Mobile Termination Rates Media Conference

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#249229 20-Aug-2009 22:28

Screeb: And a bit more on topic: Paul, why is Telecom so concerned with termination charges being lowered so drastically? Vodafone's public position on the matter is obvious - they're getting ~$100 million a year in MTR charges from Telecom. Hey, free money! But Telecom seemingly has no reason - after all, I'm sure they don't like giving away $100m a year to their "competitor". Of course, we all know the true reason both companies don't want the rates lowered - which leads me to: Why isn't Vodafone saying anything about MTRs being a barrier to entry? Instead, you insist on talking about pass-through, which is really besides the point.

I've yet to see Telecom complain about MTR rates dropping. Infact Telecom have already put their offer of a drop to 7c by 2015 on the table and are committed to 100% passthrough of those drops for fixed to mobile calling.

What I have no idea on (and would like clarification) is whether Telecom's 7c offer includes both fixed to mobile termination as well as mobile to mobile termination.

Telecom aren't necessarily the good guys here either. They're still charging 63c per minute for fixed to mobile calls if you have no calling plan. Even with 100% passthrough (which they are committed to) that will only drop that rate to 55c per minute (is the 7c is a GST incl price?). That's still a very tidy profit.

That then brings me to my next point - Vodafone today criticised fixed line carriers who haven't delivered on 100% passthrough of the lower MTR costs that have occured. What's slightly hypocritical is the fact that WxC for example only charge 30c (or 27c + GST for business customers) for calls to mobile phones. This is under half of what Telecom are charging.

Who's offering the better deal? A carrier who commits to 100% passthrough but still charges 63c per minute? Or a carrier that may not have delivered 100% passthrough on recent MTR drops but charges 33c per minute less, which is over a 50% reduction?

Regulation is the big downfall of CPP and unfortunately there are no right or wrong answers.

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#249233 20-Aug-2009 22:38

sbiddle:
I've yet to see Telecom complain about MTR rates dropping. Infact Telecom have already put their offer of a drop to 7c by 2015 on the table and are committed to 100% passthrough of those drops for fixed to mobile calling.

Telecom's proposal is still a far cry from what the ComCom are proposing, especially the timeline. Why don't they offer to match ComCom's proposal?

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#249244 20-Aug-2009 23:46

Screeb:
nzbnw: I know there will be a balance to pay, what your article does not say is how much VF pay Telecom, nor does it say that $100 million is the difference between the two payments.

I still stand by my comments and Pauls view that pass-through is critical.

nzbnw

Nope, sorry:

Telecom pays Vodafone $100 million in mobile termination rates each year but that it doesn’t make a fuss because it shuts out competition such as 2degrees.
(from previous article)

Many billions of dollars each year get charged backwards and forwards but the net effect, we think, is that Telecom pays Vodafone over $100 million a year. And that reveals the truth about mobile termination rates. They aren't about efficient pricing or even raising revenue for the big two. Their main effect is to try to keep new providers out of the market. That's because, when a new entrant emerges, most of its customers will have to call or text friends on the old networks - so the new entrants' prices have to be higher than they want them to be.

(from here)

Far, far more than $100 million in MTR is passed between them (on paper, of course).

I seriously doubt MTR payments get anywhere near the 'billions' mark.
Heck, Telecom's entire revenue for the year, inclduing PSTN access, on-net calling, corporate IT solutions, broadband and and all the other stuff which has no MTr attached to it, is somewhere around 4bn IIRC. Voda's total revenue is somewhere around the 2bn mark. MTR cannot possibly be anything like 'billions'. Even 1bn would be an absurdly high amount.

Note the "we think" in that article. They actually have no idea and are inflating the figure on purpose to attempt to make a point.
"Billions" is, for sure, well off the mark.

sbiddle

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#249301 21-Aug-2009 08:54

One thing that's worth adding here is that people need to understand that there are two distinct issues here - fixed to mobile MTRs and mobile to mobile MTRs.

All agreements Vodafone and Telecom currently have with the commerce commission cover fixed to mobile MTRs and both guarantee 100% passthrough of MTR reductions from their fixed networks to their mobile networks. There is no such guarantee for mobile to mobile calls and no requirement to deliver lower mobile to mobile pricing. The commerce commission is also unable to easily regulate retail pricing.

Much of the evidence presented by the commerce commission has revolved around lower costs of FTM to mobile calling by cutting MTRs - there isn't a lot of evidence to show mobile to mobile costs will drop with the cutting of MTR rates..

VFNZPaulBrislen

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#249303 21-Aug-2009 09:03

Couple of points there:

1: Mobile to mobile termination is mostly, as you say, a wash. VF hands Telecom a cheque, Telecom hands VF a cheque, they mostly cancel each other out.

2: Telecom has (as Steve says) offered to reduce its MTRs to 7c. HOWEVER, it has not guaranteed pass through at all - in fact, quite the opposite. Telecom has said if the Commission wants a guaranteed pass through it should stick to the Deed of Undertaking that Vodafone and Telecom have signed. With it, you get 100% of a lesser amount. Without it you get no guarantees of ANY pass through whatsoever.

Why wouldn't Telecom simply do what Telstra did in Australia and stop fighting MTR reductions and pocket the savings? Remember, Telecom has what, 80%+ marketshare in fixed line, so there's no balance of payments in fixed.

Instead, Vodafone charges Telecom 15c/min for all those landline calls. If that's reduced to 7c/min, what happens to that margin? Will it be passed on to customers?

And if Telecom does it, what about the other fixed operators? Today they pass through only 30% yet the Commission's model says at that rate regulation won't generate any benefit for consumers but will STILL cost up to $195 million over five years.

The Commission has not presented a cost model based on Mobile to Mobile or TXT so all we can go on is the fixed stuff since that's the only model it's got.

cheers

Paul

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#249319 21-Aug-2009 09:59

Well I know that as long as Telecom and Vodafone keep on whining about the commerce commision I will be mostly happy with what the comcom are doing.

I hate to say it, or do I, but I kind wish I was back in the UK and able to get a Nokia N97 for free on a Vodafone 600 x network anytime 18 Month contract for 35GBP a month.

600 free mins and unlimited txt's a month. Can't find anything similar in NZ.

I doubt very much I would use 600 minutes in a month so for $1535 nzd I would get a free phone and 18 months calls and txt. Currently in NZ Vodafone are retailing N97 for $1799 no plans attached.

We lack some serious competition here and the more competitors and or regulation we get the better by the looks of it.

cheers
db

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#249320 21-Aug-2009 10:02

Competition is a different matter and we're seeing the new competitive market in NZ open up. Finally. After years of nobody being interested.

It's interesting - I often wonder why, if Vodafone and Telecom are charging such outrageous prices there's no third network, or fourth, or fifth.

It's because it's hugely costly to build a network, we're a very long way from any other country and we have a very small population (UK is roughly the same land mass and has what, 60m population. Don't even mention Japan).

But this MTR debate isn't about competition. It's about taking income from the mobile market and giving it to the fixed market in the hopes that this encourages more competition in the mobile space.

I really don't know how that's going to work.

cheers

Paul

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#249322 21-Aug-2009 10:06

PaulBrislen:
1: Mobile to mobile termination is mostly, as you say, a wash. VF hands Telecom a cheque, Telecom hands VF a cheque, they mostly cancel each other out.

Which is why 2Degrees are complaining. You're both close enough to 50% of the market that you'd effectively be giving each other the same amount of $$ at the end of the day.

A newcomer with 5% of the market could be seeing 95% of the money going out, and not back in making it lopsided and "anti-competitive".

But then at the end of the day the people receiving calls need to be paid as their network is being used.

sbiddle

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#249323 21-Aug-2009 10:09

browned: Well I know that as long as Telecom and Vodafone keep on whining about the commerce commision I will be mostly happy with what the comcom are doing.

I hate to say it, or do I, but I kind wish I was back in the UK and able to get a Nokia N97 for free on a Vodafone 600 x network anytime 18 Month contract for 35GBP a month.

600 free mins and unlimited txt's a month. Can't find anything similar in NZ.

I doubt very much I would use 600 minutes in a month so for $1535 nzd I would get a free phone and 18 months calls and txt. Currently in NZ Vodafone are retailing N97 for $1799 no plans attached.

We lack some serious competition here and the more competitors and or regulation we get the better by the looks of it.

cheers
db

Regulation isn't going to deliver you a free phone and better value calling like you can get in the UK.

Competition is.

MTR rates in the UK are pretty much on par with what what we have in New Zealand but competition within the marketplace with 4 carriers and numerous virtual carriers has resulted in some fantastic deals for consumers. Australia has plenty of competition and pricing is also significantly lower there.

Regulation could deliver you better pricing if the commerce commission regulated maximum prices for retail calling rates - that is something that they aren't likely to want to even look at.

sbiddle

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#249325 21-Aug-2009 10:16

Buttonmash:
PaulBrislen:
1: Mobile to mobile termination is mostly, as you say, a wash. VF hands Telecom a cheque, Telecom hands VF a cheque, they mostly cancel each other out.

Which is why 2Degrees are complaining. You're both close enough to 50% of the market that you'd effectively be giving each other the same amount of $$ at the end of the day.

A newcomer with 5% of the market could be seeing 95% of the money going out, and not back in making it lopsided and "anti-competitive".

But then at the end of the day the people receiving calls need to be paid as their network is being used.

Do you agree with the concept of asymmetrical MTR's?

VFNZPaulBrislen

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#249331 21-Aug-2009 10:33

As Steve says, it's all about asymmetry.

2D will have a smaller incoming rate from us BUT that's matched with a smaller outgoing rate.

And besides, the deal with have with 2D gives them a significant advantage over the traditional 15c/min each way.

See also the Independent and possibly NBR when/if they get to put the story up again.

Cheers

Paul

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#249347 21-Aug-2009 11:04

PaulBrislen: Competition is a different matter and we're seeing the new competitive market in NZ open up. Finally. After years of nobody being interested.
It's interesting - I often wonder why, if Vodafone and Telecom are charging such outrageous prices there's no third network, or fourth, or fifth.
cheers
Paul

ha funny, "Finally. After years of nobody being interested." 2Degrees has been trying to get into this market since 2001. How is that not being interested. Something/Someone (or some two) must have been making it very very difficult for it to have taken this long to get up and running.

2Degrees would have or could have been in the market sooner if they as Mr Darby states on the adverts locked you into contracts for 2 years or longer and made contracts harder to decipher than the da vinci code. But where would they be if they joined the game and didn't change it or provide a better option. I think the NZ public would have left them alone and Telecom/Vodafone would have simply priced them out of the market as soon as possible or brought them out soon after.

3 only really got going in the UK because they came into the market and offered something different. Video calls. No one else was doing it at the time. Without that distinct feature 3 would never have entered the market.

We could also have shops like carphonewarehouse.co.uk, e2save.co.uk, thelink.co.uk in NZ if there was real competition. I think the size of NZ is only a small part of the equation, a market is still a market and profits should still be possible no matter how small it is.

cheers
db

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#249349 21-Aug-2009 11:10

sbiddle: Regulation isn't going to deliver you a free phone and better value calling like you can get in the UK.

Competition is.

And finally after 8 years of trying, and more than likely with serious threats of regulation on Vodafone and Telecom, 2Degrees are here.

Regulation seems to be the only way to get things moving here. So many industry's currently lack real competition. NZ is a small market but it is a great cash cow for many.

cheers
db

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#249350 21-Aug-2009 11:10

browned:
2Degrees would have or could have been in the market sooner if they as Mr Darby states on the adverts locked you into contracts for 2 years or longer and made contracts harder to decipher than the da vinci code. But where would they be if they joined the game and didn't change it or provide a better option. I think the NZ public would have left them alone and Telecom/Vodafone would have simply priced them out of the market as soon as possible or brought them out soon after.

Close to 3/4 of mobile users are on prepay and not locked into any contracts. 2degrees have also only taimed at the prepay market in their phase 1 rollout. The reason it took so long for them to launch has absolutely nothing to do with people being tied to contracts.

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#249371 21-Aug-2009 11:49

sbiddle:
Close to 3/4 of mobile users are on prepay and not locked into any contracts. 2degrees have also only taimed at the prepay market in their phase 1 rollout. The reason it took so long for them to launch has absolutely nothing to do with people being tied to contracts.

My post meant that if 2Degrees entered the market with the same contracts and prices as the incumbants no one would be bothered to change. They have turned the prepay market on it's head. I am waiting to see if they do the same to the contract market when they enter that, perhaps we will get some 600 min unlimited txt competition soon, maybe free phones (like the N97) as well.

Oh and the 30% on contracts are a majority of business users, who if they want to recoup costs require invoices and gst details. That right there should be information enough to figure current contracts are extremely over priced for what they are.

Also if you were entering the market wouldn't you go after the largest one to start with...ie 70% prepay.

cheers
db

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