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Telecom NZ’s market share was already falling before 2009. Then, the communications minister Steven Joyce announced plans for an ultrafast broadband network.

According to IDC Research, Telecom NZ, now Spark, held a 59.1 percent market share in the fourth quarter of 2007. By the same quarter in 2009 it was down to 54.3 percent.

IDC Research market share telecommunications NZ 2007 - 2009

Today, Spark is still the nation’s largest telco. Its market share is down to just 38 percent.

The two measures are not the same thing. Spark’s 38 percent share comes from the Commerce Commission draft liability allocation process. IDC measured total revenue market share.

Although the Commerce Commission used a different market share calculation, the result is so different to the earlier IDC estimate, that it’s clear there has been a major shift in market structure. Ultrafast broadband has changed the industry dynamic.

New Zealand top telcos 2015

It’s not obvious this means greater competition. Between 2009 and 2016 Telecom NZ demerged its Chorus business unit. This is now a separate company.

According to the Commerce Commission figures, Chorus has a 22 percent market share. Add this to the Spark share and you are, in effect, back in 2007 only this time Telecom NZ is two separate companies.

There is no doubt Spark and Chorus compete. Spark’s recent fixed wireless launch was a competitive shot across Chorus’ bows.

Is telecommunications competitive?

But can we be confident the market is more competitive than before?

Vodafone was number two in 2007 and 2009. It is still number two today with almost the same market share.

This is remarkable considering Vodafone swallowed TelstraClear in 2012. In 2009 before the UFB project started TelstraClear was number three.

It is as if TelstraClear’s entire New Zealand business evaporated.


2degrees didn’t exist in 2007 and was only weeks old by the fourth quarter of 2009. It has come from almost nowhere to take the number four market position. That’s a competitive win of sorts, but not much.

Nothing 2degrees does challenges or threatens the two larger players. It is about one quarter the size of Vodafone and less than 20 percent the size of Spark. More to the point, 2degrees has yet to make a profit.

Vocus is an interesting newcomer. According to the Commerce Commission calculation it only represents three percent of the market. That’s not much more than the 2.4 or 2.3 percent its parts CallPlus and Orcon accounted for in 2007 and 2009.

Not much change there either.

After Vocus the remaining players are tiny. Their market shares amount to little more than rounding errors.

After Telecom NZ split

The main change between 2007 and 2016 is that Telecom NZ is now two separate companies. Consolidation means there are two less major players elsewhere. The net effect is one less major telecommunications company.

Chorus is wholesale only. Which means customers have two less retail telecommunications companies to choose from. There is a long tail of small entreprenurial service providers who may or may not be thriving. Yet it us hard to argue the market is more competitive than it was a decade ago.

Another way to gauge competition is to look at how much money the main telcos make today compared with in 2007.

In 2007 and 2009 Telecom NZ had revenues of about NZ$5.6 billion in both years. Net earnings in 2007 were about $850 million and $400 million in 2009.

In 2015 Spark had revenues of around $3.5 billion and Chorus took about $1 billion. Together that’s $4.5 billion. The total is more than a billion less than Telecom NZ made when its was still a single business.

Spark’s 2015 net profit was $375 million while Chorus net earnings were $91 million. A total of $466 million. That’s a better collective performance than 2009, but well below the 2007 figure.

In 2009 Vodafone NZ reported revenues of $1.6 billion and $260 million profit. By 2015 total revenue, including TelstraClear, was $2 billion with a $120 million loss. In part Vodafone is still absorbing the TelstraClear business it acquired in 2012.

You could argue the billion dollars revenue Spark and Chorus did not make is money business and consumers might otherwise still be paying. If that’s the case, then the reforms have delivered a cost benefit to customers.

Otherwise, it’s not yet clear the market is more competitive than it was a decade ago.

A press release from 2degrees says the phone company has won a contract to supply a wide range of telecommunications services to the Ministry for Primary Industries.

There’s no figure on the size of the deal, nor are there enough details to estimate its value. As a rule of thumb, managing telephone services for 2300 staff could be worth in the region of $50 to $100 per person per month depending on use patterns.

However you cut the numbers, it’s a big deal.

From the press release:

The agreement is 2degrees’ first key contract under TaaS (Telecommunications as a Service) and involves WAN, LAN and Wi-Fi connectivity services at more than 120 MPI locations throughout New Zealand including main offices, border facilities, laboratories and fisheries offices.

2degrees will support and manage MPI’s site and user connectivity via its extensive national data network, while its national mobile network will serve the Ministry’s mobile connections. Effectively 2degrees will be responsible for connecting the 2300 strong workforce.

What the press release doesn’t say is that this is the kind of commercial deal 2degrees couldn’t win when it was a mobile-only business. It bought Snap to broaden its scope so it could offer landline and data services.


On the surface the MPI contract vindicates that strategy, although you might equally argue that the company should have stuck to its knitting offering low-cost prepay mobile plans. There are heavy management overheads operating a full-service telco. And there’s a need for significant capital expenditure. That has been a long-term struggle for 2degrees.

Last month rumours swirled Australia’s TPG Telecom was on the brink of buying 2degrees. If there was a deal on the table, it seems to have fallen through.

Price would have been the stumbling block. At the time of the Sky deal, Vodafone was valued at around $3.5 billion. So a cash buyer could expect to pay in the region of $500 million. Reports elsewhere suggest the owners wanted $900 million.

Plans to float 2degrees in Australia have also been shelved.

It’s not all over. Two months ago there were reliable stories about foreign telcos, including one from Indonesia, running a ruler over the 2degrees business. At least one other Asian company has also looked at 2degrees this year.

vodafoneNews reports say overseas buyers want Vodafone New Zealand. Rival 2degrees is also a likely take-over target.

Vodafone is the largest mobile carrier in New Zealand. In comparison, 2degrees is an also-ran. Yet, in the right hands, the smaller mobile carrier could prove a better investment.

At The Australian, Bridget Carter and Gretchen Friemann write UBS for the defence as TPG eyes Vodafone.

Carter and Friemann’s story has a lot of informed speculation.

2degrees also in play

The pair write:

“Some believe 2degrees Mobile could also be an acquisition target of Australia’s recently merger between Vocus and M2, despite chequered performance.”

The Australian Financial Review says staff saw senior TPG executives at Vodafone’s Auckland headquarters. TPG billionaire Teoh may soon call Vodafone.

Like most AFR stories, it is behind a paywall. You can read it for free at Stuff.

Stuff’s Tom Pullar-Strecker has a local follow-up Vodafone NZ silent on sale rumour. He says:

“Vodafone NZ has read the rumours but chosen not to comment.”

Pullar-Strecker also mentions a possible tie-up between Vocus and 2degrees.

TPG and Vocus

At NBR Chris Keall didn’t get anyone from Vodafone on the record when he wrote: “TPG in town to buy Vodafone NZ, or is it 2degrees, or …”

He runs through the sale potential of three telcos. In short:

  • Vodafone — possible.
  • Chorus — unlikely.
  • 2degrees — “Now we’re talking”.

To date most reports name two acquisitive, fast-emerging Australian telco giants as potential buyers. Both TPG and Vocus have run the ruler over New Zealand mobile company assets in recent months.

While most stories are about TPG buying Vodafone, we can assume both companies looked at 2degrees.

China Mobile

It doesn’t end there. I’m told China Mobile has looked at a possible NZ acquisition. And at least one Indonesian telco has investigated the local market.

This means a Vodafone sale could be competitive.

In the NBR story Chris Keall looks at Vodafone’s numbers. He notes:

“Vodafone NZ lost $120 million last year. It blamed complications integrating TelstraClear…”

He goes on to point out the operating earnings were $438 million.

Vodafone getting the books ready

Recently Vodafone embarked on a ruthless cost-out programme. Moving from expensive office space on Fanshaw Street to the cheaper Smales Farm site is part of that. Make no mistake, many staff will choose not to move. That’ll cut costs further.

It’s possible that within a year Vodafone New Zealand could be generating an annual free cash flow that’s the thick end of a billion dollars. Free cash flow, by the way, is what buyers like Vocus and TPG often look for in an acquisition. It gives them money to carry on expanding.

Either way, Vodafone’s profitability is moving in the right direction.


While the NBR doesn’t put a price on Vodafone’s NZ business, Keall notes Spark’s $6.1 billion market cap would “be way too big for TPG to digest”.

Maybe. But the going price for a market-leading mobile phone company with 2.4 million users and $1 billion in free cash flow each year isn’t far short of Keall’s $6.1 billion.

That could well be too much for TPG’s shareholders. China Mobile could find the cash.

Spectrum is red

There’s other value locked in Vodafone New Zealand. The company owns the rights to 320 MHz of spectrum. That asset alone is worth over a billion dollars.

Spark paid $83 million for the last paired 5 MHz block of 700 MHz spectrum. At that price Vodafone is sitting on an asset of more than $2.5 billion. Spark paid a premium, not all blocks sell at such a premium. Let’s take half that price. That values Vodafone’s spectrum at about $1.2 billion.

Vodafone’s physical cellular network, with all the building and consents done is likely to be worth close to another billion dollars. Add in the goodwill, the relationships and so on. It’s clear Vodafone New Zealand has a few billion in assets. Maybe $3 billion.

Free cash flow

If Vodafone’s free cash flow hits a billion a year, then you’re looking at a likely sale price around $5 billion. Maybe more, after all this is a market leader.

Vodafone’s board in the UK would be cock-a-hoop if the company could flick the NZ operation for more than its current book value.

In comparison 2degrees has yet to break-even. The company loses money every month. Its network isn’t extensive and it owns less spectrum than Vodafone. In early May reports said the company was looking at an ASX float. Those stories put 2degrees’ value at around $800 million.

Assessing assets

If we look at 2degree’s spectrum assets, it has about 110 Mhz. On the same basis as our earlier calculation, that is worth around $500 million. It’s complicated because some spectrum is owned by a Maori trust. The value of the network is also complicated. It involves vendor finance. And it isn’t as extensive as Vodafone’s.

2degrees has call centres, shops, a decent brand, an OK reputation and systems in place.

Looking at the assets and the company’s potential, an $800 million valuation looks reasonable.

Imagine you were a cash-rich international telco looking for a New Zealand asset. Your choices are to pay a hefty premium and buy the market leader or to pay under a billion and pick up the number three player.

Fear of missing out

Remember, there are three, maybe four, buyers looking at the market. It’s possible a buyer who misses Vodafone might still want an NZ carrier.

On the face of it Vodafone would be the smartest bet. It’s not risk-free. Spark is snapping hard at Vodafone’s heels.

Managing Director Simon Moutter has taken the fight to his competitor. Today Spark has almost as much usable spectrum as Vodafone. It has access to similar, if not better, technologies.

The recent 4.5G trial in Christchurch illustrates Spark’s capacity to compete. If a Vodafone take-over is messy, Spark will probe every weakness.

Vodafone is also under pressure from Spark’s investment in public wi-fi hotspots serving customers as much as an extra gigabyte of data a day from old telephone boxes.

2degrees more threating than you might think

If anything, the threat to Vodafone from 2degrees is more serious.

Yes, that’s right. It sounds counter-intuitive, but until now 2degrees’ biggest stumbling has been lack of investment capital. It hasn’t had the funds to maximise its opportunity.

Many 2degrees customers roam on the Vodafone network. That means the company has to pay Vodafone when its customers make calls. Guess who makes the most money when that happens? It’s not 2degrees.

And let’s not forget that 2degrees couldn’t find the $20 million or so needed to buy spectrum that other carriers value at $80 million. Nothing shouts “under capitalised” more than that decision.

A billion here, a billion there

What if a cash-rich international telco snapped up 2degrees for say, $1 billion? And then invested another billion filling in the network holes and buying spectrum — assuming there is any still available.

Let’s say the new buyer switched strategy. Rightly or wrongly 2degrees is positioned as a full-service telco. Maybe that’s not the smartest approach when you’re small and undercapitalised. Maybe New Zealand doesn’t need three full-service mobile carriers.

That is another story. For now the key point is that if Vodafone is in play, so is 2degrees. The merger and acquisition activity could come to nothing, but that’s not what people inside the business think will happen.

Blame the regulator?

Australian telecommunications analyst Paul Budde thinks 2degrees’ problems come down to New Zealand regulatory settings.

He may have a case, but he is looking at the market from a country where the government is only too keen to get its hands dirty in the telecommunications market. New Zealand’s more lassez-faire approach precludes that. Regulatory changes are unlikely with the current New Zealand government.

Let’s not forget TPG and Vocus are competitors. If one moves on a New Zealand mobile carrier, the other may feel it has to move in order not to fall too far behind.

If the stories circulating in the market have any validity, it’s likely both Vodafone and 2degrees will have new owners before the end of the year.

cellular tower

Two years ago Vodafone owned more mobile spectrum than any other carrier.

While it still owns the most spectrum, Vodafone’s lead is slipping. It may yet fall further.

We’re seeing a land rush as carriers prepare for the next generation of mobile data services and Spark is grabbing more territory than anyone else.

One feature of 5G mobile is the ability to aggregate spectrum in different bands. In simple terms, the more spectrum a carrier holds, the more wireless bandwidth they have at their disposal. More bandwidth can either mean faster data speeds or a higher number of simultaneous customers.

5G changes the picture

As Analysys Mason explains, 5G cellular will need new spectrum. At the moment much of the potential 5G spectrum is set aside for other uses. From a telco point of view, all existing spectrum investments could be used for 5G, that doesn’t mean they will be.

In the future the carrier with the most bandwidth will be able to dominate the market.

This explains why Spark has pushed hard to catch-up with Vodafone. Depending on how you look at the raw numbers, it may already have overtaken its rival.

Two years ago Len Starling, policy and planning manager at the Radio Spectrum Management division of the Ministry of Business, Innovation and Employment, explained on this site:

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) .

Starling went on to say:

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

The 700 MHz spectrum auction took place soon after the earlier story appeared. By the time it finished, the ratio between the three main carriers in the bands Starling names as used for cellular had changed. Spark (formerly Telecom) picked up 40 MHz, Vodafone took 30 MHz while 2degrees could only afford to buy 20 MHz.

The new holdings are:

  • Vodafone: 160.4 MHz
  • Spark: 150.0 MHz
  • 2degrees: 119.6 MHz

Spark now has almost as much existing cellular spectrum as Vodafone, while 2degrees slipped further behind.

With cellular frequencies, lower numbers are better

On the whole lower frequency spectrum is more valuable than higher frequency spectrum.

Lower frequency signals travel further. This means carriers need to install fewer towers to cover the same number of customers. Signals find it easier to penetrate buildings and pass obstacles at lower frequencies.

In round numbers, spectrum lower than 1 GHz is prime wireless real estate. Staying with round numbers, we can assume the small edge Vodafone has over Spark in terms of absolute spectrum in the bands currently used for cellular is balanced by Spark holding more of the better frequencies.

Some animals are more equal than others

In other words, at the moment, the two companies are about equal when looking at the existing cellular bands. Meanwhile, 2degrees is behind, but not out of touch.

Given the current structure of the cellular industry, 2degrees will need a different strategy to the two big carriers.

So far we’ve only looked at the spectrum that MBIE describes as “currently used for cellular”. That’s not all the spectrum available to carriers. As Analysys Mason points out, with 5G all spectrum potentially comes in to play.

Revisiting the 2013 numbers

This takes us back to late 2013 and Vector’s submission to the Commerce Commission in the run up to the 700 MHz spectrum auction.

In particular is the graph below, which shows the New Zealand UHF (ultra-high frequency) spectrum rights holdings in late 2013.

UHF Spectrum Right Holdings New Zealand

Some of the spectrum shown in this graph wasn’t used for cellular at the time. Some of it still isn’t.

Ratio is important

Yet in simple terms the graph shows that, in late 2013, Vodafone, Telecom — now Spark and 2degrees held spectrum in a ratio of roughly 3:2:1.

In the brave new world of 5G mobile, the absolute amount of usable cellular spectrum in what matters. This ratio defines the potential future power balance between carriers.

So long as we’re talking in round numbers, the 700 MHz spectrum auction left that ratio intact. There was a small shift in Spark’s favour, but not enough to shift the big picture.

Spark moves on Woosh

That changed last week when the Commerce Commission gave Spark permission to buy 70 MHz of spectrum from Craig Wireless that was previously held by Woosh.

In effect Spark now has almost as much UHF spectrum as Vodafone. The two have almost three times as much spectrum as 2degrees.

A back of an envelope calculation estimates today’s UHF spectrum share as:

  • Vodafone: 320 MHz
  • Spark: 315 MHz
  • 2degrees: 120 MHz

This is an estimate based on the Vector graph plus the extra 10 MHz Spark won in the second round of the 700 MHz auction and the 70 MHz Spark purchased from Craig Wireless.

There may be more or overlooked spectrum not included in that last list but unless the overlooked blocks are large, the important point here is that Spark has shifted the 3:2:1 ratio to something closer to 3:3:1.

Disclosure: Bill Bennett has worked as a consultant for Spark Digital.

Vibe Communications

New Zealand’s LTE mobile network faster than UK, US and Australia. 

New Zealand has the world’s second fastest LTE phone downloads. Only Singapore has better mobile data speeds. Australia comes in at number eight in the list while the UK and USA are miles behind.

The statistics come from a network monitoring app called OpenSignal. The maker of OpenSingal says average LTE speeds in New Zealand are 29 Mbps. That’s a long way behind Singapore on 37 Mbps, but well in front of Australia where speeds average 24 Mbps.

OpenSignal breaks down the numbers by carrier. Vodafone has an average speed of 32 Mbps. Spark weighs in a 28 Mbps and 2degrees is close behind on 27 Mbps.

New Zealand is now also pulling ahead of Australia for average fixed-line broadband speeds. We so often compare ourselves unfavourably against our nearest neighbour, now we have something tangible to be pleased about. For all the angst over regulation, our market rules seem to be working too everyone’s advantage.