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2degrees mobileIt’s taken seven years, but 2degrees is making money for its shareholders.

The company says it made a profit of $13.4 million in 2016. That compares with a loss of $33.1 million a year earlier. Revenue was a shade over $700 million.

Fuelling that growth is a fast rise in post-paid mobile customers. That means more lucrative business. For years 2degrees struggled to get the average revenue per user off the floor1.

Hey big spender

Chief executive Steward Sherriff says the number of post-pay mobile customers is up 19 percent. These tend to be higher spending than the pre-pay customers; the company’s focus in its early history.

Broadband performed even better. Sherriff says customer numbers doubled in 2016.

2degrees bought the Snap ISP business is 2015. So 2016 was the larger company’s first full year. The acquisition turned 2degrees into a full-service telco. This meant it could bid for larger commercial and government contracts. Bigger customers prefer to buy all their telecommunications services from a single provider.

Tex Edwards’ accurate forecast

Soon after 2degrees launched in 2009 I interviewed founder Tex Edwards. The business got off to a flying start, but a quick look at the numbers made it clear there was a torturous path to profit.

At the time I asked Edwards if the business would ever be profitable. He said it would take seven years to get there. In hindsight, that’s an accurate prediction given the twists and turns en route to the black ink.

Then, 2degrees goal was winning low-spending pre-paid customers from Vodafone and Telecom NZ, now Spark NZ. It did this by cutting prices; the most obvious strategy, but also the one most likely to work.

This had the affect of increasing the profitability of rivals. When less lucrative customers switched to 2degrees, their ARPU (see the footnote) climbed.

Victim of success

Much of 2degrees early strategy involved lobbying for industry regulation and reform. The incumbent mobile operators were never going to make it easy for a newcomer to eat their lunch.

In 2012 the company held a press conference announcing that it had a million customers. That was a huge achievement, but became a problem.

Until 2012, 2degrees could always play the underdog card in any regulatory debate. By winning so many customers so fast, the incumbents could point at the million customers to show competition is working.

2degrees’ strategy

In round numbers, 2degrees’ customers were the million least profitable phone customers. While there was the appearance of healthy growth, in fact the business was on a trajectory that, at the time, looked as if it could never be profitable.

This was clear after the 2013 700 MHz spectrum auction. Government offered spectrum at a low price, in part to level the playing field. Vodafone and Telecom picked up three blocks each at $22 million. 2degrees could only afford two. The final block then sold to Telecom for $83 million.

Since then the company’s strategy has been to move away from a narrow mobile focus. It built a third major full-service telco.


  1. Carriers fret about something they call ARPU or average revenue per customer. It’s one thing to have lots of customers, but what matters more is that they each spend enough. The spend has to cover the carrier’s costs. In effect, this is what has changed for 2degrees. Pre-paid customers tend to spend far less than post-pay customers. ↩︎

2degrees mobile

Mobile carrier 2degrees now sells data in time blocks as well as by the gigabyte. Data Clock is an app for pre-pay customers to manage time-based data purchases.

Data Clock allows prepay customers to buy five minutes of data for 50 cents. Ten minutes cost 60 cents. An hour is $1.50. Customers can buy 12 hours for $4 and 24 hours for $61.

These prices are not set in stone. 2degrees is using a form of dynamic pricing. This means data can cost less when demand is low — say, during the wee small hours. On the flip side it means data can cost more during busy periods, that’s most likely the evening peak.

Data Clock restrictions

Data Clock does not allow tethering or a phone used as a Wi-Fi hotspot. 2degrees says it is for personal use only.

As with the recent 2degrees unlimited data plan, there is an excessive use clause, so it may not be a fill-your-boots option for users wanting a lot of data.

2degrees says selling time blocks makes sense for customers who don’t know how much data it takes to do things online like read mail, browse the web or watch video.

While that may be true, data has been around long enough for most people to grasp the general idea. If anything time blocks can make life more complicated, especially for people who have always-on apps using a trickle of background data.

At times you’ll want this

It is a great offer for people who may need to use a lot of extra data over a short period. Say when you’re working away from base. Most plans are for people who use the same amount of data each month. If your use is lumpy, this fills the gaps.

One negative aspect of time pricing is that it can reward a carrier for running an inefficient network. It takes longer to download files at slow network speeds. It can mean 2degrees earns more for slow downloads than for quick ones.

Despite potential flaws, hats off to 2degrees for innovating. The company seems determined to ramp up competition, especially for low-end customers.

It’s also away to improve the amount of revenue per user it earns, which is lower than Spark or Vodafone. This is 2degrees’ second move on the mobile data market in a week.


  1. Which means, in theory, a customer could buy unlimited monthly data for around $180 give-or-take the dynamic pricing. This compares with the $129 unlimited plan that includes unmetered voice calls and text but doesn’t allow tethering or running a hot-spot. The $4 for 12 hours option might be the best choice for someone wanting to get the maximum data during work hours. ↩︎

Silverdale 4.5G cell site

If you want fast mobile data now, move to Silverdale. Spark recently installed one of the world’s first 4.5G sites in the suburb.

The tower there can handle about five times as many wireless connections as today’s 4G cellular sites. Data speeds are three, four or even five times faster than you’d see elsewhere.

It’s a taste of the future. With the right equipment, people can download at gigabit speeds, although 4.5G devices are not available yet. In a few years, however, gigabit mobile data will be the new normal.

Spark New Zealand chief operating officer Mark Beder says the company chose Silverdale for its second 4.5G site because it’s a fast-growing area. It is typical of how Auckland’s outer areas will expand in coming years as the city continues to expand.

Read the full story by Bill Bennett in the New Zealand Herald.

GSMA mobile connectivity

GSMA, the global mobile industry trade association, ranks New Zealand number six in a league table measuring mobile connectivity in 130 countries.

The index measures the ability of countries to connect citizens to the mobile internet. It breaks this down to four categories: infrastructure, affordability, consumption and content.

Australia is in top place with an overall score of 84.7. The Netherlands, Denmark, Sweden and Norway come next in that order.

New Zealand, at number six, has a score of 82.8. The USA is number eight and the UK is at ten.

Mobile infrastructure

The index rates New Zealand’s mobile infrastructure as better than Australia’s. However, in global terms both are poor. We are only at number 12 while Australia is 14. The GSMA defines Infrastructure as a measure of “the availability and equality of high-performance mobile internet network coverage”.

Australia is top of the table on affordability and consumer readiness. According to the GSMA, affordability takes into account “the availability of mobile services and devices at price points that reflect the level of income across a national population”. It also looks at taxes and other costs.

New Zealand ranks at four for content availability and at five in the world for consumer readiness. Our worst performance is in affordability.

The GSMA says the purpose of the index is to speed the delivery of universal internet access by helping the mobile industry prepare for the challenges.

There’s a long way to go yet. The GSMA says 3.2 billion had mobile internet access at the end of 2015; about 44 percent of the world’s population. Yet a third of these only had 2G networks.

About a third of the world’s population live in areas serviced by a mobile internet network but don’t have access to services. About 22 percent of the global population live outside of existing mobile networks.

Christchurch skyline

Phones connected to Spark’s Central Christchurch mobile site can now download data at 1Gbps. Or, to be more accurate, they will when the hardware arrives in New Zealand later this year.

Spark has worked with Huawei to upgrade its Central Christchurch cell-site to 4.5G. The company’s Hereford Street building houses the Pacific region’s first commercial 4.5G site. It is one of the world’s first non-test 4.5G sites.

At the network launch today, Spark New Zealand managing director Simon Moutter says: “We built the network well ahead of the devices. One of the key things is to learn from this. We’ll build other sites later in the year.”

Gigabit wireless in New Zealand

Spark’s general manager, networks Colin Brown demonstrated the network’s ability to deliver gigabit speeds. He used special equipment for the demonstration. In the live test, download speeds reached 1.12Gbps. Brown said overnight the test gear recorded a peak of 1.25Gbps.

While 1Gbps is the 4.5G headline speed that’s not what most user will see when they connect. Brown says people will see speeds that are; “three of four times what you see today”.

The key to 4.5G speeds is the technology’s ability to use spectrum in different bands at the same time. The telecom industry calls this carrier aggregation. It also uses multiple antennae simultaneously to boost capacity.

With 4.5G data speeds and capacity increase at the same time.

Huawei New Zealand CEO Jason We says beside boosting data speeds, a 4.5G cell site can service ten times as many users as a 4G site.

Using 2300 MHz spectrum

One of the four spectrum bands used to deliver Spark’s 4.5G service is the 2300MHz block once owned by Woosh Wireless. The Commerce Commission cleared Spark to buy the spectrum at the end of March.

Moutter say it took just a matter of weeks to pull the 4.5G demonstration together. He says; “It demonstrates what we had our eyes on and why we were keen to acquire the Woosh spectrum.”

Because 4.5G is, in effect, a software upgrade to the 4G network, Spark could move fast.

Recipe for a 4.5G network

Brown says for a 4.5G roll-out Spark needs four things: “Above all else you need the software. We have this from Huawei and will be rolling out elsewhere between now and Christmas.

“The second thing you need is the antennae. You have to install them at the sites. To make 4.5G work you also need improved backhaul to take data traffic from the cell site to the internet. Generally speaking you need gigabit backhaul. You also need to devices”.

Huawei’s Wu says his company will be bringing 4.5G ready devices to New Zealand later this year.

Joint innovation

Spark’s 4.5G project is the latest fruit from the company’s joint innovation programme with Huawei. Previously the two built the world’s first commercial 4G network using 700 MHz spectrum

At the Christchurch launch David Wei, President Huawei South Pacific, says that earlier partnership pushed the boundaries of technology.

He says: “Today we continue that tradition with New Zealand’s first 4.5G giga site. For us one of the best parts of this partnership is that we are able to deliver technologies which until very recently only existed in our research and development labs.”

Spark and Huawei agree that video will be the big application on the 4.5G network. Wei says: “4.5G can support rich content streaming and true 4K video. It will be used to create a strong network supporting the emerging internet-of-things”.

Video made the radio star

Moutter says for practical 4K streaming video, a network must deliver a consistent 15Mpbs.

Brown says one aspect of 4.5G is the 2300 MHz spectrum can be configured with TDD (time-division duplexing). He says this means the spectrum can be optimised for downloading. This is an arrangement that works well with video traffic.

TDD is also used by a lot of fixed wireless broadband services. The potential for a 4.5G network to deliver fibre-like speeds to fixed wireless broadband customers could change the nature of services in rural New Zealand and present Chorus and the other fibre network companies with a serious challenge.

4.5G means bigger data caps

A network capable of 1Gbps downloads could mean customers will chew through monthly mobile data caps in seconds.

Moutter says: “The additional capacity of the 4.5G network is significant. It allows use to expand usage bundles at economic prices”. In other words: expect to see more generous monthly data allowances from Spark as the new network rolls out nationwide.

He offered insight into the pricing of mobile data saying Skinny’s Wireless Broadband which gives users 60GB of data for $55 would have been impossible just two years ago. The same applies to Spark’s wireless broadband product.

Moutter says: “Spectrum has been the constraining asset. We’ve invested in buying more spectrum. Using aggregation is the key to getting more from our investment”.

Christchurch technology

Moutter says Spark chose to use Christchurch as a demonstration site because it “wanted to do something special for the region.

He says Canterbury area is one of the first to be updated with 700 MHz spectrum services. He says: “We’re close to half-way done with that.

“After the earthquake we had to move the network around in Christchurch. Much of it, indeed much of the city, moved out to the edge. Now we want to focus on bringing technology back to the centre of the city. This was a good opportunity to commit to the rebuild”.

You can see the Spark 4.5 antennae on the top of the Hereford Street building in the photo at the top of the page. 

4.5G at Mobile World Congress 2016Fourth-generation cellular technology, better known as 4G, is still relatively young in New Zealand.

It is less than two years since 2degrees began rolling out its 4G network. Spark, then Telecom, and Vodafone started earlier, but the bulk of their networks are not much older.

We’re lucky. There are parts of the world that have yet to upgrade to 4G.

Next step cellular

Yet at this year’s Mobile World Congress in Barcelona, the companies making network equipment were busy talking about the next step. 5G was at the top of the agenda for many exhibitors and attendees.

There’s no fixed definition of what 5G means at the moment. Different companies are pushing their own versions in the hope of getting a march on their rivals before an industry-wide standard is agreed.

All companies talk of fast wireless speeds. The early descriptions of 5G talked of 1 Gbps. At MWC the figure most often used was a peak throughput of 10 Gbps. That’s a staggering number, faster than our national fibre network can manage at the moment[1].

Latency

The other important number is the low latency expected for 5G. Everyone agrees it will be less than 1 ms.

Nobody seemed to mention the potential spectrum bottleneck. Carriers will need a lot of bandwidth to manage the promised speeds. It will be possible to aggregate spectrum from different bands.

One complication is that carriers will need to run 5G networks alongside 4G ones. That will stretch the available spectrum even thinner.

Headroom

Without more information it is hard to be exact, but it looks as if Vodafone and Spark have enough headroom to move to 5G. There could be a question mark over whether 2degrees has enough for a full implementation.

The carriers have other matters to worry about. For the most part New Zealand’s 4G networks are only two years old. It will take the phone companies at least five years to recover the investment they made installing 4G.

They won’t be in a hurry to start another round of investment before the 4G bills are all paid.

Huawei pushes 4.5G

This is where things could get confusing. At MWC, Huawei, an equipment maker, ran an event looking at 4.5G.

That’s Huawei’s name for an interim technology, in effect, a software upgrade to the 4G network. It will deliver improved network performance, maybe 5G like speeds. But it won’t include all the benefits. For that carriers will need to build new networks from scratch.

Huawei says when it arrives, the new technology won’t be known as 4.5G. Most likely it will be a variation on LTE-Advanced Pro as far as the telecommunications industry is concerned.

Gigabit peaks

According to Huawei, 4.5G will deliver much faster peak network speeds than today. At the conference 1 Gbps was mentioned often. We’ll see an equal bump in latency too. Also on the agenda is the ability to handle six times as many simultaneous connections.

It gets complicated because, if history is a guide, some carriers and vendors will brand their 4.5G networks as 5G. This is what happened during the last transition when some of the early 4G networks were, in fact, HSPA+.

At MWC some equipment companies said they will release 5G hardware in 2017. That’s pushing things. Few carriers will be ready to upgrade and the early birds may move before there’s an accepted, universal understanding of what 5G means.


  1. That’s not the whole truth. It is possible to get faster fibre speeds if you spend $500 or so for a P2P connection. Thanks to Full Flavour for pointing this out:https://twitter.com/myfullflavour/status/712066933810728960 ↩