Vodafone welcomes MTAS regulation*

By Steve Biddle, in , posted: 13-Apr-2010 20:45

Vodafone today launched a new mobile add-on plan into the marketplace. Offering 200 minutes of calls to other Vodafone mobiles or landlines in New Zealand at any time of the day or night for $12 it is arguably the best value mobile add-on in New Zealand. The catch is that it's only available to Prepay users - if you're a On Account user helping prop up Vodafone's ARPU you've just been given the big finger. Vodafone do assure us this plan is coming "soon" to On Account plans, but right now we're all stuck paying more than a pimply teenager who had absolutely no brand loyalty.

$12 for 200 minutes equates to 6c per minute for a call to any other on net Vodafone mobile or landline. That's fantastic value in anybody's terms and is the cheapest available calling rate available on any mobile network in NZ for calling another mobile or landline (excluding deals such as Best Mate, TalkZone or Favorites that only allow calling to nominated numbers. The launch of 2degrees in New Zealand has finally broken the mobile duopoly that existed in New Zealand and finally lead to some significant competition for the customers hard earned dollar.

I've blogged on numerous occasions about the Commerce Commission led MTAS (Mobile Termination Access Services) investigation that has been in place for approximately 18 months. This purpose of this investigation was to look at mobile termination rates (MTRs) - the rates that mobile operators charge each other for terminating voice calls and SMS messages on their network. These rates have been falling consistently for the last 10 or so years from approximately 45c per minute down to approximately 18c per minute now. Many people believe that high MTR costs cause inflated retail mobile calling rates, a conclusion that I neither agree with or have seen compelling evidence to agree with. What is clear however is that rate should be set to reflect the cost of terminating an inbound voice call on the network, it should not be used as a revenue source for operators. International benchmarking shows that our current MTR costs are not excessive but  globally pressure is being put on mobile operators by regulators to force these MTR costs down, primarily because they believe current charges are inflated and do not reflect the true cost of terminating a call in this day in age.

In early 2009 the Commerce Commission welcomed dialogue from all interested parties and in June 2009 issued a draft recommendation that recommended prices should be cut significantly. Needless to say this didn't go down well with either Telecom or Vodafone who were intent on maintaining the status quo. Because only two mobile operators existed in the marketplace the charge became almost irrelevant for calls and SMS messages between Vodafone and Telecom - while they paid the other provider money when a call made off network, they received money when a call was terminated on their network. While there was a marginal imbalance in voice termination rates, SMS termination rates were very equal for both networks which meant very little money actually changed hands at the end of the day. This cosy duopoly upset new entrant 2degrees, who aggressively campaigned for MTR costs to be lowered significantly and also pushed for a move away from the Calling Party Pays (CPP) pricing model to Bill and Keep (BAK) as a replacement pricing model. BAK would mean no money would ever be paid from one operator to another, and that mobile operators would in effect receive no money for terminating a call on their network. This model is used in the USA and typically means that a mobile user pays for incoming calls (normally out of included minutes) as a way of the mobile provider recovering call termination revenue. 2degrees funded what I consider to be a dirty tricks campaign known as Drop The Rate, Mate! that mislead people into thinking that MTR costs were the root cause of high mobile calling costs and the lack of competition in NZ, however the hugely successful launch of 2degrees into the marketplace with aggressive pricing shows that the existing regulatory environment was not broken - we were being ripped off as mobile users because of a lack of competition in the marketplace. Despite MTR costs having fallen by well over 50% in recent years, retail pricing has not followed suit with a Vodafone or Telecom prepaid mobile user still paying similar rates now to what they were three years ago.

In the following months plenty of debate took place and numerous submissions were made by all three networks putting forward their cases. The Commission indicated it would prefer an industry lead solution rather than being forced to regulate the market and in December 2009 both Vodafone and Telecom submitted final submissions to the Commerce Commission pledging to reduce MTR costs for voice calls to 12c per minute (billed per second) from October 2010 and gradually reducing to 6c per minute (billed per second) by 2014. 2degrees threw all of their toys out of the cot believing the Commerce Commission were ignoring them, and withdrew all offers they had previously put on the table.

In February 2010 the Commission delivered it's final report to the Minister for Communications and Information Technology, Steven Joyce. This report recommended that the Minister should accept the submissions from both Telecom and Vodafone rather than regulating the market, but the decision was not without controversy, only two of the three Commissioners involved in the investigation agreed with this approach, with Commissioner Anita Mazzoleni recommending that regulation of the market take place.

So now back to todays news..Vodafone have now told us loud and clear that  6c per minute is now sufficient revenue for an on net call from one Vodafone customer to another Vodafone customer. One has to now ask the question - why do Vodafone believe that the rate for any other mobile network operator to terminate a call on the Vodafone network should exceed 6c per minute from today? If that 6c was split 50/50 between the revenue cost of the A party making the call and B party answering the call then that MTR cost should not exceed 3c per minute. What possible argument could Vodafone have for charging another network operator more to terminate a call on the Vodafone network than they "charge" themselves?

The decision  to either accept the proposals from Vodafone and Telecom currently sits with Minister Joyce, who has the decision as to whether he should accept voluntary proposals from both networks or with the full force of the law regulate MTR pricing. Vodafone have now very openly come out and made a mockery of many of their claims that MTR costs can't drop to 6c until 2014. I'm no fan of regulation but if I were Minister Joyce I'd calling Vodafone's bluff and  recommending regulation. Thumbing your nose at both the Commission and Minister like Vodafone have done is not smart business.


*= my opinion of what Vodafone's new plan represents

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Spark Paging network shutdown – the event nobody cares about? Not quite.
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New Zealand’s growing BUBA problem (AKA I feel sorry for you if you’re on a Conklin)

Comment by wongtop, on 13-Apr-2010 21:29

Well put Steve.  Will be interesting to see Paul's comments.

Comment by freitasm, on 13-Apr-2010 22:15

Being a Devil's Advocate they can always say maintaining an interface to another operator costs more money than just transporting on-net calls... Not that I agree with that in principle anyway. But it could be their claim.

Comment by antoniosk, on 13-Apr-2010 22:22

Hmmm, an interesting view Mr B, which would make some sense except that they are having to reinvest in the network and provide that lovely 3G Extend coverage all through the country to keep with XT.

You've only taken into account the marginal cost of termination of a call, which at that absolute level might seem really low. But Voda are a commercial business, and they need profit so they can retain and reinvest in their network and services.

Handset subsidies come from somewhere. Handset stock needs to be purchased and logistically handled in NZ. Product development, marketing activites, dealer networks and commissions, new cell towers etc etc etc. Where do you think the money comes from?

UK agrees with NZ how much of their forthcoming profit they can spend, 18 months in advance. The balance goes back to UK. NZ Mgmt have to deliver the targets they agreed to. End of story.

I think what you've touched on though is perceived excessive charges on usage, which is fair. Enough people now know that a mobile minute costs around $xx, but they are paying a lot more that amount (89c/minute on Supa Prepay, flicking hell!).

What rankles is the dividend that flows from Voda NZ to Voda UK - it's a big number. It's their right of course, it's just a shame more doesn't stay in NZ and get reinvested here.

Imagine how much 3G Extend you could get for $500m pa. or nice quality handsets that actually work.

Comment by PaulBrislen, on 14-Apr-2010 11:30

A note on investment - if it wasn't for the return on investment we wouldn't have the network in the first place... Each year it's about $100m to Group which is not much compared with the $3bn invested here.

VF Group supported us when we asked for half a billion to extend 3G out to 97% coverage (first in the world with that). That forced Telecom to dump its GSM plan and match us, so we have one of the few countries in the world with that level of coverage.

Steve, your point seems to be: "MTR doesn't affect retail price. They've lowered their retail price therefore MTR should be regulated". I'm not sure that's what you mean - can you expand on it?

As I've said elsewhere, MTRs have no direct link to retail price. You'd be better off regulating the money spent on marketing/advertising in the industry - that would have about as much impact on price paid at retail level.



Author's note by sbiddle, on 14-Apr-2010 11:58

I fully agree that MTRs in no way reflect retail pricing.

MTRs however should only be a tool for collecting inbound termination revenue that accurately reflects the cost of terminating a call on the network.

Vodafone have claimed that the drop to 6cpm can only occur in 2014 and needs to be a progressive drop, but have now gone and slashed on network rates to a level which indicates they're prefectly happy to accept a figure of 6cpm or less right now. Why should the Minister accept the proposal to wait until 2014 when the process can now be speed up significantly?

Comment by PaulBrislen, on 14-Apr-2010 12:14

Because as you say, MTRs do not reflect retail pricing and vice versa.

What we do with retail pricing has no baring at all on MTRs.

So we lowered the retail price - why should that mean the govt should regulate MTR? That's like saying I painted my car blue therefore I should pay more for my rates this year.

The two are not directly related.

We need a glide path for MTR reduction because that way we can manage the decent. If our revenue drops off a cliff overnight it's a nightmare to manage. Just not acceptable. All the regulators around the world understand this - they all build in glidepaths.

MTR reduction means we're going to remove $80m a year out of our business every year for the next five years. We can do two things to compensate for that - we can put up retail prices and hope customers stick with us (hardly likely in a competitive environment) or we can lower prices and hope to gain more customers. Either way we have to cut our spending dramatically across the board.

But lowering the retail price has nothing to do with MTRs. Nothing at all. Which begs the question: what's changed in the MTR debate?

Comment by NonprayingMantis, on 14-Apr-2010 12:53

Once agian you make the silly mistake of only referring to the revenues you will lose as a result of MTR reduction.
Fact is you will also reduce your *costs* at a similar level.  You are a net reciever for sure because of Telecoms large share of landline to mobile calling, so you will be losing out a bit,  but the $80m claim is pure baloney because it totally ignores the savings you make on the money you pay to Telecom and 2D, which, unless you tell us what they are I am going to assume are $75m per year.  this means your net loss is only $5m per year.

@SBiddle  I can see your argument,  but I suspect that Voda will be able to point to a few things that go against it.
Like the fact that when someone gets a lrge bucket of minutes they only use, on average, a percentage of them.. If that is, say, 50%, then this means the effective rate isactually 12c per minute,  not 6cpm.
Secondly Voda could argue that the 200m plan is set as a loss leader to get people to spend money on other things like Data, SMS etc.  The actual cost of providing the minute might be higher than Xcpm because of this.

Comment by Hayden Glass, on 14-Apr-2010 13:53

@sbiddle - this is an excellent post. you make many good points. but i think it is a mistake to directly relate any particular on-net retail price to the mtr. this argument would imply that we would never have any plan that offered an on-net mobile voice call for less than twice the mtr, or about 17+17=34 cents a minute at present (rounding to the second). but this clearly isn't the case. at the low end, we sell bestmate for $6 for effectively unlimited on-net minutes to one person. but our standard on-net rate on supa prepay is 89 cents a minute. the commission has drawn a connection between overall industry average on-net pricing and termination rates. i dispute whether that is right anyway, but even if the commission is right in that connection, it clearly can not mean that any single on-net price point can be compared directly to termination rates. and, as pointed out by nonprayingmantis, the revenue will be higher than 6 cents a minute for several reasons, including that not everyone will use their bundle, and we expect they will call a lot of landlines (rather than just calling to vodafone mobiles). @nonprayingmantis - the traffic imbalance on fixed-to-mobile beween vodafone and telecom is substantially more than your 5m a year estimate. sure, our costs for interconnection fall also as mtrs decline, but the fixed-to-mobile impact is a major reason why we have been so strident on the mtr debate. plus also, even if costs fall, revenue declines are a major issue in themselves. hence the need for a glidepath while we adjust our business model away from inbound revenues. hayden glass public policy vodafone nz

Comment by NonprayingMantis, on 14-Apr-2010 14:30

@Hayden Glass

Thank for your reply.
I don't doubt the imbalance is more than $5m,  but it just annoys me to see you (not you personally, but Vodafone) harping on about the loss of $80m revenue when really the impact to your bottom line is considerably less than that.  If you are willing to quote the $80m revenue loss, why not give us the true figures around the cost savings (or even just the net loss) so we can have the whole picture.

I would also dispute that the revenue loss without considering costs is a major issue in the context of this.  Changes in revenue by itself without considering changes in costs mayor may not efect cahs flow or profitability - without knowing the cost we simply cannot tell which way it is going.
Looking at revenue in isolation without considering costs is ridiculous - and something no investor is going to do.
However, if you think investors do that, then have I got a business model for you!
I could make a billion dollars extra revenue for vodafone next year by selling a billion x ten dollar bills for one dollar each.  Of course this would lose vodafone nine billion dollars profit,  but hey, we are only interested in revenue right?

Comment by Rhys, on 14-Apr-2010 16:30

I disagree with the notion that there is no link between MTR and retail prices. Of course there is. I will explain this in a moment. Firstly - the writing is on the wall for MTRs, globally. They are set to decrease drastically in most developed countries in the coming years. The UK has proposed to bring them down to around NZ 1c per min and the EU to around NZ 3c per min. The ComCom (with the exception of Anita Mazzoleni) has made a grave error in suggesting acceptance of the voluntary undertakings and I sure hope Steven Joyce can see this. If MTRs are regulated to similar prices in New Zealand, you can realistically expect to see retail fixed to mobile call rates of well under 15c per minute and likely below 10c per minute, firstly from your Orcons, Slingshot etc... the underdogs basically. Telecom, Vodafone, etc will eventually be forced to reduce FTM (fixed to mobile) and MTM (mobile to mobile) rates, as 71cpm - 89cpm doesn't look too crash hot when the competitors are offering, say 8-15c per minute. Sure - calling from a landline isn't perfect competition - but it's generally acknowledged in that 30-60% (or more) calls to mobiles are made when you have a landline within reach. Why is it that New Zealand has amongst the lowest mobile usage in the world - under 100 minutes per month per subscriber, according to Economist magazine. Yet the USA is 800+ minutes per month and Puerto Rico is 1800+ minutes. If our pricing is so fantastic in New Zealand, can Paul or Hayden please show a comparison between what you'd pay in USA, Australia and New Zealand on Vodafone networks for heavy usage - let's say 5,000 minutes per month. I'll do part of it for you: Vodafone Australia - unlimited calling to all mobiles and landlines in Australia, unlimited worldwide SMS and MMS, 1.5GB of data and visual voicemail. Free Iphone 3GS on 24mth contract - AU$99 per month Verizon Wireless (part Vodafone owned) - Unlimited calling to any USA mobile/landline - US$69.99 per month The USA MTR is basically zero. Australia's is much higher at 9c per minute, but competition is very intense with three nationwide networks each with 20% plus market share and hundreds of MVNOs. So with everyone saying MTRs having no bearing on the retail price - are you sure? It's sure going to make it pretty hard to offer an unlimited mobile plan in New Zealand if it's costing your mobile network 15c per minute every time you call another network!! So - to Hayden and Paul - what would the monthly cost on Vodafone New Zealand be for 5,000 minutes, let's say 2,000 mins to Telecom, 2,500 VF to VF (any number, not to one, two or three best mates!) and 500 minutes to 2 Degrees. Oh and if you want to compare equally with Australia, throw in say 1,000 or so SMS/MMS anywhere in the world and 1.5GB of data. By my calculations for New Zealand: Talker 1100 plan $369.95 per month Overage 400 mins VF to VF on weekend - free Overage 3500 mins to any network @ 49c = $1,715 TXT 600 add-on $12.95 per month 350 Intl SMS @ 20c each = $70 50 Intl MMS @ 50c each = $25 TOTAL monthly cost: Vodafone New Zealand $2,192.90. comparable usage on Vodafone Australia AU$99 (NZ$129) Iphone 3GS 16GB - $460 subsidy for 24mth contract on above Voda NZ plan - so $719 charge for Iphone. Free on Vodafone Australia on plan that costs a third the price. Even if you cut the usage down significantly - New Zealand still pays at least TRIPLE!! Why are we getting gouged soooo badly?!!

Comment by ajw, on 14-Apr-2010 18:48


Excellent reply.

Perhaps Messrs Brislen and Glass could explain why New Zealand and Mexico are the only two countries in the OECD that do not regulate mobile termination rates. How pathetic and a sad indictment of the Commerce Commission that this latest investigation into MTR's has taken eighteen months and still the issue has not been resolved. And this issue has been on the agenda since 2004. I note OFCOM  in the UK proposes to regulate MTR's to a 0.5 pence by 2014. and this consultation is only taking seven weeks.  For a summary of this decision and time-line please hit the
link http://www.ofcom.org.uk/consult/condocs/wmctr/summary.pdf 

No wonder this country is going to the pack.

Comment by Hayden Glass, on 15-Apr-2010 20:03

heavens to betsy! i leave you alone for a day and look what happens. @nonprayingmantis - i don't think we are disagreeing with each other. if costs fall in line with revenues, life is easier. which might help to explain how the undertakings move to effectively zero pricing for sms. @rhys - quite a lot to respond to there. i shall try and be brief. 1) yes, i agree. mtrs are clearly on the way out. mobile operators need to find a different business model that doesn't rely on inbound revenue. the debate is just about the speed of that transition. i think cutting mtrs 50% since 2004 and offering to cut them another 2/3rds in the undertakings is okay. 2) sure there will be some flow through impact into fixed-to-mobile prices. but in nz most of the hit from lower mtrs comes to vodafone, and the gain disproportionately goes to telecom, since they carry most of the fixed-to-mobile calls. 3) on value, we can argue all day about this. let's not. not sure the economist's figures are correct. certainly vodafone nz usage is higher, ranking in the middle of the pack for the vodafone group. but clearly there is scope to do more. sure we can improve value. sure we can increase usage. which is one reason why we have launched our new prepay add-on. and, as we said in the papers, there is more to come. also, i note the irony of you choosing to compare with a vodafone oz plan that includes unlimited on-net minutes. the point in this blog is that 6 cents a minute is too cheap (relative to mtrs). i can only imagine what would be said about unlimited on-net. @ajw - i will put a post soon on the join the debate blog about the uk numbers. i hope to do this tomorrow. but for now note that nz termination rates will be below those in the uk under the undertakings from 1 october, and fall again on 1 january. i don't think it is a smart use of anyone's time to send the commission's report back for another six to nine months thought about whether termination rates should be a few cents lower in five years time.

Comment by ajw, on 15-Apr-2010 21:47

@Hayden Glass

With the rapid rollout of  voice over LTE throughout the world and packet switched networks it is inevitable that the existing business models of voice termination will change especially as the ongoing cost of running such networks is far cheaper than existing circuit switched networks.
 I say again  why is New Zealand and Mexico the only two countries in the OECD that do not regulate mobile termination rates. This latest investigation has taken over eighteen months and still no resolution of this ongoing problem which proves the whole regulatory process is dysfunctional and needs radical surgery to overhaul the process. Please read the article via this link.


Comment by Rhys, on 16-Apr-2010 12:18

@Hayden Glass Thanks for the reply. Actually the plan I referred to in Australia allows for unlimited on-net and off-net calls - i.e the calls are completely unlimited to any mobile and landline in Australia, on any network, for AU$99 per month. Also - in my costings I forgot to add data to the pricing for New Zealand. http://store.vodafone.com.au/vodafone-apple-plans-mobile-phone-plans.aspx @PaulBrislen - you say that "what we do with retail pricing has no bearing on MTRs. Let's look to Vodafone India; MTRs are a fraction of a cent, retail call prices are between a fraction of a cent and 2.5c NZ per minute. Yes - correct - we are paying between 36-100x more per minute in New Zealand. India's a big country - I realise they are adding 20m new subscribers every month - so of course they will be cheaper. Anyway. If India's MTR went up to say, NZ 15c per minute, or even to 4c per minute - do you think that the retail pricing would stay as low as it is?! How daft. Of course it would increase. MTRs set a floor below which the retail price cannot drop for off-net traffic, particularly when there is a likelihood of out of balance traffic!

Comment by ajw, on 16-Apr-2010 14:55


Virgin mobile in Aussie  a MVNO which I believe is  100% owned by Optus also has a unlimited plan for $AU99 per month including 1Gig of data.

We've stripped our Topless plan down to nothing but incredible value.
The best bits Unlimited Standard Calls to GSM Mobiles in OzUnlimited Standard Text to GSM Mobiles in OzUnlimited Standard Local & National Calls in OzFree Voicemail in Oz1 GB Mobile Data#


Comment by Hayden Glass, on 18-Apr-2010 08:57

I have posted something on the "join the debate" blog on the OfCom draft report just now.
@rhys - my apologies. i was obviously looking at the $29 unlimited on-net cap, rather than the $99 plan you were using.
@ajw - i don't know about the situation in mexico. but the relevant question is not whether rates are regulated or not, but how good the rates are relative to other places. new zealand's mtrs are just below the european average at present. you can see this by comparing new zealand with figures from the european regulator's group (google "erg mtr snapshot"), and the undertakings will continue to cut them substantially.
regulatory processes are also long and costly, which is why the legislation allows for undertakings in the first place. if lower mtrs are available under a simpler process, to me it just isn't worth another year or so of regulatory debate.

sbiddle's profile

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