Vodafone undertaking proposal: zero rate SMS, voice cut by two thirds

Forums › One NZ (including Farmside) › Vodafone undertaking proposal: zero rate SMS, voice cut by two thirds

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#284316 21-Dec-2009 10:44

PaulBrislen:
As for passing on savings to the customers, most of the savings will go to the fixed operators who will see a greater margin for calls from landlines to mobiles.

I don’t agree with you on this one.

There is enough competition in the fixed line to mobile market (unlike the mobile market) to ensure this won’t happen.

It only takes one Telco to lower the rate to gain more customers to force all the others to do so.

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#284323 21-Dec-2009 10:59

rossmnz: now we are 3G why not discard texts and use data/emails like in japan? Would be far more cost efficient.

The big issue I can see there is that people won't check their mail regularly, especially if it kicks off a $1/day or similar data charge.

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#284325 21-Dec-2009 10:59

@simon14 but regulation goes beyond mere price... it impacts on other areas as well. Price is the most obvious but regulation means you can't make changes to the overall regime (eg moving to all IP) without it having a massive impact.

As for pass through, you say there's "enough competition in the fixed line" market. I have to disagree with that. Sure there are plenty of fixed-line operators but they all sell the exact same service from Telecom Wholesale and Telecom still retains a massive market share in fixed line. It's well over 80% from memory and shows no signs of slowing.

At least in the mobile space we have two national networks, one 70% network and multiple MVNOs each able to offer their own plans and services.

As for "it only takes one Telco to lower the rate to gain more customers", I think you'd need to talk to WorldxChange or CallPlus about their market share and whether these customers are flooding their service. Telecom remains the owner of the lion's share and is unmoved by smaller players dropping the price by a few cents.

Paul Brislen
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Vodafone

http://forum.vodafone.co.nz

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#284332 21-Dec-2009 11:17

PaulBrislen: As for "it only takes one Telco to lower the rate to gain more customers", I think you'd need to talk to WorldxChange or CallPlus about their market share and whether these customers are flooding their service. Telecom remains the owner of the lion's share and is unmoved by smaller players dropping the price by a few cents.

What you're saying here misses the point though Paul.

Sure, the 80% plus of Joe Publics out there will continue to buy their Land-to-Mobile calling services from Telecom and continue to get screwed accordingly.

But for those of us who are savvy enough to shop around, WxC and CallPlus offer great savings on Land-to-Mobile calls which our family has been enjoying for the past 3+ years. And because we like to tell our friends and family how they can get better deals, these lower L to M rates will slowly gain traction in the market.

One thing's for sure: If MTRs are held where they are now, nobody will win except Telecom and Vodafone.

If the rates are lowered according to Vodafone's & Telecom's latest offers, the 80% Joe Publics out there may see some token reduction in their L to M calling charges. But that doesn't stop the savvy people shopping around and getting an even better deal from WxC and CallPlus than they currently enjoy.

If the ComCom chooses to regulate and lower the MTR even further than Vodafone's and Telecom's latest offer, it stands to reason that the likes of WxC and CallPlus will pass a good chunk of that on to their customers, and we who choose to buy our L to M services from them will gain accordingly.

Given the very large discrepancy between what Telecom would be charging for L to M services, and what WxC/CallPlus would be charging, it would be very surprising if some new players didn't enter the Toll Bypass market and mount a more determined attack on Telecom's market share. Or indeed, that Telecom would be forced to do the right thing by their customers (finally) and lower their L to M rates. It really is outrageous that Telecom have kept these rates so high for so long.

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#284335 21-Dec-2009 11:29

Yeah so i have been flamed pretty hard on here by those who undoubtedly know far more than me about the mobile sector.

I never argued that the network has no costs, that CSRs etc dont need training. My point was that all this existing infrastructure is already required for to service calls, and that SMS essentially piggybacks onto existing infrastructure without requiring anything special to service it. nor does it excessively impact quality of calling etc etc.

In thisd aspect the SMS service is a pure money maker for the telcos. This was my point.

Sorry for having the temerity to have a rant in your specialist areas :)

The force is strong with this one!

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#284339 21-Dec-2009 11:55

Hi Grant_K,

To my way of thinking what you're saying is absolutely true - but that's competition driving pricing, not regulation. If CallPlus, Compass and WXC can offer better rates with existing MTRs then the problem lies elsewhere...

the proof will be in the pudding though. If the fixed line operators pass on the savings then it's a win. If they don't, then the whole process has been about moving money from one operator to another and that's not acceptable.

The Commerce Commission's only piece of cost modelling looked at the fixed line sector and one of the built-in expectations was that pass through would start at 85% and go up from there to 100%. That is, every penny of savings would be passed on to customers.

In the UK, pass through is at around 64%. In Europe it's 50% and in Australia it's 16.6%.

The Commission did not justify or explain its 85% and rising figure... we're just going to assume that it'll happen.

Personally I'd expect them all to pocket the vast bulk of it. I'd estimate we'd see about one third pass through to customers.

Which begs the question: is that outcome really worth it?

cheers

Paul

Paul Brislen
Head of Corporate Communications
Vodafone

http://forum.vodafone.co.nz

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#284348 21-Dec-2009 12:39

PaulBrislen: Hi Grant_K,
...
the proof will be in the pudding though. If the fixed line operators pass on the savings then it's a win. If they don't, then the whole process has been about moving money from one operator to another and that's not acceptable.

Paul, we all know where you're coming from with regard to Vodafone taking the biggest hit from the review process, and that's fair enough. But you can't expect consumers of telco services to have any great sympathies with one telco over another. It is fair to say that NZers in general no longer see Vodafone as the white knight in shining armour riding in to save them from being exploited by the evil Telecom. In fact, there may well be some groundswell toward the opposite viewpoint.

PaulBrislen: The Commerce Commission's only piece of cost modelling looked at the fixed line sector and one of the built-in expectations was that pass through would start at 85% and go up from there to 100%. That is, every penny of savings would be passed on to customers.

Yeah, I find that pretty hard to swallow as well.

PaulBrislen: In the UK, pass through is at around 64%. In Europe it's 50% and in Australia it's 16.6%.

It isn't reasonable to assume that all of the savings would be passed on, but due to the competitive market, and the fact that Telecom has been operationally separated largely accordinging to the UK model, we should expect similar figures to the UK, with all other things being equal.

PaulBrislen: Personally I'd expect them all to pocket the vast bulk of it. I'd estimate we'd see about one third pass through to customers.

How do you arrive at that figure Paul?

PaulBrislen: Which begs the question: is that outcome really worth it?

Any saving is worth it from the consumer's point-of-view. Not to say it's worth it from Vodafone's point-of-view, but that is irrelevant to the discussion here.

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#284353 21-Dec-2009 12:57

rossmnz: Yeah so i have been flamed pretty hard on here by those who undoubtedly know far more than me about the mobile sector.

I never argued that the network has no costs, that CSRs etc dont need training. My point was that all this existing infrastructure is already required for to service calls, and that SMS essentially piggybacks onto existing infrastructure without requiring anything special to service it. nor does it excessively impact quality of calling etc etc.

In thisd aspect the SMS service is a pure money maker for the telcos. This was my point.

Sorry for having the temerity to have a rant in your specialist areas :)

Yep, well said...

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#284360 21-Dec-2009 13:06

Hi Grant,

I appreciate your approach to this discussion... all too often I end up with the "oh yeah?" school of debate that makes things unpleasant.

My issue with this process is we're trying to solve a perceived problem (mobile retail rates) with a solution that is at best only partially related (termination rates). In effect the Commission is saying it will increase competition in the mobile space which will lead to reduced retail rates. That's an outcome I believe in and wholeheartedly support - the best way to solve most problems is with increased competition.

But to lower prices by increasing competition by lowering MTRs is an odd process at best and unfortunately whenever we challenge the Commission on its methodology or its perceived outcome the answer is not encouraging. The Commission has done no work at all on the cost model for mobile or TXT message termination rates, and the work it has done on fixed-to-mobile rates makes a lot of assumptions (including the 85% pass through rate) that simply don't hold water.

The point is, if we're trying to fix a problem, let's fix that problem not some other perceived problem in the hopes that it all comes out in the wash.

The Commission's model on FTM pass through does indeed expect a 100% pass through rate. Ironically we already have that because that's what the Deeds of Undertaking put forward by Telecom and Vodafone delivered - we agreed to reduce our FTM rates every year and that the retail rates would be moved to reflect that. We have both done just that.

My thoughts on this were shaped by the Covec report into MTAS regulation (which Vodafone paid for, just so we're clear on that). John Small is a smart guy and he has access to the figures from each provider so the information is accurate. He believes NZ pass through outside the Deeds of Undertaking (which will cease to have effect once the Commission either accepts our new Undertakings or goes for regulation) is in the 30% range.

Paul Brislen
Head of Corporate Communications
Vodafone

http://forum.vodafone.co.nz

grant_k

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#284372 21-Dec-2009 14:03

PaulBrislen: Hi Grant,

I appreciate your approach to this discussion... all too often I end up with the "oh yeah?" school of debate that makes things unpleasant.

Thanks to you too Paul for your reasoned and constructive response.

PaulBrislen: My issue with this process is we're trying to solve a perceived problem (mobile retail rates) with a solution that is at best only partially related (termination rates). In effect the Commission is saying it will increase competition in the mobile space which will lead to reduced retail rates. That's an outcome I believe in and wholeheartedly support - the best way to solve most problems is with increased competition.

But to lower prices by increasing competition by lowering MTRs is an odd process at best and unfortunately whenever we challenge the Commission on its methodology or its perceived outcome the answer is not encouraging.
...
The Commission's model on FTM pass through does indeed expect a 100% pass through rate. Ironically we already have that because that's what the Deeds of Undertaking put forward by Telecom and Vodafone delivered - we agreed to reduce our FTM rates every year and that the retail rates would be moved to reflect that. We have both done just that.

It is fairly obvious that the only reason these new Deeds of Undertaking (with drastically reduced MTRs) are on the table, is due to the threat of regulation from the ComCom. So, to some extent, they have already achieved their goal.

Are you saying that the best way to achieve reduced retail rates -- a goal that pretty much everyone agrees on -- is by adopting the new Deeds of Undertaking from both Telecom and Vodafone?

Or do you believe there is a better way?

We both agree that reduced retail rates for Fixed to Mobile calls are highly desirable and I believe that they are also long overdue.

Indeed, Telecom and Vodafone have reduced their retail rates for Fixed to Mobile every year, but they were starting from a very high base, which means they are still way more expensive than they need to be.

PaulBrislen: My thoughts on this were shaped by the Covec report into MTAS regulation (which Vodafone paid for, just so we're clear on that). John Small is a smart guy and he has access to the figures from each provider so the information is accurate. He believes NZ pass through outside the Deeds of Undertaking (which will cease to have effect once the Commission either accepts our new Undertakings or goes for regulation) is in the 30% range.

OK, thanks for explaining that.

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#284378 21-Dec-2009 14:25

The new undertakings are a reflection of what the Commission has said it will introduce under regulation. It all boils down to the process - the Commission needs a "counter-factual" to compare with regulation so it can say "If we regulate it will be xx% better than if we don't".

We have long argued that the best counter-factual is the current market - that the alternative to regulation would be business as usual, as it is today. That includes the commercial deal with Two Degrees which is commercial and can't be commented on unfortunately.

Instead, the Commission asked us all to put in Undertakings as part of the new Telco Act process. These Undertakings are a commercial offer designed to head off regulation proper. They're part of the process and give the Commission a chance to get a better result without having to go through all the regulatory fun and games.

Telecom, Two Degrees and Vodafone all put in Undertakings taking different approaches to the issues at hand. The Commission asked us to work together to come up with one Undertaking (comparing three Undertakings with regulation is a bit of a push) and we did have a number of meetings. Eventually Telecom and Vodafone agreed to put forward the Vodafone proposed Undertaking. The Commission responded and said "actually could you agree to the Telecom proposal" so that's what we've done. Our final, FINAL, final Undertaking now aligns Telecom and Vodafone - the only main issue is that we suggested a start date of October 1 next year and Telecom had April 1. Given the delays to the Commission reporting back to the minister, that's not much of a problem I wouldn't think.

The original Deeds were designed before the changes to the Telco Act enshrined the Undertakings process. In effect they were Undertakings as demanded by the minister of the day - the new process moves it from the minister's office to the Commission which is where it should be I would think.

The original Deeds were accepted for two reasons: firstly, they came into effect almost immediately whereas regulation would take a couple of years and secondly because we agreed to 100% pass through.

The new Undertakings would kick off in 2010 which gives them a distinct leg-up on regulation which the Commission estimated wouldn't be introduced until 2011 or later.

The difference between the Undertakings and regulation as it stands at the moment is the glide path - that is, we want to move to the final number over a number of years. That's good for us as a company and building that in is part of the reason why we've agreed to move so far - a smaller drop all in one hit would be crippling.

Cheers

Paul

Paul Brislen
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Vodafone

http://forum.vodafone.co.nz

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#284383 21-Dec-2009 14:43

PaulBrislen: The original Deeds were accepted for two reasons: firstly, they came into effect almost immediately whereas regulation would take a couple of years and secondly because we agreed to 100% pass through.

The new Undertakings would kick off in 2010 which gives them a distinct leg-up on regulation which the Commission estimated wouldn't be introduced until 2011 or later.

The difference between the Undertakings and regulation as it stands at the moment is the glide path - that is, we want to move to the final number over a number of years. That's good for us as a company and building that in is part of the reason why we've agreed to move so far - a smaller drop all in one hit would be crippling.

I must admit, you are starting to sound like the voice of reason Paul

The 46% reduction in MTR during 2010 is where the biggest effect should hopefully be felt by Joe Public. If the reduction is not passed on at least to a reasonable degree in the form of reduced retail F to M rates, obviously the ComCom will need to look at the reasons why.

At the furthest extreme of the "glide path", the reductions are just a few cents per year, which probably won't make much difference at the end of the day.

So, the choice is:

- A decent reduction in Fixed to Mobile rates around the middle of 2010, with smaller increments to follow each year until 2015

OR:

- Perhaps a somewhat larger reduction in 2011 or 2012 with much smaller increments to follow each year until some future date

To me it seems like a no-brainer: Go for the first option as it will benefit the largest number of people the soonest, while achieving a very similar outcome in the long run to the regulated option.

P.S. I should explain why I said "largest number of people" in the sentence above:

- NZ's recession is still biting and the number of unemployed is expected to peak next year

So, any benefit that can be provided to households next year, is probably worth more to a larger number of people, than a similar (or perhaps somewhat larger) benefit which could be provided in 2011 or 2012, when unemployment is expected to have eased somewhat.

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#284386 21-Dec-2009 15:00

That is, I think, the exact reasoning the CC will have to look to when it's making its call on recommendation to the Minister. Do you take the bird in the hand or do you wait and hope that regulation delivers what you're after in a year or more's time... given the lack of difference between the two choices I think they'll take what's on offer now.

The impact on the mobile retail market will be interesting. There will be a raft of customers who will become uneconomic who will, presumably, be expecting to continue receiving service.

Let me explain.

Currently a customer who receives a lot of calls but makes none is economic because of termination rates. They don't pay us directly for the calls they receive, but we collect a share of the income from those networks that do call us.

Take away that income and those customers stop being economic. In effect, they become a drain on the network.

Internationally companies do several things to stop this. They introduce minimum monthly spends (eg AT&T in the US which has a minimum monthly spend of around $30 on its prepay plans. Some local telcos do this as well) or they charge low-spend customers for incoming calls (that is, you'd pay to receive calls - not something anyone wants in NZ).

I've also read online about US telcos "firing" customers - that is, telling them to spend more or disconnecting them.

These are not ideal outcomes to put it mildly, yet the Commission's only cost model includes this impact - it says the benefits to fixed-line customers outweighs the downside of "some" low-spend prepay customers being deemed to be uneconomic.

So there may be an impact on retail prices, but I doubt they're welcome ones to anyone.

Cheers

Paul

Paul Brislen
Head of Corporate Communications
Vodafone

http://forum.vodafone.co.nz

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#284387 21-Dec-2009 15:01

simon14:
PaulBrislen:
As for passing on savings to the customers, most of the savings will go to the fixed operators who will see a greater margin for calls from landlines to mobiles.

I don’t agree with you on this one.

There is enough competition in the fixed line to mobile market (unlike the mobile market) to ensure this won’t happen.

It only takes one Telco to lower the rate to gain more customers to force all the others to do so.

This is one issue I have to disagree very strongly with you over. There is absolutely no evidence anywhere in the world to back up your claim.

The issue of passthru has been a big talking point in Australia were government regulated MTR reductions have done nothing but inflated Telstra's coffins as they were under no obligation to reduce FTM calling costs.

Telecom charge 63c per minute for calls to a mobile phone if you are not on a calling plan. This was reduced approximately 2 years ago from the 71c rate that had been the norm since the launch of their mobile network just on 20 years ago. The only reason this rate dropped was because both Vodafone and Telecom signed a deed with the MED saying that would ensure passthru of retail pricing.

Regulation will ensure that no such deed exists forcing passthru, and passthru is the key.

There is competition in the FTM market and some grfeat rates available if you shop around. This doesn't change the fact however that there are large numbers of New Zealanders who are with Telecom who are still paying 63c per minute to call a mobile.

MTR rates have dropped considerably over recent years (and were close to 50c per minute when the 71c rate was set) yet this FTM rate hasn't. Why would you assume it would now, especially if there is no deed requiring Telecom to do so? It's been Telecom's cash cow as MTR rates have dropped - they've lost margin on inbound MTM and FTM termination and made it up on their retail FTM rates.

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#284388 21-Dec-2009 15:09

One issue nobody has talked about yet is the implications of network interconnections in 10 years time from now (and potentially even before that).

As we move towards a world were VoIP dominates and both fixed and mobile networks are pure IP IMS networks voice interconnection moves in a completely different direction. The concept of billing per minute for interconnects is rather complex when you're simply moving IP packets between networks and not terminating circuit switched voice calls.

The reality is that we have the potential to see a global shift from CPP to MPP. If you think it's a battle now watching operators deal with MTAS issues then I think we'll see a world war before the turn of the decade!

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