this rip-off is not obvious to consumers because it built into charges that operators offer to consumers."
...
"The evidence that change is needed is crystal clear.
Despite five years of regulatory efforts to bring prices down, mobile termination rates remain out of all proportion to both operator costs and charges for comparable services.
Mobile termination rates are still ten times higher than fixed line termination rates, and four to five times above the cost of providing the connection.
Any justification for this, for example in terms of mobile operators having higher costs because of the need to set up the networks, is long gone."
...
"Without such guidance, high termination rates would persist for many years. That would be a crazy situation, and we have to act to stop it.
Instead, by forcing prices down, we are levelling the playing field in particular for small mobile operators, but also between fixed and mobile operators, and ensuring that more competition is possible."
...
"We estimate that eliminating price distortions between phone operators across the EU will lower consumer prices for voice calls within and between Member States, saving business and household customers at least
2 billion euros in 2009-2012.
And this is just in the short term. In the mid-to-long-term, the overall gain to society as a whole resulting from increased competition will be much greater. And this is just in the short term. In the mid-to-long-term, the overall gain to society as a whole resulting from increased competition will be much greater.
Distortions of competition
The competition distortions are very real in the current situation.
Smaller operators are at particular risk of being unfairly squeezed out of the market.
Why? Because small mobile operators, who terminate many of their customers' calls on the network of their incumbent rivals, have to pay large sums for this service.
If termination rates were lower, they could use these funds to finance investment in new infrastructure and could also make more aggressive retail offers to attract more customers.
Instead, they face undue hardship because of the unfair termination rate costs."
...
"The incumbents are, in plain English, using the termination market as a "cash cow."
With lower termination rates these games will end and customers will get a better deal.
Of course, large, incumbent mobile operators are hostile to this change
- after all, which monopolist is ever happy to give up their privileged position."
...
"... we believe the transition period is generous and that those who offer efficient and innovative services will be fine.
The Recommendation clarifies that phone companies are not entitled to rip-off phone users.
We would not allow such excessive and divergent charging or such distortions of competition in markets for other basic items - so there is no reason to allow it to continue in telecoms."
...
"I am confident that regulation is needed, and I am confident that the new, lower regulated rates foreseen in today's Recommendation is the right form of regulation.
It will lead to more competition and innovation in the sector, and improved customer welfare."


Author's note by sbiddle, on 12-Aug-2009 18:58

I made no comments on what I believed MTR rates should be but will add them in just for reference so people can't accuse me of siding with either Vodafone or Telecom.

Right now I believe our rates should be 10c per minute for voice and 2c per SMS. This won't help 2degrees because it may or may not be what they are currently paying. I could tell you but somebody might sue me.

I see 7.5c for voice being the next step after that within a 2-3 year timeframe. The irony here however is that within the EU new operators are begging for their MTR's to stay higher than the incumbents so they can continute to expand their networks.

In general I agree MTR's should be lowered. MTR's have been steadily falling and have dropped over 50% in the past few years.

What has not happened however has been any passthrough of these reduced rates so retail pricing has not dropped significantly.

What I don't agree with is the agenda of the campaign that has been launched, particularly spreading FUD and lies.


Comment by bjhoogs, on 12-Aug-2009 22:36

Will 2 degrees commit to 100% passthrough of the drop in (published) MTR?As for the cost of MTR, I know Vodafone can't publish details of what they charge 2 degrees, but can they publish details of what they would charge any other new commers to the market?  Discussing what they charge Telecom is hardly relevant to 2 degrees, or the 'duopoly's stranglehold on the market'.


Comment by Paul Brislen, on 13-Aug-2009 09:16

When Vodafone entered the market ten years ago the MTR rate was 50c/min. Retail rates have fallen through competition not regulation. They'll fall further through more competition not through regulation. No business wants a govt-appointed body to decide how much it can charge for products and services. Most of us are too young to remember when the price of milk was debated in parliament and you needed a prescription to buy margarine because of a govt requirement. Take a look at the TSO - the industry is required to pay $60m a year to provide dial up speeds (14.4kbit/s and 9.6kbit/s) to rural New Zealand. That's a lot of money for a shockingly low level of service, yet because it's regulated, it trundles on year after year. Cheers Paul


Comment by benedictx, on 13-Aug-2009 13:04

@juha You don't pay to receive calls in Singapore. 


Comment by juha, on 13-Aug-2009 13:51

@benedictx Yes, it is a receiving party pays country. There are plans available that have free incoming calls, but it's mainly RPP.


Comment by ajw, on 13-Aug-2009 16:34



Paul what competition, all we have had over the years is a cosy little Duopoly not wanting to rock the boat between them. Especially as the mobile industry alone is worth $2.3 Billion per annum. Prior to 2 degrees launch all we have had is a few MVNO's using both incumbents networks controlled by the network operators. Like the tail wagging the dog. We saw one attempt two or so years ago when TelstraClear tried to build a cellphone network in Tauranga but because of gross incompetence by TelstraClear and also because they were shafted by Vodafone this project ended in total disaster.


Comment by Paul Brislen, on 14-Aug-2009 10:02

I think you're being a tad harsh on the MVNOs, ajw. They're only just starting into the market. Overseas the MVNOs drive a lot of the market behaviour. Take a look at Virgin Mobile - wherever it operates it's an MVNO. It doesn't build networks, but it does compete vigorously. In the UK you've also got BT as an MVNO (that's right, no network for British Telecom) and Tesco. In New Zealand all the real MVNO activity is on Vodafone's network and is only just kicking off. Black and White are quietly beavering away, CallPlus has just launched two services, Compass is targetting small business and will do very well with its full suite of fixed wireless, business tolls and mobiles. And then we've got TelstraClear and Orcon yet to launch. The market is vibrant, it's active but it's very new. Don't make the mistake of believing that the only way to compete in NZ is to build a network.. we simply aren't big enough population wise for that to make sense. We already have two national 3G networks, something no other OECD country has. Vodafone is committed to building a strong and active wholesale market and believe me, we're not afraid that our marketing brethren in retail can't compete. But they'll compete on price, not on regulated access to one component of the pricing. cheers Paul


Comment by simon14, on 14-Aug-2009 16:33

Paul,

Under MVNOs, they are still limited to the conditions the network operator offers them.
 
Black and Whites pricing is the same, if not more expensive than Vodafones offers. Eg,:
 
Starter 600 on Vodafone = $30 a month
 
Includes:
 
30 anytime minutes
600 texts
free best mate
 
The 30 on BW = $30 a month
 
Includes:
 
30 anytime minutes
600 texts
 
How is that competitive? They can’t even match Vodafone’s retail price….
 


Comment by ajw, on 14-Aug-2009 16:56


The market is vibrant, it's active but it's very new. Don't make the mistake of believing that the only way to compete in NZ is to build a network.. we simply aren't big enough population wise for that to make sense.

Paul excuse me in Panama they have four MNO's competing against each other  for a population of only 3.2 million.
You have not answered why VFNZ is the highest performing subsidiary in the Vodafone empire, and I am not a Socialist and  believe in free market principles but please answer the question.


Comment by AndrewTD, on 18-Aug-2009 11:53

Interesting to see your blog quoted and commented on in this article on stuff.co.nz today.http://www.stuff.co.nz/business/industries/2763171/2degrees-denies-secret-pay-for-calls-plan
2Degrees make a pretty cleat denial of a BAK intention.
Who knows Steve, 2Degrees may have originally inteneded to argue for BAK, but your article highlighted things so much to the public that perhaps you in effect have been able to change their objective. We can of course never know that for sure.
Regardless of that, thanks for writing an excellent piece Steve.


Comment by Mal, on 18-Aug-2009 16:44

Steve, you have got this totally wrong. The true cost of terminating a mobile call is no more than a fixed network, as evidenced by the fact that virtually all new networks being built in third world countries are mobile - its cheaper. In NZ, Carriers are even forced to pay mobile termination rates on calls to a mobile operators voicemail platform. The latest figures from the UK put the true cost at 0.8p, or around 2cents NZ/minute. The lowering of MTR over the past few years has definitely lowered prices to end consumers and will continue to do so. If you look up a typical USA plan, you will see that they are paying no more than NZ7cents/minute on a 1500 minute plan, with unlimited free on-network calls.


Author's note by sbiddle, on 18-Aug-2009 17:02

@Mal

You've obviously failed to understand that my post had nothing to do with my opinions of what MTR rates should be. If you read my comment above you'll quite clearly see what these are - I believe MTR rates should be lowered. I have never claimed anywhere that MTR costs should not be lowered.

My gripe is with 2degrees funding a campaign to force MTR's down without telling us the truth.


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Steve Biddle
Wellington
New Zealand


I'm an engineer who loves building solutions to solve problems.


I also love sharing my views and analysis of the tech world on this blog, along with the odd story about aviation and the travel industry.

My interests and skillset include:

*VoIP (Voice over IP). I work with various brands of hardware and PBX's on a daily basis
  -Asterisk (incl PiaF, FreePBX, Elastix)
  -Polycom
  -Cisco
  -Linksys
  -Patton
  -Zyxel
  -Snom
  -Sangoma
  -Audiocodes

*Telecommunications/Broadband
  -xDSL deployments
  -WiMAX
  -GSM/WCDMA
  -WiFi

*Structured cabling
  -Home/office cabling
  -Phone & Data

*Computer networking
  -Mikrotik hardware
  -WAN/LAN solutions

*Wireless solutions
  -Motel/Hotel hotspot deployments
  -Outdoor wireless deployments, both small and large scale
  -Temporary wireless deployments
   
*CCTV solutions
  -Analogue and IP

I'm an #avgeek who loves to travel the world (preferably in seat 1A) and stay in nice hotels.


+My views do no represent my employer. I'm sure they'll be happy to give their own if you ask them.


You can contact me here or by email at stevenbiddle@gmail.com

twitter.com/stevebiddle