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Spark, Vodafone on different transformation paths
Posted on 22-Nov-2015 20:03 by Bill Bennett | Tags Filed under: Articles

New Zealand telecommunications went from state-owned to a competitive market in a generation.

Now the government is back in the telecoms business. Not as a direct player, but sponsoring and calling the shots for a national urban fibre roll out.

Government also imposed an extra tax on telcos to pay for rural service upgrades. It restructured the industry to get the ball rolling on its Ultra-fast broadband project. Telecom NZ had to spin-off Chorus, its network division, or miss out on fibre contracts.

From Telecom NZ to Spark

The restructure forced Telecom NZ to change its strategy and to find new markets. It also found a new name: Spark.

Vodafone went through its own changes adjusting to the new market conditions.

Now New Zealand’s two telecommunications giants are moving in different directions.

By changing it name from Telecom NZ to Spark, the company underlined its transformation. It is no longer the telephone company. Today Spark sells a broad variety of digital services.

Vodafone changes tack

Meanwhile, Vodafone acquired Telstra-Clear and pushed into business and rural markets.

Change was always going to happen with or without direct government intervention.

Competition between carriers means profit margins have fallen. Regulation and, in New Zealand, extra taxes like the Telecommunications Development Levy eat further into already slim margins.

Then there are new external competitors. Over-the-top services like Google, Skype and Apple offer free or low-cost products. They compete with toll calls and other once-lucrative sources of revenue.

It means an end to healthy profits from tolls, SMS and other value-added services.

Dumb pipes

Today the core business at Spark and Vodafone is selling dumb pipes. These can be through the air or through landlines. They sometimes speak of “selling bits”, which amounts to the same thing.

Whether you call it dumb pipes or bits, telecommunications is now a commodity business. Two Spark subsidiaries illustrate this. Big Pipe sells broadband, Skinny sells mobile phone services. They are bare-bones, low-cost alternatives. They offer a shorter menu of options and less customer hand-holding.

It is difficult to differentiate core telecommunications services. To the user voice calls look, or rather sound, much the same no matter how they arrive. Few consumers could tell the difference if a different broadband provider delivered their data.

700 MHz of difference

There are points of difference. Spark invested in an extra slice of 700 MHz spectrum. That will give it an edge with faster wireless broadband.

On the whole customers distinguish between telecommunications services on the basis of Hygiene Factors. They notice more when things they expect to see are missing or not working as they should.

So, say, poor service, counts against a carrier more than good service works in their favour.

It is hard to make money from undifferentiated, commodity services. To keep shareholders happy, Spark and Vodafone have strategies adding value to core services.

Spark now a digital services company

At Spark the answer is to find more digital services to sell. Among other options consumers can buy video-on-demand services and home security from Spark. There’s a new fixed-wireless rural broadband service.

Businesses can buy sophisticated IT services including cloud computing from Spark Digital. The company’s Qrious operation offers big data.

Spark is moving to sell a broad suite of digital services to consumers and business.

Vodafone tackles enterprise

Meanwhile, Vodafone has pushed into the enterprise market. It used its Telstra-Clear acquisition to move into areas like the internet-of-things offerings. Vodafone’s involvement in the rural broadband initiative has seen it turn up at Fielddays. It now offers products aimed at farmers.

Both look to expand beyond dumb pipes into growth sectors with non-commodity margins.

At a recent function, managing director Simon Moutter talked of Spark selling overseas assets. It used the money to focus more on New Zealand investments. Almost $100 million of that went towards buying Revera, the largest local cloud service provider.

Worlds apart

If Spark is looking more like a New Zealand business, Vodafone is moving in the opposite direction. Today is more into line with its UK parent. Part of that is so the local company can give Vodafone’s global customers the same services they use elsewhere.

Vodafone has moved from being mobile-centric to a full-service telco. It has formed partnerships to reach new rural and enterprise markets. The advertising has gone from cool urbanites to a daggy farmer and his pig. That’s a metaphor for something.

There’s another, less divergent part of the NZ telco transformation story. Spark and Vodafone are working together to build a new submarine cable across the Tasman.


Although the two companies are as competitive as ever, their ability to combine for a project like this signals a fresh attitude, a maturity.

In the last year new, or revamped, competitors have emerged for Spark and Vodafone. Australia’s Vocus has snapped up enough network assets to be a challenger.

Vocus is merging with another Australian company, M2, which earlier acquired the CallPlus group. The move brought fresh capital and momentum to the industry’s third largest player. 2degrees has broadened its scope picking up ISP Snap.

The market outside of Spark and Vodafone may be consolidating, but most of that action is in the traditional telecommunications sectors. While that may be the two big companies’ home turf, they are busy looking at new pastures.

Filed under: Telecommunications Tagged: CallPlus, government, Spark, Vodafone

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