Commerce Commission Monitoring ReportLast week Spark boss Simon Moutter told shareholders at the company’s AGM it is cheaper to win customers through merger and acquisition than through market efforts.

The NBR reports him saying: “We expect to see, and participate in, significant consolidation of the retail broadband industry over the next couple of years.

Give that Vocus NZ is on the market, it’s not hard to join the dots here. We can assume that Spark NZ is interested in buying some or all of Vocus.

If Spark buys Vocus NZ

There are other assets, including the fibre network built by FX Networks. But taking Moutter’s AGM comments at face value, Vocus’s broadband business is in his sights. That’s CallPlus, Slingshot, Orcon and a couple of minor brands.

Let’s assume the price is right and Spark is able to beat any rival bidders. What does this mean for market competition?

It all depends on which market you’re looking at. If we take the total New Zealand retail telecommunications sector as a whole, a Spark-Vocus acquisition would not change much.

A good starting for measuring market share among significant players is the 2016-17 TDL liability allocation determination drawn up by the Commerce Commission.

This is used to work out each telco’s share of the Telecommunications Development Levy. Only sizable telcos pay the levy, their share is proportional to the company’s share of the total qualifying revenue. In effect this number is the company’s share of the retail telecommunications market.

Spark dominates

Spark is by far the largest market player with a 35 percent share of the industry qualified revenue. Vocus is the fifth largest company on the list, but its share is a shade over three percent. Add the two together and the list looks much the same as before.

On this basis there is almost no obvious reason for the Commerce Commission to object to Spark NZ buying Vocus. The market dynamic would be almost the same as before.

The almost in that last paragraph is because the Commerce Commission’s Annual Telecommunications Monitoring report for 2016 shows Spark’s share of fixed line retail revenues as a line item. It has been falling for a decade.

By implication, Spark’s falling market share shows competition is working. If Spark acquired Vocus NZ, this figure would tick up. That may or may not be enough to ring alarm bells. Yet, while the Commerce Commission may not relish industry consolidation, it can’t necessarily stand in the way of bigger-picture market trends.

Broadband market

Retail broadband market share NZ 2016

Things get tricky if the Commerce Commission decides competition is important in the broadband market.

Spark is the largest broadband retailer with a 46 percent market share. Vodafone is number two with a 29 percent share. Vocus is the next largest player with 14 percent of the market.

The three top broadband retailers have 90 percent of the market.

Add Spark’s broadband market share to Vocus and you have a company with 60 percent of the market.

Spark is already the largest and in every respect it dominates. Yet to go from 46 percent to 60 percent would reset the market.

If Vodafone were to buy Vocus NZ, it would still have a smaller market share than Spark. The two would be, in effect, on equal footing.

Vocus NZ sale and broadband competition was first posted at billbennett.co.nz.

This week the Commerce Commission published its draft numbers for the $50 million Telecommunications Development Levy. In a way the TDL acts as a report card on the shifting fortunes of the main telecommunications companies.

The levy is, in effect, an extra and, somewhat discriminatory, tax on telecommunications companies imposed by the outgoing National government. It adds up to a roughly one percent increase in telecommunications prices.

As in previous years Spark and Vodafone are the biggest contributors paying 35 and 26 percent. Chorus and 2degrees are three and four.

The big four players will pay more than 90 percent of the total levy. Another eleven companies will pay about eight percent of the TDL between them.

Investing in rural networks

The TDL helps subsidise investment in rural networks. Most of the money will go back to three of the biggest payers. Spark, Vodafone and 2degrees, as the Rural Connectivity Group, won the contract for bid the second phase of the Rural Broadband Initiative.

There’s a double whammy for Chorus investors. Not only does the company not get any of the TDL money back in the form of contracts, but unlike the telcos, Chorus can’t raise prices to fund the tax because most of its rates are regulated.

What the TDL says about the industry

Only companies with telecommunications revenue of more than $10 million pay the TDL. When deciding how much each should pay, the Commerce Commission extracts a number it calls qualifying revenue. This figure can often be well below $10 million.

The commission adds all the qualifying revenue. Then companies pay a share of the $50 million TDL based on their share of qualifying revenue.

You could look at the way the share changes as a crude, yet effective, measure of relative performance.

The total pool of qualifying revenue changed little between this year’s determination and last year’s. In both cases it comes to a little over $4.2 billion.

In other words, taken as a whole, New Zealand telecommunications industry growth is flat. Taking inflation into account, that means it is actually in gentle decline.

Spark still dominates, but falling

Spark remains the largest contributor to the TDL. In the 2016-2017 year its share was a fraction over 35 percent of the total. That’s down from almost 38 percent a year ago, a fall of around 2.5 percent.

Vodafone barely shifted position in the year at a little over 26 percent. Its share of the TDL total climbed by 0.1 percent. You could see this as closing the gap on Spark. In very round numbers Spark is around a third of the total market and Vodafone is a quarter.

Chorus saw its share of the total grow by half a percent. It remains the third largest telco with getting on for 23 percent of the total.

2degrees is a climber. Its share of the total grew from 7.25 percent to 8.38 percent. This reflects the company’s strong performance in the market. While it is still a long way behind Vodafone and Spark, to be almost a third the size of Vodafone after seven years in the market is a major achievement.

Vocus is down a smidge at 3.25 percent of the total. It is less than half the size of 2degrees and less than a tenth the size of Spark. The company’s relative size could mean few regulatory hurdles if other New Zealand telcos attempt to buy it.

The five largest telcos collectively account for almost 96 percent of the total TDL in this year’s determination. That’s down one percent from last year.

Fibre effect

This is because of fibre and the rise of the regional fibre companies. Ultrafast Fibre, Enable and Northpower saw their total share climb from less than one percent of the total to about 1.6 percent.

This happens because as customers move from the copper network to UFB fibre some of the money those customer pays switches from Chorus to the regional fibre company. As more sign up for fibre these companies will continue to grow their share of the TDL, but at some point they will stabilise.

Most of the other changes are down to what scientists might call noise in the numbers. Although there is a newcomer in the TDL list this year, Now only accounts for 0.13 percent of the total.

Also on:

Sky TV to become Vodafone-SkyHere in New Zealand, television stories dominate the week’s telecommunications news.

Sky and Vodafone bow to the inevitable and call off their merger. Meanwhile TVNZ goes all in on streaming video.

For more than 40 years journalists have written about convergence. The telecommunication triple play idea: combining voice, data and television, is well over 20 years-old. I first heard about it in around 1990. That’s right, it pre-dates the commercial internet1.

Almost overnight, we’re on the other side of the revolution. Some bewildered people are looking back and wondering what happening. The rest of us wonder why it took so long to get here.

You say you want a revolution

The revolution is not that hard to understand, television uses electrical signals. They used to be analogue. Digital is better. Once TV was digital, it was only a matter of time before it became another stream of bits travelling through networks.

It took longer for the industry to grasp what that means in practice. Today we have Netflix and a cluster of junior would-be netflixen. We have binge viewing. We have on-demand viewing. Yacht races from across the world beam on to our mobile phones as we commute to work.

What we still don’t have is the choice and flexibility we get from other online media. That’s coming.

History lessons

If you look at the sweep of online history, a merger between Vodafone and Sky TV makes perfect sense. It made sense to the management and board of both companies. If you look at the deal with the eyes of a competition regulator, nixing the deal makes sense. It could have established a monster.

There is something odd about the Commerce Commission’s decision on the Vodafone-Sky merger. Yes, a merger would give one telco access to the crown jewels of sports programming. Yes, it could be exclusive access.

But Sky still has a monopoly on that material. A stand-alone Sky can cut an exclusive deal with a broadband company. Indeed, it’s quite possible that it will strike an exclusive deal with Vodafone. Today’s agreements and contracts between the two companies point in that direction.

Exclusive anyway?

So the Commerce Commission vetoed a merger because of something that will happen anyway. Am I alone thinking that is odd?

Whatever the logic, Sky and Vodafone have come to terms with the decision. The two issued a terse statement to the New Zealand Stock Exchange on Monday. It gave no reasons. But said they withdrew their High Court appeal protesting the Commerce Commission’s decision.

The marriage may be off, but the two companies remain good friends. The relationship is still on.

Free Sky Sport for Vodafone customers

In June Vodafone said it would give 12 months’ free Sky Sport to customers buying broadband and a basic Sky TV service. This is, more or less, the kind of arrangement the Commerce Commission worried about.

Elsewhere, Vodafone mobile customers can get a deal which includes free Sky Neon. And Sky is providing Vodafone with exclusive live coverage of All Blacks matches.

There’s a secondary commercial logic here, the phone company is now the team’s sponsor. Yet both deals have a whiff of the exclusivity that the Commerce Commission feared. Remember, in February the Commerce Commission said a proposed $3.5 billion merger would reduce competition.

Separate, but vertically-integrated

It said Sky and Vodafone had an opportunity to create a vertically-integrated business. That would give a single telco access to all popular sports broadcasting rights. There was a fear the market power wielded by the new business would lock out other potential bidders.

Now rivals fear the two non-merged companies are doing the same thing anyway. They are building a form of vertical integration without all the parts being in a single company.

The tragedy here is that, unlike Australia’s ACCC, our regulator can’t impose rules. That way it could OK the merger and insist the new company licence Sky content to all-comers.

There’s a ridiculous lack of broadcasting oversight in New Zealand. The Commerce Commission’s job is to ensure competition. We have intense telecommunication competition, but one company holds a TV sport monopoly.

TVNZ goes all-in on digital

From Monday, Television New Zealand will livestream channels One and Two. Viewers will be able to see all broadcast material over the internet on PCs, tablets and phones. Everything will be available online in HD 720p format. There will also be a new catch-up on-demand service.

Some material will be in box-set format for binge viewers. Programmes will be on Chromecast from next month and Apple TV later this year.

TVNZ plans to optimise its streaming service for mobile devices. It will also keep programmes available online for longer.

For now, there are no plans to do anything about television transmission. Although TVNZ says that could change depending on demand.

The ghost of Netflix

All these moves acknowledge the changing way people use television. The spectre of Netflix is somewhere there in the background.

The key problem for TVNZ is that it earns its revenue from advertising. This is more annoying and intrusive online than on broadcast TV.

If TVNZ wants to address Netflix head on, it might think about offering an ad-free paid option. Of course, it would need to have enough high quality material to make that viable. It could start by investing more in its news and current affairs programming.


  1. People started talking about the idea in the 1990s. I first heard the term around the time Kiwi Cable was building an HFC network on the Kapti Coast. The first serious attempts at triple play didn’t come until later. ↩︎

Vodafone fibrex

“What’s in a name? that which we call a rose
By any other name would smell as sweet”

– Juliet’s speech from Shakespeare’s Romeo and Juliet

Consumer makes an important point. It writes:

“People considering signing up for Vodafone’s FibreX service might be surprised to learn they won’t actually be getting fibre broadband.”

The new name for Vodafone’s rebranded cable service implies customers are getting fibre. There’s no getting away from that.

FibreX is not fibre

But they’re not getting fibre. Not fibre as New Zealanders understand the term in 2017. They get the old Vodafone hybrid fibre-coaxial.

The fact the term HFC includes the word fibre confuses matters. HFC is a long way from Ultrafast Broadband fibre. It is, in effect, a high-quality copper connection.

Vodafone’s HFC cable has been around for ever. The company picked it up when it acquired TelstraClear. Before that, the network’s name was Saturn. Even Saturn wasn’t the original incarnation.

Before Saturn it was Kiwi Cable. That company was a long ahead of the market in the 1990s. If my memory serves me well — readers may be able to clarify — the company produced its own TV show. How modern.

Pimp my copper

Vodafone pimped the HFC network’s software with an upgrade to DOCSIS 3.1. That means it has faster speeds1 than the old HFC network. But customers don’t see all the extra performance all the time.

That’s because, unlike a UFB fibre connection, FibreX customers share bandwidth. It’s like fixed wireless broadband in that sense. If a lot of people are on a cable segment at the same time, the speed drops. In contrast, when you have an old fashioned ADSL or VDSL copper broadband connection, there is a dedicated line from the cabinet to your house.

Even on a good day FibreX is slower than a real fibre connection.

Look at the latest TrueNet performance measured by time-of-day chart. It’s reproduced below, but you can see the chart better online.

Webpage download speeds
Webpage download speeds – data from TrueNet.

The FibreX speed is slower than any of the true fibre services. It is even slower than Vodafone fibre, which takes the wooden spoon in this TrueNet report.

Slow at peak times

More to the point, FibreX slows to a crawl at peak times. As you can see, it downloads web pages at about one-third of the speed you’d get from an Orcon connection.

It is clear, as Consumer says, the FibreX name is misleading.

The Commerce Commission cracked down on service providers calling fast broadband services ‘gigabit’.

That decision was overzealous. Service providers around the world use gigabit to describe their broadband services. They run at the same speed as those in New Zealand, in some cases they are slower.

Many of those countries have tighter regulatory regimes than New Zealand.

A gigabit connection is what service providers buy wholesale. The speed drops because service providers need headroom for network control.

If ISPs can’t describe broadband at 90 percent of a gigabit as “gigabit”, then Vodafone shouldn’t use FibreX. The broadband product is zero percent modern fibre.


  1. In theory DOCSIS 3.1 can shovel data down a pipe at 10 gigabits per second. Australia’s NBN find the technology exciting. Other Australians do not. ↩︎

Silverdale 4.5G cell siteCompetition and regulation economist Donal Curtin says in a blog post there may be unfinished business with the mobile termination rate.

The mobile termination rate is the sum one cellphone company pays another for calls going from network to network.

Curtin is responding to the Commerce Commission annual report on the telco market.

He writes:

I speculated last year that maybe it is time to revisit our regulated mobile termination rate: it’s still unrevisited, at a left-high-and-dry level by comparison to current overseas rates, for no obvious reason that I can see. And there’s an ongoing issue with the high cost of mobile data downloads to data-only devices.

It’s a good point. Some see the MTR as done and buried. Yet there were always plan to reset the rate. As Curtin points out, the charge in New Zealand is high by international standards.

Yet, I’d argue this is far from the most pressing piece of telephone industry regulation. I’ll write more about what should worry the Commerce Commission in another post.

Mobile termination rate

The mobile termination rate is a financial transfer between the three cellphone companies. Vodafone, Spark and 2degrees pay each other.

This was of vital importance when 2degrees was still a fledgling cellular company as it meant the company ended up paying a larger slice of its revenue to its rivals. This made it a barrier to market competition. In effect, the MTR rate penalised 2degrees for being smaller than its rivals.

What matters most about MTRs is not the total payment from one company to another but the net payment. As 2degrees’ market share increased, the net handover of MTR money decreases.

Competition barrier

If you had three players with identical market share, the net MTR transfers would be zero. We’re not at that point, but the market is moving towards it.

It speaks volumes that 2degrees hasn’t sought to raise the issue again in recent years. During the company’s early years it did a lot of lobbying about MTRs. That can be distracting to a business and imposes a different set of costs.

The lack of noise from 2degrees is not the only reason that MTRs are of less interest.

Curtin mentions mobile data. The cellular market is switching from voice calls to data use at a clip. Data is already more important than voice. In other words, the MTR has less impact. When the Commerce Commission last regulated the MTR, calls were close to 100 percent of the cellular business. Today they might account for 50 percent at most.

Underlining this switch, all three mobile carriers offer affordable unlimited voice plans. Skinny has unlimited calling plans starting at $30 a month. Spark’s and Vodafone’s start at $60. With 2degrees unlimited call plans covering New Zealand and Australia start at $50.

If carriers can deliver all-you-can-eat mobile plans at these prices, the MTR doesn’t seem to be a barrier to competition.

Sure, reducing the MTR would mean a flatter playing field, but in many respects the New Zealand cellular market works fine.