Vodafone NZ – increasing prices because profits are low.

By Steve Biddle, in , posted: 6-Jan-2015 11:06

I hope Russell Stanners had a good Xmas. My new years prediction is that it will be his last one as CEO of Vodafone New Zealand. I also pick 2015 as the year Vodafone could well exit the New Zealand market.

For many years Vodafone New Zealand was the Southern Hemisphere money tree. It was the jewel in the crown of the Newbury based global empire – New Zealand was a far off country where margins were good and the profits kept flowing back to the Northern Hemisphere most years. A blind eye was turned to the operation because it delivered results. Unfortunately that money tree now has a toxic illness. Following in the footsteps of Vodafone Australia which over the course of a few years lost it’s way and has now been haemorrhaging money with no light at the end of the tunnel, Vodafone New Zealand is now following Australia into the same tunnel. Before Grahame Maher was sadly taken from this earth way too early he set up both companies on their respective paths to success. He must now turning in his grave to see what has become of both companies.

In 2012 Vodafone New Zealand purchased TelstraClear for $880 million, a deal that made sense to many, but to others started ringing alarm bells. Telstra had been very frugal in the New Zealand market and their investment had seen traditionally low capital expenditure over a number of years, even when the New Zealand operation was clearly in need of it. Internally inside Telstra many looked at the New Zealand regulatory environment and saw that making inroads was going to be difficult, and that generating a return on large capital investment would probably not occur. Even their plans to build a mobile network were scuttled, part way through the construction of the network in Tauranga the plug was pulled.

It’s safe to say many at Vodafone through the purchase of TelstraClear was a bargain. They inherited a massive nationwide fibre network that would reduce their reliance on Spark and Chorus, a huge residential customer base (TelstraClear had more residential broadband customers than Vodafone) and a relatively large number of corporate customers. Somehow throughout the due diligence process, Vodafone seemed to miss the duct tape that held TelstraClear together. To some TelstraClear was  shambolic mess of different technologies, multiple CRM systems and products and services that simply didn’t deliver or work the way they were supposed to. Vodafone did however inherit some fantastic technology – the cable network in Wellington and Christchurch, and the IPTV playout system that now forms the basis of the UFB Vodafone TV offering. They could have done a lot more with this technology, but have chosen not to. They could have done a lot with their Vodafone TV set top box (aka the former T-Box) but chose not to as well. Making the guy who knew all about this redundant during the last round of restructuring before Xmas probably wasn’t the smartest move either.

In many ways however they were too slow at achieving any synergies that should have occurred as a result of the merger, and failed to predict the ruthless cut throat competition that was about to hit the Broadband market in New Zealand. The mass introduction of unlimited plans and price cuts in 2013 and 2014 that have seen retail margins plummet, with many plans only delivering very small margins. Orcon famously said in late 2013 that it took 27 months to make a profit from a customer signed up to a residential DSL based broadband connection.

Buying TelstraClear has certainly burdened Vodafone financially - October 2014 saw Vodafone New Zealand announce a $27.9 million dollar loss – it’s first in 13 years. In the good old days before the TelstraClear merger in 2011 it made a $151 million profit, and sent $130 million back to Newbury. Cost cutting and large scale redundancies have occurred within the company in the past year, and customer service now seems to be at an all time low. Posts of social media suggest average wait times when calling their call centre are often 1hr +, with many people talking about giving up after numerous calls with long wait times.

There have been plenty of rumours over the years about Vodafone pulling out of New Zealand and plenty of mainstream media who have been sucked in by these rumours and written speculative stories. These were all laughable as there was never a reason for Vodafone to want to pull out, but times have now changed. Vodafone sold their Fiji operation in mid 2014, and with Australia showing no sign of a turnaround and New Zealand now facing tough times, it has resulted in some market analysts in the UK now calling for Vodafone to consider it’s position down under. Vodafone Group CEO Vittorio Colao told investors in November that the company would consider selling it’s Australian operation. Logic would dictate that there would be little sense in Vodafone staying solely in New Zealand should it sell in Australia. There is however one major stumbling block – finding a buyer for one (or both) may prove incredibly challenging.

If you’re a Vodafone shareholder you’ll be happy to know Vodafone’s response to it’s financial struggles has been to announce an across the board price increase for most fixed line broadband and phone customers in New Zealand.

As you may have seen recently reported in the media, there have been changes in the industry to the costs of delivering broadband and home phone services for all providers in New Zealand. These cost changes affect the conditions that all providers operate under and unfortunately our prices will need to change to reflect these new conditions.

From 1 February 2015, most monthly fees for our broadband and home phone plans will increase by $4 per month.

People will know that over the past couple of year the price of wholesale access to the Chorus copper network and wholesale broadband services has been under review by the Commerce Commission. As of the 1st December 2014 the wholesale cost of these services was cut, but is still under review by the Commerce Commission who have recommend that the cut now not be as a great as it first recommended. Regardless of the final outcome, pricing will still be cheaper than it was prior to December 1st 2014. In the race to the bottom many ISPs claim they put pricing in the marketplace that factored in greater discounts and that the change will mean prices have to go back up. Spark have already announced some price increases across some of it’s products, but like Vodafone some of these changes are of a very dubious nature including combinations of services that have decreased, not increased in price.

The price of UFB services, and services delivered over their own cable network in Wellington, Christchurch and Kapiti are not affected by the Chorus copper price changes, yet Vodafone are increasing these prices. Adding on $4 per month to these plans and increasing data overuse charges is a pure profit making decision, and  to even subtly infer that this increased cost is a related to “industry changes” is quite frankly the biggest (excuse my English) load of bullshit I’ve ever read in a press release. If you’re a Vodafone shareholder it’s probably great news. For Vodafone customers it’s anything but.

If you’re a Vodafone customer wanting to see what your pricing will increase to, you can view it here.

Other related posts:
Spark Paging network shutdown – the event nobody cares about? Not quite.
UFB voice, power cuts, copper invincibility and mainstream media FUD.
New Zealand’s growing BUBA problem (AKA I feel sorry for you if you’re on a Conklin)

Comment by Steve, on 6-Jan-2015 11:32

I totally agree with you post.I hope they put that extra $4/month per subscriber into the Customer Service Budget, Waiting 1 hour for assistance is horrible and will likely lose them thousands of customers if they don't fix it.Nice Blog - I hope VFNZ read my comment.-Steve

Comment by sep11guy, on 6-Jan-2015 12:36

why would Vf invest in a new cable to OZ, if only to exit market ? 

Comment by antoniosk, on 6-Jan-2015 14:20

As ever from BiddleCorp, a sharp and brutal analysis.

Even if parts are incorrect, the overall theme is correct - TCL was poison for the business case and margin, and the drive from Group HQ has been to cut spending and investment and sweat the assets.

Now.... where has that strategy been tried before... cough cough Telstra....

Comment by chiefie, on 7-Jan-2015 14:30

Seeing that the key guy from Vodafone TV was made redundant and now he officially said where he's moved to... I may have to rethink about my cable TV + broadband internet services...

Sky TV has always had the upper hand with better connected service and first-to-market offering between their system and Vodafone TV, would be good to be on the winning team.

As for cable internet, it's fast, but with the looming price rise and somewhat "okay" internet service, I may tempted to get on UFB with Snap as soon as Enable Network wired up my street...

Comment by xlinknz, on 7-Jan-2015 19:33

I joined TCL in June 2012 when they 'featured' on Fairgo and the exec publicly offered his contact details on TV, I received had good service, value and was happy 

Times have changed, tomorrow I migrate to the new upstart kid on the block My republic, better service, better offering for less

To this day I am still surprised how much of the residential non mobile market Spark and VFNZ have

Comment by Dial, on 8-Jan-2015 13:04

I've been attempting  to get Vodafone to do some simple alterations - upgrade and the like - over the past month and their service is astonishingly poor. Just to cite one example, I've now been told a total of 4 times over that period that someone will ring me back and it never happens.  Indeed today an actual real person told me, 'you can expect a call back within the hour', yet no call... Clearly they've got serious communication problems both with their customers and within the organisation.

Comment by Joseph, on 16-Jan-2015 15:22

Good article."If you’re a Vodafone shareholder you’ll be happy to know Vodafone’s response to it’s financial struggles has been to announce an across the board price increase for most fixed line broadband and phone customers in New Zealand"Add to that MASSIVE redundancies across the board.

Comment by nzbsgfan, on 22-Jan-2015 09:15

Well written Steve.While it is possible Vodafone Group could look to selling VFNZ, there are a few things that may stop them from going down this route.VFNZ is seen as a good place to develop and launch new products and services. 4G was developed and tested in New Zealand, prior to the UK rollout. VFNZ were also instrumental in testing U700.New Zealand is an isolated market, with a tech savvy population, making it ideal for testing new marketing processes and strategies.The fact the VFNZ did make money in the past, coupled with potential emerging synergies with Telstra services, should set it aside from the disaster the that is VFAU. Determining the best way to finish merging the two companies, coupled with a decreasing income stream, is a challenge. For now it appears that Vodafone NZ is prepared to endure some customer (and staff) pain points by focusing on tightening it's belt.Frankly, things are going to get worse before they get better. And that's never a good sign for any business. Not looking good for bonuses this year I suspect.

Comment by Deep Copper, on 22-Jan-2015 15:38

It's pretty amazing that the Telco's have been able to get away with the massive amounts of misinformation they have put out regarding Chorus prices and the market price they all rushed to and stuck with.

Telecom/Spark and Vodafone joined the race to the bottom when Telstraclear ran their 40GB for $75 Promo, that was Q4 2011, when they found themselves losing thousands of customers per month.

The initial ComCom draft pricing was then made ONE YEAR LATER in December 2012...... so how can they claim that they set their current prices based on expected savings?

It was pretty common knowledge that $75 was not a sustainable price for Telecom as they were forced to buy UBA services from Chorus, whilst Voda and TCL could at least offset the price against their lower input costs on unbundled connections (Telecom was locked out of unbundling itself for 3 years as part of Structural separation) and realise better margins.

So to claim that the Chorus pricing change forces them to suddenly raise retail prices is a bit of a farce, and given the duopoly that is in place I'd be asking questions about price fixing.

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