web analytics

A story in the NBR says Indonesia’s PT Telekomunikasi may invest in 2degrees. It then reports Australian telecommunications analyst Paul Budde says it’s only a matter of time before Spark buys the company.

Budde is negative about 2degrees. He says:

Five years on and to a certain extent it is a bit of a wonder that the company still exists.

He is consistent. When the mobile carrier began operation in August 2009, he said there was: “little opportunity for success”.

Budde says Spark will buy 2degrees

Budde says bigger carriers have swallowed all the similar small mobile companies elsewhere in the world. He says Spark is the only logical candidate for that in New Zealand. In Budde’s view overseas investors won’t be interested, the most likely case is that Spark will buy 2degrees and run it as a low-cost brand. He doesn’t say whether this means as well as or instead of Skinny.

2degrees isn’t worried by Budde’s comments. It says: “Our revenue grew by 20 percent last year and costs reduced by 20 percent. Our shareholders are happy with progress”.

However, 2degrees is now five years old and doesn’t look like making a profit in the immediate future.

When 2degrees started executives told me the plan was to be profitable in seven years. Despite the success winning one million customers and, with the help of the Commerce Commission, fighting off uncompetitive mobile termination rates, it doesn’t look on track to meet that target.

Plan B

There is a way 2degrees can stay in business, deliver value to shareholders and return to profitability. The mobile phone carrier could sell its network and frequency licences to Spark, then reconfigure as a mobile virtual network operator or MVNO on the Spark network.

This approach has advantages:

  • It’s good from a competition point of view. The Commerce Commission wouldn’t be happy if the number of mobile competitors dropped from three to two. Dropping from three to two-point-five is better.
  • In round numbers Spark combined with 2degrees control roughly as much suitable cellular spectrum as Vodafone. If there are imbalances, that could be tidied up as part of any regulatory approval. Spark would be able to consolidate spectrum to offer some of the world’s fastest 4G speeds.
  • Spark’s mobile business isn’t as profitable as Vodafone’s. Adding 2degrees one million addition connections as a single wholesale customer would change Spark’s financials and underpin further network investment.
  • 2degrees already has great customer service and support. Keeping that intact will keep competitive pressure on Vodafone and Spark.
  • The business has already shown it can sell mobile services and support customers. Freed of its network, the business could thrive.

For the deal to work, 2degrees would have to secure long-term guarantees over prices and access to technologies, but that should be well within the grasp of the companies negotiators.

 

2degrees 4g coverage map

Mobile carrier 2degrees officially switched on its Auckland 4G network today. The company says the service is live on 72 cell sites in the central area.

The North Shore, Waitakere area and some Eastern suburbs will have to wait until ‘later in the year’ when 2degrees says it will triple coverage in the region.

2degrees is relatively late to the 4G party.

Vodafone launched its service early last year and says its faster mobile data network now covers about half of the New Zealand population. The carrier has sites in 38 locations.

Telecom NZ also went live last year and has sites covering much of Auckland, Wellington and Christchurch.

However, the established network coverage is patchy. Neither Telecom NZ nor the Vodafone 4G service reaches my North Shore home.

spectrum

Len Starling, policy and planning manager at the Radio Spectrum Management division of the Ministry of Business, Innovation and Employment, responds to How much spectrum do NZ mobile carriers have?

Firstly, you’re correct that the disparity between the spectrum holdings shown in Vector’s graph (which you published) and the numbers that MBIE previously provided is because Vector’s graph includes a lot of spectrum that is not used for cellular services.

Vodafone owns rights to spectrum in several bands that are not used for cellular services.

For clarity, the spectrum bands currently used for cellular in New Zealand are:

  • 850 MHz (Telecom only) – 3G
  • 900 MHz (2degrees & Vodafone only) – 2G and 3G
  • 1800 MHz (all operators) – 2G and 4G
  • 2100 MHz (all operators) – 3G

In the bands currently used for cellular, the operators hold:

  • Vodafone: 130.4 MHz
  • Telecom: 110 MHz
  • 2degrees: 99.6 MHz (some of which is owned by 2degrees’ shareholders, Trilogy Ltd and Hautaki Ltd) .

Soon, the 700 MHz band will also be used for cellular. All three operators will own rights in this band.

The 2.5/2.6 GHz band can be used for cellular (equipment is available internationally) but is not currently being used for cellular services in New Zealand. This band is particularly good for high population density areas such as Singapore and Hong Kong, not so good in low density places like New Zealand.  In New Zealand no-one has implemented yet.  These rights return to the Crown in 2016 (at the latest) if implementation doesn’t occur.

Secondly, while you are correct that the government would not prevent Vodafone (or any other network operator) from using any of its management rights for cellular services, in practice all New Zealand mobile networks are limited by international standards.

This is because cellular handsets are sourced from the international market. It is unlikely that major handset manufacturers would be interested in manufacturing bespoke handsets just for New Zealand given our small size. Therefore the holdings at 2.0, 2.2 and 3.4 GHz are not practical for cellular services.

Finally, there is not yet any international consensus on what frequencies 5G cellular services will use. While it seems likely that ‘5G’ will eventually be standardised at the international level, there is not yet any agreement on what exactly what 5G will be (apart from general statements like 5G will be faster and/or more efficient than 4G). Most of Vodafone’s unused holdings expire at various times over the next 5-8 years.  It should not be assumed that Vodafone will automatically be allowed to renew those holdings.  The government routinely reviews spectrum holdings five years before expiry and decides whether to make a renewal offer.  For example, the government recently reviewed Vodafone’s LMDS holdings and decided not to offer renewal so those rights will return to the Crown in 2018.

In summary, while there may be room for debate about exactly what should be counted, it is not correct to assume that current total UHF spectrum holdings provide a guide to future capacity of an operator to provide cellular services.