Droptherate - Are people being mislead by PR spin?

By Steve Biddle, in , posted: 12-Aug-2009 10:42

My blog post from last night  discussing the Drop the Rate, Mate! campaign has generated plenty of comment. It's also made me think a little more about what the motives of 2degrees are with this campaign.

What is the goal of the campaign? The website goes into great detail explaining that lower MTR costs will reduce the price of calls. What the website doesn't say however is exactly what they mean when they say they want rates "dropped". Does "dropping" rates mean lowering them from existing levels or "dropping" them entirely and moving towards a new pricing model for interconnects?

Maybe this comment from spokesperson Matthew Hooton on Stuff today explains their real motive

"Drop the rate" spokesman Matthew Hooton said Telecom and Vodafone were "ripping off" customers to the tune of 15 cents a minute for calls.

It's very clear that Hooton believes that the current 15c voice MTR rate should be removed entirely and replaced by a new pricing model.
2degress have been very vocal in recent months wanting a move towards dumping Calling Party Pays (CPP) in New Zealand and a move towards mobile party pays (MPP) by implimenting a bill and keep pricing model. Dumping CPP means that mobile carriers receive no revenue for terminating a call on their network. It should be pointed out that no country has ever moved from a CPP to MPP model for mobile pricing.

In countries such the USA and Canada that use the MPP pricing model rather than CPP networks receive no revenue for inbound calling or SMS messages. This means users in many cases pay to receive calls or SMS messages on their mobile phone. This reason alone is one of the reasons no country has moved from CPP and MPP. Convincing users they should suddenly have to pay for receiving calls or SMS's would be a significant challenge.

Do people in NZ really want to pay? Do 2degrees really believe people want that?

The alternative that 2degrees are suggesting is Bill and Keep (BAK). Under this arrangement MTR costs are zero rated and no money changes hands between operators. Bill and keep is currently implimented here in New Zealand for local calling and in a market where local calling is free this model works fine. The flaws that exist within the bill and keep model are the reason no country anywhere in the world has so far adopted BAK for mobile pricing.

So what are the problems?

In moving to BAK customers who only use their phones for incoming calling and make very few outbound calls are unprofitable. Considering that many users in NZ fall into this category it would result in all networks suddenly facing not only a significant revenue drop due to the MTR corrections but also a situation where customers are infact costing them money to support. This would mean any gains by the move to BAK would be cancelled out as prices potentnailly increase to recover that most revenue.

Because traffic is zero rated it also means the potential for significant changes in call loading. If a carrier has to pay nothing to interconnect a call with another mobile carrier they could effectly offer plans with exceptionally generous off net calling rates. If large numbers of people took up these plans a mobile network could see their rates of inbound traffic increase significantly and with no MTR revenue to support this increase in traffic to fund network infrastructure these increased costs will simply be passed onto their own customers.

Is this really a fair model? If you have signed the online petition I assume you are have infact agreed to a move away from the CPP model towards MPP and will be happy to pay to receive both SMS and voice calls?

Other related posts:
Why a 24hr parking limit won’t fix the Wellington airport parking issue.
CCTV exposed. Why understanding network security is so important.
Anker make some of the best USB chargers and powerbanks available. Now you can get their products shipped directly to New Zealand

Comment by hoppers, on 12-Aug-2009 11:30

I think it's pretty clear that they are not aiming for a B&K system. The campaign is in support of the commerce commissions draft recommendation expecting that it will be along the same lines when it is finalised; and the ComCom have recommended lowering, not abolishment of MTR's.

Comment by yestheyare, on 12-Aug-2009 12:06

2degrees have always been in favour of Bill & Keep for mobile.

Comment by Christopher Cotton, on 12-Aug-2009 12:39

This article seeks to confuse the argument rather than to admit to to the rational view that we need regulation. This is an urgent problem affecting the commercial competitiveness of this country. Billions of possible new income are lost because we fail to use the phone, put off by outrageous costs we know are unfair. Export income, tourism, social cohesion, transport costs, new technologies we could develop and export, general productivity, time efficiency; are just some of the factors that would improve our economy and life just by the lowing of mobile and international call costs. Telecom New Zealand ring-fenced every network connection technology, and used their powerful position to deliver dumbed-down sub-standard services and products to our determent and the profit of a few. Are they not just tele-crims. Instead of us realizing the potential of this technology to better our people, we let the numbskull's in Wellington flap around the issues. I wrote to both the current and previous PM's with a suggestion that the economic stimulus from a drop in call prices would make a radical difference to us, but the idea gets lost in the pedantic vision less beehive. Neither are there any Government reports that studied this! We are just an OECD model! Let us vision that we can have a different environment. Telecom companies can still make plenty of profits. The technology has got considerably cheaper. We could spend as much and make five times the phone calls, and the Telecoms companies would make just the same or better profits, as a massive wave of new aopplications would appear. It's not rocket science that because of our size and isolation and competition that we need to optimise our use of communications. Embarrassingly when in China or the Philippines recently their mobile phone call prices were often less than 10% or ours. We need regulation, we need frequency sharing (just as we share the roads) a maybe a communications satellite and the key balls, else I'm out a here.

Comment by a few points, on 15-Sep-2009 00:38

A few things worth considering: 1) The telecommunications industry is a much more complicated and inter-tangled mess of technology, regulation, pricing than most people appreciate. With regard to mobile, there are a number of factors that influence the way calling prices are set for any given plan, inclucing, but not limited to the contract length, the amount paid for the handset (almost always heavily subsidised), and the customer segment the plan has been designed for (whether it's aimed at mainly on-net versus off-net users, txters vs callers, pre-pay vs post-pay, peak vs off peak, the list goes on). Each plan is then compared against competition law tests and various other instruments to ensure that the service is not being provded in a way that undercuts what competitors can charge. All of these things are put together into a plan, of which THOUSANDS exist within Telecom and Vodafone's IT systems. Nevertheless, it all washes out into a number - the average price per minute for a call. 2) Because every market is different, you can't easily compare prices across markets unless you consider the full range of usage, contract, subsidy, and post/pre-paid mix differences that underpin the "average" pricing. 3) You need to offset prices against the size and density of the country in question - it is patently ridiculous to compare NZ to Indonesia or China, with 120 and 140 people per square km respectively, compared to NZ's 16 people per square km. Mobile networks have extremely large fixed cost components that exist irrespective of how many people use the network. What's more the quality of the mobile networks in NZ is superb compared to overseas - particularly the UK, where there are 4 providers (soon to be 3 with T-Mobile up for sale and likely to be picked up by Orange). In this market who have all invested nothing in coverage and capacity because competition has driven prices down too far - hence there are both frequent drop-outs and coverage holes, and consolidation going on because 4 providers was too much for a country the same geogrpahic size as NZ but with 15 times as many people. 4) 2degrees does want bill and keep for interconnection, but 2degrees do not want a change to the retail pricing mechanism - basically to have their cake and eat it too. They are banking on the fact that Telecom and Voda would find it too difficult to change from the current system to receiver party pays, and they are probably right - it's never been done, and it's hard to see it happening, and would potentially make a number of existing customers highly unprofitable (most of the prepaid base of which is around 75% of mobile users in NZ) based on the subsidies on the phones, and the price of txting (which would have to go up). 5) If 2degrees believe that Tel and Voda are making too much money out of mobile and that the termination rate is the problem then why don't they build their own national network and get in on the action? If they don't want to build their own network, then surely they need to fairly compensate those who have invested billions in the industry already, in the form of appropriate termination fees that reflect the full cost of the network not the marginal cost. Instead they are just plugging away for lower prices - like they have been doing since 2003, rather than getting on with building their own competitive proposition. For 2degrees to think they can get a free ride on others' infrastructure without stumping up equally themselves is absurd and they should be laughed out of the room. Which is what Tel and Voda would be doing if 2degrees weren't being taken so seriously by the uninformed masses. Why we as a country continually support the cellar dwellers like 2degrees instead of the companies that have actually invested in this country is something unique to NZ that you wouldn't see in too many other countries in the world.

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Steve Biddle
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
  -Asterisk (incl PiaF, FreePBX, Elastix)

  -xDSL deployments

*Structured cabling
  -Home/office cabling
  -Phone & Data

*Computer networking
  -Mikrotik hardware
  -WAN/LAN solutions

*Wireless solutions
  -Motel/Hotel hotspot deployments
  -Outdoor wireless deployments, both small and large scale
  -Temporary wireless deployments
*CCTV solutions
  -Analogue and IP

I'm an #avgeek who loves to travel the world (preferably in seat 1A) and stay in nice hotels.

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

You can contact me here or by email at stevenbiddle@gmail.com