Some research notes for Steven Joyce & the NZ Commerce Commission

By Steve Biddle, in , posted: 27-Apr-2010 17:00

This morning Communications Minister Steven Joyce announced that he had asked the Commerce Commission to reconsider it's recommendation on mobile termination rates. In February the Commission recommended to the Minister that voluntary undertakings from both Vodafone and Telecom be accepted rather than Government regulation.
"In a letter to me dated 19 April 2010, the Commerce Commission indicated that a new retail offer launched by Vodafone on 13 April 2010 may be material and may have the potential to affect the basis for the Commission's recommendation," says Mr Joyce."
The plan in question is Vodafone's Talk Plan - a $12 addon for Prepay users that allows calls to other Vodafone customers or any landline in New Zealand any time of the day or night, at an effective rate of 6c per minute. The Commission appears to believe there could be an issue with with this plan and that it is is "anti-competitive" by offering on-net termination rates at a price less than Vodafone's offering that had been submitted to the Commission. This view can be argued against in many ways, including the fact many customers do not use all included minutes and that a large number of these calls will presumably be to landline phones where Vodafone are in fact paying approximately 2c exl GST per minute to terminate calls.
If Vodafone's plan was enough to trigger a serious rethink on MTR rates, questions serious questions need to be raised about the knowledge the Commerce Commission of the mobile market with New Zealand, and ultimately whether they are competent enough to be offering advice to the Minister.
As of the 1st April 2010 the MTR costs for Telecom are 14c + GST for voice and 14.4c + GST for Vodafone. SMS rates on both networks are 9.5c + GST per message. Current interconnection costs for mobile to landline traffic is approximately 2c + GST per minute.
Telecom offer a plan called Telecom Talk & TXT 300 for  $29.95 per month that offers
  • 300 Nights and Weekends minutes to any mobile or network
  • 300 TXT messages to any network
  • 20 Daytime minutes to any network
Telecom claim this offers $344.80 worth of monthly value (based on normal calling & SMS rates) for $29.95 per month.
If all of those 320 minutes were used to call another Telecom customer it represents a cost of 9.36c per minute, under Telecom's current MTR of 14c excl GST per minute. This rate calculation is based on no SMS messages being sent -  if a modest cost of 4c (excl GST) [1] was used to model this equation it would result in a cost of  cost of 5.14c per minute, which is lower that Vodafone's Talk offering!
If Vodafone's Talk is so bad why is Talk & TXT not being targeted also? What's even more interesting is that based upon current MTR costs if all included TXT message and voice minutes were used to call a Vodafone customer it would result in inbound revenue to Vodafone (based on whole minutes) of $83.90
ZOMG!!!!111!!! Telecom are actually losing $53.95 per month on that customer. How can that be? Quick, somebody launch a Ministerial enquiry!! It should be illegal for a company to sell a product under cost!!
Telecom also offer a capped rate of $1 + GST for calls of up to 60 minutes from a Telecom business landline to a Telecom mobile. Once again this is below current (and proposed) MTR rates.
Vodafone also offer You Choose addons that have been in place for a number of years that also give calls both on and off net for less than current (and in some cases proposed) MTR rates.
  • Your Time 100 - 100 mins to any network or landline for $14.95 = 15c per minute
  • Your Time 300 - 300 mins to any network or landline for $29.95 = 10c per minute
  • Your Time 200 - 200 mins to another Vodafone mobile for $11.95 = 6c per minute
The Commerce Commissions' "smoking gun" is in fact nothing new as Vodafone have already been offering on-net calls for 6c per minute for a number of years.
There is a myth in this world that mobile calling rates are related directly to retail call pricing. These prices should make it clear to people that no such link exists.
So my advice to the Commission and Minister is quite clear - pull your head out of the sand and do your research. Right now you look like nothing but a pack of idiots after bragging about finding the "smoking gun" - except you haven't told us anything new. Networks have offered calling rates for both on-net and off-net that have been below MTR costs for many, many years.
What exactly is so significant about Vodafone's offering that has lead to the action you have taken? If on-net termination is your "smoking gun" why have Telecom or their Talk and Text 300 Plan not been mentioned when this plan can offer effective on-net termination rates that are even lower that what Vodafone's Talk offering has?
Every single person in NZ is relying on  you to deliver us competition in the marketplace. It seems highly unlikely that you are actually capable of doing this when you're not even aware of current offerings and pricing that exist in the marketplace today.
It should be pointed out as that I have no links with Vodafone or Telecom other than being a Vodafone customers. I think calling prices in NZ are too high and want to see them come down.
 
[1] 4c + GST is the maximum rate that would be charged per SMS under the Hybrid Bill and Keep system proposed by Vodafone and Telecom.


Other related posts:
Spark Paging network shutdown – the event nobody cares about? Not quite.
UFB voice, power cuts, copper invincibility and mainstream media FUD.
New Zealand’s growing BUBA problem (AKA I feel sorry for you if you’re on a Conklin)








Comment by Grant, on 27-Apr-2010 17:29

Good work, yet again Steve.

I hope you have sent a copy of this to both the NZ Commerce commission & Steven Joyce!


Comment by juha, on 27-Apr-2010 17:29

You should definitely add your voice to the MTR submissions. Just copy this blog post and email it to the ComCom.


Comment by simon14, on 27-Apr-2010 17:31

The key difference between Vodafone's Talk addon and Telecom's Talk and Text 300 plan is that Telecoms plan is to ANY network, whereas Vodafone's Talk plan is on-net mobiles only and landlines.

That's why the ComCom doesn't care about Telecom's plan, it's not restricted to on-net only! Am i missing something here?


Comment by ajw, on 27-Apr-2010 18:19

Steve, to put your comments in perspective. The Commerce Commission and Minister Joyce have not asked for your advice.


Comment by ajw, on 27-Apr-2010 18:19

Steve, to put your comments in perspective. The Commerce Commission and Minister Joyce have not asked for your advice.


Author's note by sbiddle, on 27-Apr-2010 18:30

@ajw

I'm not sure whether to take that as a sarcastic comment or a serious one.

You are wrong though because as of 5pm tonight the Commerce Commission have infact asked for interested parties to submit relevent information to the Commission for consideration by 5pm on the 3rd May on the matter.


Comment by ajw, on 27-Apr-2010 19:17

And Vfone said it would take up to nine months to get another determination from the Commerce Commission.


Comment by ajw, on 27-Apr-2010 19:18

And Vfone said it would take up to nine months to get another determination from the Commerce Commission.


Comment by Paul Brislen, on 27-Apr-2010 19:21

We said last time a recommendation was sent back it took nine months and on that basis it would take around 18 months to get to the point of regulation being introduced.

Cheers

Paul


Author's note by sbiddle, on 27-Apr-2010 19:28

@ajw

Have you actually read what this afternnoon's announcement is?

This is a Reconsideration Process. All it is doing is looking at Vodafone's offering and whether it has any implications in terms of the current offers on the table.

It's doing nothing else. It is not looking for any form of "determination" or whether regulation or the voluntary proposals will be accepted. The Commission are simply delivering this reconsideration report to the Minister in early June and he will then have to decide whether he should accept the proposals or recommend regulation (ie what has was doing over the last 2 months)

If the Minister recommends regulation the Commission will then need to start the whole process that goes with regulation of a market. This process has the possibility of taking a long time (ie possibly until the end of the year).


Comment by Screeb, on 27-Apr-2010 22:58

Steve, often I wonder whether the things you say are deliberately misleading, or you are just a little bit too sure of your position to notice any flaws. I'll give you the benefit of the doubt and assume it's the latter.

In any case, I haven't been following the MTR debate too closely, but I noticed some things that pop out.

Like simon14 said, the Telecom plan isn't on-net only, so it's irrelevant to the immediate discussion. Also important is that 300 of those minutes are night and weekend only. You only need to see that just 20 minutes are for daytime to see that this distinction matters a lot.

Similarly, the Your Time addons are invalid comparisons. Firstly, the 100 and 300 minute plans are for all networks (so invalid as above), which leaves only the 200 one. In this case (and for the other ones), it's not comparable because it's an addon to a plan that has a base cost of $19.95 (which comes with only 20 minutes). That means it's not 6c/min, it's 14.5c/min.

These may seem like small differences, but they're very important. You should have at least noted them.


Author's note by sbiddle, on 28-Apr-2010 07:32

@screeb

First off I see the Telecom plan as being very relevant. A Vodafone customer could make 200 minutes of calls to a landline using their 200 minutes. Likewise a Talk & Text Customer could make 320 minutes worth of calls on-net only to a Telecom customer. Neither are on-net only. The issue that has been raised by the Commission is one of on-net termination and this applies to both plans.

I also don't see your point about the plans being nights and weekends only. This is merely a management tool used bo networks to manage load and to retain high value business traffic during the says. One could very much argue that this model itself does nothing to promote competition in the marketplace - if Telecom can offer me cheap calling off peak why can't they offer it during the day?

FWIW since December my money has been on the Minister regulating the market, something I've had a wager with several people over. I don't agree regulation is the solution but in this case I saw it as being an inevitable outcome.


Comment by Kyanar, on 28-Apr-2010 12:37

To me, the Telecom plans merely prove that MTRs have literally zero effect on retail prices, and regulation is essentially pointless.  In fact, even 2degrees (the biggest opponents to MTRs) prove daily that MTRs simply don't matter (what with their cheap calling and text messaging).


Comment by simon14, on 28-Apr-2010 15:03

@kyanar

2d's cheaper calling and txts are on-net only so that doesn't prove anything. 


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


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