Telecom also persisted with an older, CDMA technology for its mobile phone network and only recently upgraded to the newer industry-standard with XT.
Deane says that this, again, was the fault of Government. "We bought the GSM spectrum in an auction, and the Commerce Commission forced us to sell that back to Vodafone and Bell South. I still remember pleading with the Government that we should have that technology, but officials - in their infinite wisdom - decided against it."
Nonetheless, Deane concedes that history proved CDMA wasn't the technology of choice. "It was a bit like VHS versus Beta," he says. "And Telecom has effectively moved to VHS with XT."
These comments are completely and utterly wrong. Matt Nippert has either misquoted Deane, or Deane has a failing memory and should have probably checked his facts first before giving an interview.
Many people wonder why Telecom chose the CDMA path and didn't deploy GSM in the 1990's - the answer is quite simply that they did not own any spectrum that enabled them to deploy a GSM network.
In 1987 Telecom launched New Zealand's first mobile network using the AMPS (Advanced Mobile Phone System) technology. The AMPS standard used spectrum in the 800MHz band and consisted of two blocks of radio spectrum known as the AMPS A and AMPS B bands. These blocks consisted of an equal number of channels and were created so two networks could happily co-exist side by side. Telecom was granted usage right for the AMPS B band to deploy their network and over the next few years successfully rolled out a nationwide analogue mobile phone network. At this stage ownership of the AMPS A band was still retained by the Crown.
By 1990 network growth meant they required additional spectrum to expand their network, Telecom were already using some AMPS A frequencies under agreement with the Crown and were excited at the potential of upgrading the network to the DAMPS (Digital AMPS) standard that was ratified in March 1990. It was clear to analogue network operators already that the limited number of frequencies available would seriously hamper the grown of analogue networks and that a move to digital was essential. At this time the GSM standard was also being finalised but had still not been publically demonstrated.
In May 1990 the NZ Government announced that it was calling for public tenders for usage rights to the AMPS A band, and also the TACS A and TACS B bands. The TACS bands were European frequency blocks in the 900MHz band that were used for deployment of analogue TACS (Total Access Communication System) mobile networks in Europe, however they were now expected to be used for the GSM standard that were expected to launch in Europe in 1991. A 3rd block of TACS spectrum known as TACS C was not sold off as it was still currently in use by existing licence holders for non mobile services.
The New Zealand Government auctioned off these blocks of spectrum using the Vickrey auction process where the price paid by the successful bidder was that of the 2nd place bidder. At this auction Telecom New Zealand bid $101,200,000 for the AMPS A band but had a pay price of $11,500,000 which was the price bid by the 2nd place getter, First City (a Canadian investment bank). BellSouth won the usage rights to the TACS A network bidding $85,522,101 with a pay price of $25,200,000 that was bid by Telecom. Telecom Mobile Radio Ltd were the successful bidder for the TACS B spectrum bidding $7,000,000 but with a pay price of a mere $5000 from the 2nd place bidder, Broadcast Communications Ltd. Telecom bid for this TACS B spectrum through a subsidiary known as Telecom Mobile Radio Ltd who were at the time primarily providing land mobile radio services. They claimed this spectrum would be used for "expanding demand for land mobile services, future mobile data services, and point to point linking services", however it was finally acknowledged that this spectrum was being acquired for future mobile services.
A condition of the auction was that any spectrum purchases by Telecom New Zealand had to be cleared by the Commerce Commission before the acquisition was finalised and submissions to the Commerce Commission were made on the 29th May 1990 seeking approval for the AMPS A and TACS B bands.
Immediately after this auction issues were raised over the fairness of Telecom New Zealand owning two new blocks of spectrum and appeals were lodged by several unsuccessful bidders. The Commerce Commission also began reviewing the case to test whether Telecom's purchase would be preventing competition in the mobile market. The Commerce Commission issued a draft determination on the 24th August 1990 saying that it believed Telecom's purchase of the AMPS A band was anti competitive and would result in it having a dominant position in the market as it would control 3 out of 4 available spectrum blocks for mobile services, as well as full control over the existing PSTN and interconnection with the PSTN. On the 17th October 1990 the Commerce Commission issued a final decision blocking Telecom from acquiring the management rights to the AMPS A band.
On the 31st October 1990 Telecom lodged an appeal against this ruling. Telecom had made it plainly clear that it's submissions that it's preference was for the AMPS A band over TACS B and that in it's view BellSouth would be competitive in the marketplace which placed even greater pressures on Telecom to acquire AMPS A. Telecom argued acquiring AMPS A "as the essential means by which it could at least achieve, first, greater efficiencies with its existing network notwithstanding its basic inferiority compared with digital technology and, secondly, the ultimate capacity to upgrade to digital technology without incurring inordinate expense and disruption of its existing analogue subscribers".
On November 30th 1990 the Commerce Commission cleared Telecom to acquire the management rights to the TACS B band, however Telecom were still so keen to acquire the AMPS A band that they reached a deal with the Commerce Commission and pledged to give up their rights to the TACS B band if they were successful on appeal for the AMPS A band, hoping that this compromise would avoid any competition issues.
Telecom's appeal was heard during a 12 day case before the Administrative Division in June and July 1991, and in December 1991 the High Court delivered a judgement dismissing the appeal. Leave was granted to appeal to the Court of Appeal which was Telecom's next step. It's also worth noting that Broadcast Communications had also filed legal action against the Commerce Commission which is part of the reason both cases took so long. In June 1992 the Court of Appeal ruled that subsequent to Section 97 of the Commerce Act 1986 Telecom should be allowed to purchase management rights for the AMPS A band. The court noted " it was not demonstrated that the grant of the AMPS-A frequency to Telecom would, or would be likely to, result in it acquiring or strengthening a dominant position in the cellular telephone market such that Telecom was entitled to clearance under s 66(7) Commerce Act 1986".
Telecom now had access to both AMPS A and AMPS B bands and BellSouth had access to TACS A. The TACS B band was subsequently sold to Telecom Australia (who later became Telstra) and remained unused. Throughout the 1990's Telecom proceeded to upgrade their mobile network to the DAMPS standard and ran their digital and analogue networks side by side.
What had become very clear to Telecom by the late 90's was the fact that GSM was vastly superior in many aspects to the DAMPS standard and had grown to become the defacto standard for mobile networks around the world. With the purchase of BellSouth by Vodafone Group and aggressive marketing that resulted, Telecom gradually began to lose market share and was faced with a network that was simply unable to offer the same capabilities as it's competitor.
Around 1999 it because clear to Telecom that they were going to need to look at options for replacing their AMPS/DAMPS network. At this stage Telecom still didn't own any 900MHz spectrum that enable it to deploy a GSM network, however 1800MHz spectrum was available that would enable Telecom to build an entirely new nationwide GSM network. The downside of the 1800MHz frequency was that it required significantly more cellsites to create a nationwide network than the lower 800MHz and 900MHz frequencies, and would also mean building a brand new network from scratch. Also being considered was the CDMA (Code Division Multiple Access) standard which was being sold as a solution for existing AMPS/DAMPS networks allowing a much simpler upgrade to something bigger and better. The base of installed AMPS and DAMPS networks in the USA was huge and this technology allowed an upgrade without having to entirely rebuild the network which would have been required with a 1800Mhz GSM network.
Telecom proceed with the CDMA network upgrade, rumours have it in part because of the much cheaper price, but also because of the influence put on the company by part owner Verizon who had already upgraded their AMPS/DAMPS network in the USA to CDMA. In 2001 Telecom launched it's CDMA network to much fanfare and the rest of the story is now well known. CDMA while technically superior to GSM in many aspects, suffered badly in the marketplace. GSM had become the dominant global cellular standard, and handset selection began to suffer as large players such as Nokia and Ericsson pulled the plug on CDMA handsets. Despite hurting Vodafone, Telecom never managed to reverse the rot that had already set it, and it became clear by around 2005 that Telecom seriously had to look at options to replace CDMA as their share of the mobile market was in decline.
Telecom's options right now were fairly straight forward, the GSM 850MHz standard had been around since 2002 and finally Telecom owned spectrum that allowed them to deploy a GSM network. Telecom also won a 3G 2100MHz licence at auction and would make use of it to build a dual mode GSM/WCDMA network that would be identical to that of Vodafone with 2100MHz 3G services in the cities and major towns and GSM coverage across the remainder of the country. The stage was set, but unfortunately things didn't run to plan. Delays then occurred in the planning, delays which turned out to be a blessing in disguise for Telecom - the 850MHz 3G WCMDA standard had matured and Ericsson had deployed a huge 850MHz WCDMA network in Australia for Telstra. Ericsson now wanted to do the same thing for Telecom, and the decision was made to dump the GSM component and go with a nationwide 850MHz WCDMA network that would ultimately be built by Alcatel Lucent. XT was born.
What is clear is that at no time did the Government force Telecom to sell spectrum suitable for a GSM network to BellSouth/Vodafone as Deane claims. BellSouth had won management rights to the TACS A band. Telecom had won management rights to the TACS B band. Telecom simply picked the wrong horse, opting for the AMPS A band rather than the TACS B band when it was given a choice by the Government. Nobody knew at the time GSM would turn into a global standard and dominate over DAMPS - there wasn't even a single GSM network in the world in 1990 when the decision was made (the first GSM network was launched in Finland in 1991). Allowing Telecom to own 75% of the available mobile spectrum was frowned upon by the Commerce Commission in 1990 and it was a decision that was would certainly not be any different today.
So in a nutshell that's the history of Telecom mobile. A history that is unknown to many people, including the former Chief Executive and Chairman of the company!
Other related posts:
Spark Paging network shutdown – the event nobody cares about? Not quite.
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New Zealand’s growing BUBA problem (AKA I feel sorry for you if you’re on a Conklin)
Comment by johnr, on 2-Mar-2010 14:38
Dr Paul Reynolds the other day also advised in an interview Telecom NZ are the only company rolling out Fiber to cell sites in NZ. This is not the case at all...Sorry Paul you got that incorrect.
Comment by Miki Szikszai, on 2-Mar-2010 14:48
Steve A good summary! A few points that are missing... 1. Telecom's upgrade options from DAMPS incude the path that AT&T eventually took which was from DAMPS to EDGE to WCDMA. After years of having to rely on AT&T's strategy, it wasnt looking like that good a choice. 2. I was involved in the AMPS/DAMPS and CDMA deployments - at no time was Verizon influential in the CDMA decision. Telstra's decision to go CDMA had much more of a bearing than anything else. 3. At the time of the CDMA decision, the clear path was to then move to a harmonised WCDMA platform that both GSM and CDMA were evolving to. There was a lot of standards work that was heading that way and Lucent had committed to a build price and time. The standards fell over and that was the end of that. 4. Telecom did a lot to reverse the rot under Kevin Kenrick - market share was starting to get close to parity. The key thing is that there was never the ground work undertaken that would allow for a fast move to 850MHz WCDMA which everyone knew was inevitable. 5. Rod Deane was CEO at the time the decision to go CDMA was made. I was in the Exec meeting that day (not as an Exec, rather a subject matter expert) - Rod Deane was pushing GSM all the way against his exec team who simply couldn't stand that they would have to admit GSM was better Miki
Comment by muppet, on 2-Mar-2010 15:11
Great post. Thanks.
Comment by Keith Humm, on 2-Mar-2010 15:40
Correct me if I'm wrong, but didn't the government force Telecom's hand by only allowing them one of AMPS A / TACS B? The choice became servicing current customers, minimising disruption and maximising previous investment vs. ditching it and building a brand new network from scratch... Pretty difficult choice, esp considering option a) meant technological reclusiveness...
Comment by kyhwana2, on 2-Mar-2010 15:45
Telecom's appeal was heard during a 12 day case before the Administrative Division in June and July 2001, and in December 1991...
Telecom/The crown has a time machine? :)
Comment by wongtop, on 2-Mar-2010 16:28
Great post Steve. The question now is will their W-CDMA network be good enough to make up the lost ground.
Comment by maverick, on 2-Mar-2010 18:26
I can definetly vouch for Miki's credentials, he was one of the head Cell Engineers at Telecom Mobile and I worked with him on a daily basis deploying and upgrading all the AMPS / DAMPS cell sites for the lower North Island.
The good old days, that was just before you crashed one of our OP's Van if I remember rightly after taking the Mobile Calf to a Mountain to See event wasn't it
Comment by timmyh, on 2-Mar-2010 18:30
I had just started at Vodafone in 1999 when Telecom made the decision to go CDMA. I remember our Director of Technology (Arthur Neely) walked into a meeting to tell us about Telecom's decision and he said "I thought we were up against a tough competitor - but not any more."
Over the next 10 years this turned out to be correct.
I also heard that Theresa Gattung as Head of Marketing was swayed by the CDMA vendors that CDMA would deliver much better mobile data speeds for the upcoming mobile internet revolution. While you might argue this was technically correct the devices and good user experience were still 8 years away by which time GSM had prevailed.
Comment by antoniosk, on 2-Mar-2010 19:08
I was in the UK working for One2One trying to roll out the GPRS network in early 2000, to meet that massive latent demand for mobile data in 2001, when I read that the Lucent deal had been signed with Telecom for CDMA (£65m for a new network, vs the £40m o2o had already spent just for GPRS, and it didn't arrive in a working form until 2002). Crap 1800mhz handsets, atrocious 900mhz handsets, and NTTDOCOMO caning it with i-Mode and talking up FOMA. CDMA did look attractive, and it was better for data.
GPRS finally arrived with devices in late 2002 - Xda. 2003 with the Novatel & Sierra Wireless datacards. Overtaken by 128k 3G in 2004 etc
Anyway, ancient history.
Miki - love the summary, I can see the participants of those meeting commenting even now!
Comment by johnr, on 2-Mar-2010 20:21
@timmyh Arthur Neely I use to work with him great guy what was his nick name again I forgot??
Comment by Miki Szikszai, on 2-Mar-2010 21:03
@maverick Crashed the van - more like ripped the gutters off it putting it through a car wash with a roof rack still on it! There's no doubt CDMA was the business for a decent chunk of time while we were able to get *enough* devices. Was always a battle getting them though. The fundamental ecosystem issues were that the Asian operators (Korea in particular) were always advanced enough to build their own handset supply chains that worked. While they were stunning, they never really quite translated into Western markets. We did a heap of work with Korea, China and Japan to try and bridge them with English speaking markets. The arrangements with Sprint to get hold of the Sanyo portfolio were a really successful arrangement. With a decent suite of applications, content and devices Telecom really got into Vodafone's market share. Sprint were a really good partner as well. That was a relationship that needed to get to the next level but just didnt for a bunch of reasons. There can be a lot of criticisms of Telecom - the Sprint relationship at least allowed Telecom to gain some share. There are some other changes that happened in terms of people - at that time there just wasn't the senior decision makers who were technically oriented and knew the mobile market. Another story altogether. Probably enough for a book.... I am really interested in the Commerce Commission angle - I started in Mobile at the start of 1994 - even then the internal 'truth' was that the Government had required Telecom to give up the TACS B band as opposed to that being a choice Telecom made.
Comment by richms, on 3-Mar-2010 12:00
So basically this can be summed up as:
Telecom NZ, Screwed over by the commerce commission for over 20 years.
Comment by n4, on 3-Mar-2010 12:20
Interesting side note that Telstaclear later sold TACS_B to Vodafone as part of a deal to become a VF reseller, effectively preventing themselves from becoming a serious player in mobile in NZ... and consolidating Vodafone as the then single GSM operator.
Comment by nzbsgfan, on 3-Mar-2010 12:31
Thank you Steve. Nice to see some excellent factual reporting here. I was suprised to see the comments regarding Telecom and the GSM900 spectrum, and I'm glad you've stepped in to clear up the matter. Telecom has to stop blaming the world for their woes, and look a bit closer to home.
Comment by insane, on 8-Mar-2010 00:39
While I was never at any of the meetings which set the battle grounds for the NZ mobile market through the 90's and realy 2000's, I can see a whole lot of blaming the past decisions for their current predicament / market position.
While past decisions certainly do determine our futures, why is it that the past is not put to rest and all focus applied to creating robust networks which work going forward.
I wonder what the next 5 or 10 years will have in store for us, whatever it is, it's sure to be filled with drama and miss-told many times throughout the media.
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