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

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Reply # 284389 21-Dec-2009 15:21

@sbiddle, I have a chart showing the margin increase in calling over the same period... margins have increased, prices have stayed the same, MTRs have reduced. Winner: the fixed line operators.

As for IP IMS, that's my point about regulation in a nutshell. If we are regulated around TXT and voice minutes then the move to all IP services becomes fraught with difficulty. Imagine what a bunfight it would be if we were forced by regulation to bill by the minute/TXT instead of packet-based!

Paul Brislen
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ajw

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Reply # 284414 21-Dec-2009 17:53

PaulBrislen: It also pays not to forget that when the Commission is talking about cost, it's not talking about it in the same way we are in this thread.

To the Commission cost includes things like how much certainty there is in the market when you're trying to raise capital to fund the building of the network that will carry those so-called "free" TXT messages.

It's an economist's view of cost rather than a technologist's view.

For those interested in such things take a look at the workings behind the TSO regime.

The Commission decided to reject the introduction of mobile and other technologies in its cost model because while they're more efficient at delivering the service on offer (9.6kbit/s) they introduce more uncertainty in the model making Telecom's cost of raising capital more expensive and thus cancelling out any gain. Because it rejected those new technologies, the level of certainty went up, making it easier for Telecom to raise capital, thus reducing the TSO cost for the year.

The less efficient technology delivers a cheaper service.

Cost to the Commission is not the same as "how much to build a network and run it and send bits over it".

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. They're the ones who stand to gain the most from this - in Australia Telstra earned an extra $900m over five years by paying less for terminating mobile calls and passed on less than half to customers. I'm sure our fixed-line operators will be better placed to answer those questions. I've put up some info over on the Join the Debate blog.

cheers

Paul

Also remember that Vodafone NZ is the best performing subsidiary in the Vodafone empire for a population of only 4.3 million.

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Reply # 284428 21-Dec-2009 18:57

PaulBrislen: @sbiddle, I have a chart showing the margin increase in calling over the same period... margins have increased, prices have stayed the same, MTRs have reduced. Winner: the fixed line operators.

As for IP IMS, that's my point about regulation in a nutshell. If we are regulated around TXT and voice minutes then the move to all IP services becomes fraught with difficulty. Imagine what a bunfight it would be if we were forced by regulation to bill by the minute/TXT instead of packet-based!

I remember when someone worked out that Vodafone in NZ were charging more per GB for TXT messages than NASA paid to get a GB to the international space station.

So, I'm glad prices have dropped and now the Commerce Commission have grown a pair :)

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Reply # 284430 21-Dec-2009 19:00

Hi AJW, I've seen you say this before and I think you're misquoting something our former group CEO said.

Arun Sarin said that if every company was like Vodafone NZ he'd be a happy man. He was referring to the "mobile plus" strategy that we'd adopted when we bought Ihug. That is - moving beyond just mobile into the total communications space.

I believe the quote you're looking for came from this story in the NZ Herald:

"New Zealand is leading the parade within the Vodafone family in terms of taking us to the world we are going to." Sarin told Dann.

The original story is here.

He did not, from memory, say Vodafone NZ was the "best performing subsidiary" and I think you're referring to it in economic terms. That's simply not the case and never has been.

Cheers

Paul

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Reply # 284431 21-Dec-2009 19:01

exportgoldman:
PaulBrislen: @sbiddle, I have a chart showing the margin increase in calling over the same period... margins have increased, prices have stayed the same, MTRs have reduced. Winner: the fixed line operators.

As for IP IMS, that's my point about regulation in a nutshell. If we are regulated around TXT and voice minutes then the move to all IP services becomes fraught with difficulty. Imagine what a bunfight it would be if we were forced by regulation to bill by the minute/TXT instead of packet-based!

I remember when someone worked out that Vodafone in NZ were charging more per GB for TXT messages than NASA paid to get a GB to the international space station.

So, I'm glad prices have dropped and now the Commerce Commission have grown a pair :)

I'd love to see a reference for that. TXT messages are cheaper in NZ than in most other countries. I know this (and it must be true) because Sbiddle mentioned it further up this thread.

cheers

Paul

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ajw

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Reply # 284434 21-Dec-2009 19:08

PaulBrislen: Hi AJW, I've seen you say this before and I think you're misquoting something our former group CEO said.

Arun Sarin said that if every company was like Vodafone NZ he'd be a happy man. He was referring to the "mobile plus" strategy that we'd adopted when we bought Ihug. That is - moving beyond just mobile into the total communications space.

I believe the quote you're looking for came from this story in the NZ Herald:

"New Zealand is leading the parade within the Vodafone family in terms of taking us to the world we are going to." Sarin told Dann.

The original story is here.

He did not, from memory, say Vodafone NZ was the "best performing subsidiary" and I think you're referring to it in economic terms. That's simply not the case and never has been.

Cheers

Paul

Paul

To further refresh your memory check out this link.

http://www.stuff.co.nz/technology/650835

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Reply # 284439 21-Dec-2009 19:12

Where does it say in that article that Vodafone NZ is the best performing company in the group?

It does say "Mobile giant rings up record profit" and "However, at the same time, Vodafone is now hurting competition in the all-important mobile market. This means that New Zealanders are paying higher prices and are missing out on some of the innovations that can only be achieved through competition." but still nothing on being the best performing in the group...

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Reply # 284441 21-Dec-2009 19:18

On the matter of paying dividends to Group - we've done so only twice in the 11 years of NZ operation.

This is not sustainable.

From this year we'll be paying an annual dividend to Group of around $90-$100m a year (we expect).

Paying $1.2bn every 11 years puts our average pay out at around $110m in the previous decade.

Cheers

Paul

PS - that dividend figure came from conversations with our CFO before the MTR undertaking which effectively strips around $50m a year out of our operation, so I'm not sure how current it is.

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Reply # 284444 21-Dec-2009 19:25

PaulBrislen: On the matter of paying dividends to Group - we've done so only twice in the 11 years of NZ operation.

This is not sustainable.

From this year we'll be paying an annual dividend to Group of around $90-$100m a year (we expect).

Paying $1.2bn every 11 years puts our average pay out at around $110m in the previous decade.

Cheers

Paul

PS - that dividend figure came from conversations with our CFO before the MTR undertaking which effectively strips around $50m a year out of our operation, so I'm not sure how current it is.

Paul

For a population of only 4.3 million it certainly looks like Vfone NZ are creaming it.

Vodafone agreed to pay a $742 million dividend to its British parent, after a $500 million dividend in 2006.

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Reply # 284446 21-Dec-2009 19:30

@ajw, which equates to an annual dividend of around $110m.

which is hardly "creaming it" in telco terms... how much dividend did Telecom post last year? Or every year for the decade before? Let's be clear - this is not that much return on investment for $3bn worth of funding (capex only, not including opex)

Cheers

Paul

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Reply # 284551 22-Dec-2009 10:25

rossmnz: So essentially.....the big boys are making an agreement to try and cut out anyone from their duopoly?

That's an understandable reaction but it was the Commerce Commission that asked the three telcos to align their undertakings, as otherwise, well, it wouldn't really work.

The ComCom has also given the telcos a Get Out of Jail Card on the alignment, which would normally be construed as price fixing.

Juha

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Reply # 284557 22-Dec-2009 10:38

Paul, how are consumers who only receive calls an economic burden with lower termination rates? Surely the lower termination rates for off-net traffic would offset the reduction in income for these receiving customers? And if not, surely the only reason is the single-network lock-in plans with the sole purpose of trying to keep your costs down?

Following on from this, the primary reasons why this is hideously bad for your company from a modelling perspective is that a) you'd never get away with a minimum spend scenario in NZ with the market we've developed, and b) the model of 'gain additional market share' becomes far less viable because your costs increase at a greater rate than your profits?

From my limited understanding of the specifities, I agree that Vodafone appear to stand to lose more than any other provider, but I have little to no sympathy about this. Both VF and TCNZ have been sitting in a pretty damn profitable seat for a long, long time now, and done very little to advance NZ's telecommunications industry unless pushed.

With respect to IP-based traffic and regulation, I believe the solution to this is to anticipate the move to IP traffic in the regulation agreements. To be blatantly honest though, I think if not forced by regulation, you will be forced by your customer base to bill per minute at least for calling under an IP network.

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Reply # 284559 22-Dec-2009 10:48

@spronkey, here's how it works:

Customer A makes no calls at all from her phone. She tops up once a year to the minimum ($20) and her phone remains active. She receives 100 calls a year which last (for arguments sake) for 100 minutes. All of those calls (again for simplicity) come from off net, so this customer "earns" 100 minutes at (currently) 15c/minute (so $15). Total earn for the year, $35.

Remove that 15c/minute entirely (bill and keep) and the customer's value drops by almost half.

That's as extreme an example as I can think up but imagine applying that model over a large percentage of your customer base and you'll see the economic impact.

Minimum monthly spend is already here in New Zealand. In the fixed line world you pay $45ish a month for "free" local calling every month, whether you make a local call or not. TelstraClear's existing mobile offer (with Telecom) includes a minimum monthly spend as does Two Degrees (if you want the magic top up minutes). They're all variations on the theme of "spend below this point and you're less valuable to us".

New Zealand is one of the few countries in the world to have two entirely overbuilt 3G networks (I can't name another but there's bound to be someone somewhere). Put simply, most 3G networks cover the main population centres and no more (eg Two Degrees going to 70% population coverage). It's simply seen as being uneconomic to do so.

Telecom announced it was building a GSM-based network to cover 97% population. Vodafone replied by extending our 3G network out to 97%. This forced Telecom to re-think its GSM plan, dump its GSM network and match our coverage. Between us we've spent around a billion dollars in the past year doing just that.

To say Vodafone and Telecom "have done little to advance NZ's telecommunications industry unless pushed" is inaccurate.

There is no scope for anticipating the move to all-IP infrastructure in the current MTR debate. It's simply not a factor and would be impossible for the Commission to model.

Cheers

Paul

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Reply # 284571 22-Dec-2009 11:18

juha:
rossmnz: So essentially.....the big boys are making an agreement to try and cut out anyone from their duopoly?

That's an understandable reaction but it was the Commerce Commission that asked the three telcos to align their undertakings, as otherwise, well, it wouldn't really work.

The ComCom has also given the telcos a Get Out of Jail Card on the alignment, which would normally be construed as price fixing.

And one important thing to also remember is that 2degrees don't want the same deal as everybody else. The Commerce Commission have asked the three to agree on a single deal. 2degrees don't want to be part of this. They demand a level playing field and then want exceptions solely for themselves.

2degrees are demanding the Commerce Commssion allow them have asymmetric rates, ie receiving higher inbound MTR rates than VF or Telecom and also the possible suggestion of paying less to other telcos for call termination. This results in a net gain to them for all inbound and outbound traffic.

2degrees have become so highly strung over the whole MTAS issue they no longer even seem to know exactly what they want. Pushing for asymmetric rates totally goes against the principals of a level playing field and would do nothing but give both Vodafone and Terlecom the perfect launchpad for offering cheaper rates between their two networks and a pricing premium for calling a 2degrees customer.

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Reply # 284582 22-Dec-2009 11:55

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