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Final UFB leg secures West Coast network resilience

Chorus subcontractors finished the last stage of a 250km network extension to secure West Coast telecommunications.Chorus subcontractors finished the last stage of a 250km network extension to secure West Coast telecommunications.

Final UFB leg secures West Coast network resilience

A 250km fibre connection between Fox Glacier and Haast completes the project giving the West Coast modern and resilient communications.

Until now the region has depended on two lines. One runs along State Highway 6 from Nelson to Greymouth. The other connects Greymouth to Christchurch through Arthur’s Pass crossing the Alpine Fault seismic zone.

This arrangement left the West Coast vulnerable to communications outages during severe weather.

To Lake Hawea and the world

The connection between Fox Glacier and Haast and then on to Lake Hawea provides an additional route to the rest of the world.

Chorus GM, Customer and Network Operations Andrew Carroll says the connection gives West Coasters an additional layer of protection.

Crown Infrastructure Partners provided government funding for the project. The work was handled by Ventia and Electronet, two Chorus subcontractors and the Rural Connectivity Group played a significant role.

Communications minister David Clark says the UFB extension was financed through the Provincial Growth Fund.

West Coast connectivity

He says: “On the West Coast alone, the population with access to UFB has surged from 23 percent to 71 percent since 2017”.

On top of the connection, the new connection brings fibre to the small West Coast community at Haast. Around 90 homes there will now be able to order a fibre connection.

Carroll says: “Making fibre available to residents in Haast was a uniquely Kiwi initiative; it sees residents in one of the remotest towns in New Zealand having access to one of the fastest broadband technologies available.”

The new fibre has allowed the Rural Connectivity Group to add 16 further cell towers in the area. These add to the 26 cell towers operational on the West Coast. They mean residents will have 4G mobile services while 130km of remote state highways will have coverage.


Vocus and 2degrees get OIO nod

Vocus NZ and 2degrees welcome today’s statement from the Overseas Investment Office, providing consent for the acquisition of 2degrees, which will enable the merger of the two businesses.

Mark Callander, Vocus NZ CEO and named CEO of the merged business says, “We welcome OIO consent, which concludes the regulatory approvals for the transaction and will allow us to proceed with the merger of Vocus NZ and 2degrees. We expect the transaction to be finalised in the coming weeks and will come together as a combined business as 2degrees on June 1.”


Trustpower sale to Mercury now unconditional

Mercury NZ told the NZX its NZ$467 acquisition of Trustpower’s retail business is now unconditional.

The move sees the energy company move to become a second tier telecommunications retailer and New Zealand’s largest multiple service utilities business.

The remainder of Trustpower has been renamed as Manawa Energy and says it will focus on renewable energy.

While Trustpower was a minnow compared with Spark, Vodafone and the recently merged 2degrees-Orcon business, it was the next largest fixed-line broadband retailer with a six percent market share.

It recently added fixed-wireless broadband to its product offering.

Combined with Mercury’s customers this moves up to 7.8 percent. Spark is on around 40 percent, while Vodafone and 2degrees are each on roughly 20 percent. The top five account for more than 85 percent of all broadband customers.

Trustpower was a Spark mobile reseller. The company’s mobile phone business barely registers in market share terms and Mercury did not formerly have any business in this space. The deal is unlikely to move the dial unless there is significant change in the Mobile Virtual Network Operator (MVNO) sector.

Influential player

Despite being small, Trustpower was influential. It pioneered the strategy of cross-selling power and telecommunications. That meant it found a way to reduce customer churn. That’s something other retail broadband service providers continue to struggle with.

Vocus followed Trustpower’s lead when it acquired power retailer Switch Utilities Ltd in 2016. This move meant it could sell similar power-broadband bundles. The company says this has proved popular with customers. Today the business is branded as Vocus Energy although that may change after the merger between Vocus-Orcon and 2degrees.

In September, the Commerce Commission waved through the acquisition saying it was satisfied the deal was “unlikely to substantially lessen competition in any New Zealand market.” The consideration is based on the two companies’ position in the electricity market. The Commerce Commission official statement, barely mentions the telecommunications aspect of the acquisition.


Telcowatch: NZ mobile market stable

Telcowatch’s quarterly market share report shows there was little movement between New Zealand’s mobile phone carriers in the first quarter of 2022.

Spark remains the largest mobile carrier with a 36 percent market share under its own brand and a further 7 percent for its cut-price Skinny subsidiary. The total is 43 percent.

Vodafone is second on 25 percent with 2degrees bringing up the rear with a 23 percent market share. Movement between the brands was minimal during the quarter with 2degrees dropping half a percent of market share.


Phone shipments tumble 9 percent in first quarter 2022

IDC reports worldwide phone shipments tumbled 8.9 percent in the first quarter of 2022 when compared with 2021.

Rival analyst company Counterpoint Research puts the 2022 q1 fall at seven percent to 328 million units. IDC puts the total sale at 314 million units. This is behind IDC’s earlier forecast.

There’s a closer look at 2022 first quarter phone shipments on the main blog site.


New Zealand signs Declaration for the future of the Internet

New Zealand joined the United States, every European Union nation, Australia and 31 other countries to sign a wide-ranging Declaration for the Future of the Internet.

It lays out a set of priorities for an “open, free, global, interoperable, reliable and secure internet”. The document includes lofty ideas such as affordability, net neutrality and dealing with illegal content while not getting in the way of free expression. There are few details on how the signatories will achieve any of this, but the concept sounds good.

All this comes at a time when countries like China and Russia are clamping down on the freedoms outlined in the declaration. And significantly it contradicts Ukrainian demands to have Russia cut off from the wider internet.


Apologies to anyone upset by the non-appearance of last week’s The Download newsletter. I caught Covid and was out of action for a few days.


In other news… At Reseller News Rob O’Neill covers research from Spark’s CCL operation on New Zealand companies’ cloud investment plans. Half the companies surveyed by CCL say they intend to invest more in cloud services next year.

The Overseas Investment Office has given Amazon Web Services the go-ahead to proceed with its plans for an AWS region in New Zealand. The project will involve multiple data centres which Amazon says will means spending NZ$7.5 billion.

Seeby Woodhouse’s Voyager Internet is working on a 100 gigabit network upgrade. It should be complete in November. A blog post on the Voyager website says the upgrade means the ISP can offer customers 10G services, L2 Ethernet and national backhaul.

2degrees is working with Microsoft and Umbrellar on its Cloud Navigator portal. The service gives customers self-service control over managing abut being Microsoft licences and products.

A report in the Wall Street Journal says the NFT market is “collapsing”. Average sales of NFTs are down 92 percent from their peak in September and the number of active wallets, which indicate people trading in NFTs, is down 88 percent. “Collapse” could be too strong a word, but it looks like reality is intruding on the market.

Engineers at CableLabs demonstrated 8Gbps downloads and 5Gbps uploads on an HFC network using a DOCSIS 4.0 modem. In theory the technology could be used to revive Vodafone’s UFC Broadband.

Peter Berghaus New Zealand (PB Traffic), is using Internet of Things (IoT) technology from Pollin8 and Thinxtra to maintain road safety and optimise traffic flow at infrastructure development sites. The company uses the technology to keep track of its temporary traffic lights.


First copper cabinets decomissioned

Chorus turned off the first batch of copper cabinets while the Commerce Commission cleared the Orcon-2degrees merger.

Urban copper removal underway

If everything goes to plan, by the time you read this Chorus will have turned off the power at 28 roadside cabinets serving the copper phone network. The cut off was scheduled to take place this week.

It is the start of a process to decommission cabinets on the copper network in places where people have access to fibre. The process could take up to four years.

The copper switch off comes at a time when connections on the network are plummeting. In its recent Annual Telecommunications Monitoring Report, the Commerce Commission reports that copper connections dropped 30 percent in the year to last September. At that time there were 308,000 copper connections.

The technical part of moving customers off copper may be simple, but following the Commerce Commission’s Copper Withdrawal Code is less straightforward. The code specifies the notice Chorus has to give customers before it can remove their connection.

At least six months

In normal times the process takes at least six months and involves three written notices. It took much longer to decommission the first 28 cabinets because parts of New Zealand went into lockdown after the process started making it hard to install new fibre connections. That saw the process put on hold for six months and more rounds of notification letters.

Because Chorus is a wholesale company, it doesn’t have a direct relationship with the customers using its lines. This means it has to work with retail services providers during the shut-off process – they own the customer relationship.

There’s a Commerce Commission-lead review of the withdrawal code scheduled for May which may refine the process.

Chorus plans to cut the copper connections to a further 13,500 customers this year.

There are no plans to turn off the copper network in places beyond the fibre network.


Regulator clears 2degrees – Orcon merger

The Commerce Commission says it is satisfied a planned merger between 2degrees and Orcon will not “substantially lessen competition in any New Zealand market”.

The decision means instead of four major retail telecommunications companies there will now be three.

Deputy Commission chair Sue Begg says: “The evidence before us indicates that the merged entity will continue to face strong competition from existing competitors, including Spark and Vodafone”.

She says: “While the transaction will result in the vertical integration of 2degrees’ mobile network with the largest mobile virtual network operator (MVNO), Vocus, we do not consider the transaction will significantly change the incentives of network operators to grant access to MVNOs.”

MVNOs make up less than one percent of the mobile phone market.

While the merger is not certain, at this point there is little to stop it completing.

Orcon CEO Mark Callander, who will head the merged business says it is the first step in the regulatory approval process.

He says: “While we await further regulatory approvals, both companies continue to drive their businesses forward, delivering quality services and support for all customers.”

Before the two companies entered merger negotiations both were planning listings. The business was part of The Australian Vocus group and until late last year was known here as Vocus NZ. The Australia parent company’s new owner was looking to float the New Zealand business on the NZX. 2degrees has also explored a local float.

Analysis: 2degrees-Orcon merger

One of the justifications for merging two telecommunications companies is the huge potential cost savings that can come from combining and simplifying internal resources and processes.

That and cross selling opportunities such as exposing former Orcon customers to 2degrees mobile network sales or 2degrees customers to Orcon’s power utility products.

It sounds good and it can be, yet New Zealand telecommunications sector mergers have been notoriously messy affairs in the past. In part this is because of difficulties consolidating back-end systems. Vodafone took years to integrate systems from ihug and TelstraClear. That was one reason Vodafone struggled with customer support for years.

Even if the new merged business can avoid the Vodafone-TelstraClear experience, it will be inwardly focused for months to come as it works through aspects of bringing two companies together.


Monitoring report shows fibre, fixed wireless progress

The Commerce Commission’s Telecommunications Monitoring report for 2021 shows fibre now accounts for 64 percent of broadband connections. In September 2021 1.78 million households were able to connect to fibre and 1.18 had made the move.

Fixed wireless climbed 25 percent in the year to September 2021 and now accounts for 15 percent of connections. The report says this means New Zealand now ranks at the fourth highest OECD nation for fixed wireless.

The report suggests that high-use broadband customers get a better deal by international standards than low-use customers. The reverse is true for mobile users. Entry level plans are cheap in New Zealand by international standards while local high use mobile plans are more expensive than overseas.


Worldwide telecom equipment market up 7 percent in 2021

Dell’Oro Group says the telecommunications equipment market grew 7 percent in 2021. It was the fourth consecutive year of growth underpinned by investment in wireless technology. The total equipment market is now worth close to US$100 billion a year.

Huawei remains the largest supplier with about a quarter of the worldwide market. However, this is in part because China is the largest single market. Taking that country out of the picture would see Nokia and Ericsson tie for top spot. Each have around a 20 percent market share. Outside China, Huawei is third with 18 percent share.


… in other news

Customers of the soon to close Vodafone TV service who bought the companies set-top boxes from retailers will get partial refunds. The move affects about 40,000 customers. Those who purchased the $179 box in the last nine months will get a full refund. Others will get a smaller amount depending on when they purchased the device.

High-tech is now a major part of New Zealand’s exports to the US. A report issued by the NZUS Council says digital services accounted for $682 million in exports to the US.

A study by security company Norton found a third of New Zealanders experienced cybercrime in the past year. On average we each spend 4.8 hours attempting to resolve the issue and there was an average loss of $135.

The Office of the Privacy Commissioner has awarded its Privacy Trust Mark to Securiti’s PrivacyOps. The product is a tool to help organisations understand the data they hold. It can link to the data allowing them to use it more efficiently.

Industry’s Orcon-2degrees merger fears

It’s not enough to halt the merger, but submissions to the Commerce Commission point out regulatory challenges that may emerge after an Orcon-2degrees merger.

Industry voices Orcon-2degrees merger fears

Wispa warns a proposed merger between Orcon and 2degrees will “negatively affect its members”. The organisation representing 33 wireless internet service providers says the deal is “unlikely to result in significantly greater competition”.

These views are expressed in the Wispa’s Commerce Commission submission. The telecommunications watchdog is collecting industry views as it prepares to decide whether the merger can go ahead. Evidence of a material reduction in market competition would put the merger in jeopardy.

Wispa makes this point. It says because both players are active in the wholesale internet services market, the merger will reduce choice for all smaller ISPs looking for handover services.

Mobile virtual network operator

The organisation wants a condition placed on the merger that would see the company work with retailers to develop a workable MVNO model.

That’s not going to happen. While overseas completion rules allow regulators to impose conditions before approving mergers, New Zealand’s rules do not allow this.

Not everything in Wispa’s submission is negative. The organisation says there are members who believe a stronger third player will increase competition in retail phone services.

Chorus has open access worries

In its submission Chorus says after a merger there would be three large vertically integrated telcos able to provide fixed wireless broadband.

These companies would account for more than 80 percent of the retail broadband market and that change would create challenges for the open access wholesale market.

The network company does not argue against the merger taking place, but does want the regulator to consider taking steps to protect consumers interests.

It points out today’s regulatory framework is based on open access to fixed-line networks and that could be undermined by the rise of vertically integrated fixed and mobile operators.


New AWS Local Zone for Auckland

The local cloud infrastructure build continues to expand with AWS announced a new Local Zone in Auckland. It is due to open in 2024. The company says it has invested NZ$7.5 billion in the infrastructure.

Local Zone is the name AWS uses when it places cloud edge services close to large population centres. The key is that by being near, it means customers can use applications that need low latency.

AWS names real-time gaming, media and entertainment content creation as applications that might use a Local Zone.


2degrees rewards customers for turning off phone

Real Mode is a promotion from 2degrees that encourages users to balance their online and offline lives. It includes a web app and a prize draw, where customers get a draw entry for 15 minutes their phone is off.

CEO Mark Aue says the aim is to help customers “switch off their phone and switch on to other people”. There’s evidence that spending time away from being in constant touch helps make people happier.


Orcon brands shine at NZ Compare Awards

Three Orcon brands were among the winners at this year’s NZ Compare Awards. Orcon was named as the Best Fibre Broadband Provider and it won the Making a Difference award. The company’s Slingshot brand won the People’s Choice award.

Now took out prize for the Broadband Provider of the Year and the Best Customer Support. Wireless Nation was named as the Best Wireless Service Provider while 2degrees took out the Best Value Broadband Provider award.

Lightwire came top in the Best Rural Broadband Provider category and Sky won the prize for Best Bundled Plan. Vodafone was named as having the Best Digital Innovation.


Vodafone summer builds

Vodafone reports it completed six new company owned mobile sites in December. It upgraded 18 existing sites and added 22 new Rural Connectivity Group sites during the month. In January it upgraded six sites and added two more RCG towers.

The telco says it saw traffic double at sites in some holiday hotspots. It named The Coromandel as a busy area.


In other news…

CommsDay reports Vodafone is preparing to spin out its tower infrastructure. The telco has yet to make a final decision but says the process is at ‘an advanced stage’. The report says CEO Jason Paris does not view passive infrastructure as a driver of competitive advantage.

International internet bandwidth rose by 29 percent in 2021 says Telegeography in its 2022 State of the Network report. That’s big, but the previous year saw a surge of 34 percent, which Telegeography puts down to the Covid pandemic.

David Clark, the digital economy and communications minister has released a draft industry transformation plan. He says the industry contributed $6.6 billion to the economy in 2019.

Over the summer the government agreed a radio spectrum deal with Māori interests. The agreement gives 20 percent of commercial spectrum to Māori and establishes a $75 million development fund. It aims to build Māori capability in spectrum related industries.


The Download 2.0 is a free weekly wrap up of New Zealand telecommunications news stories published every Friday.

2degrees-Orcon merger, will it shake market?

Last week the Commerce Commission published “a statement of preliminary issues” on the 2degrees-Orcon merger.

It says the Commission will allow the merger to go ahead if it doesn’t reduce market competition.

On a simple level that question looks straightforward.

There are about 90 retail telecommunications companies in New Zealand. Removing one through a merger may not make much difference.

Yet not all retail telecommunications companies are equal. 2degrees and Orcon, formerly Vocus, are the third and fourth largest.

Teasing out all the arguments is not easy.

Mobile competition

Before the merger there were three mobile carriers. That doesn’t change.

The merger removes New Zealand’s largest Mobile Virtual Network Operator from the market.

There are overseas competition watchdogs who see MNVO health as a sign a market is competitive. New Zealand has never had a healthy vibrant MNVO sector.

The market is not open as it looks

Spark, Vodafone, 2degrees and Orcon are the four largest telcos. They account for about 95 percent of the market.

You could argue they are the only companies worth considering in any analysis of market competition.

In effect, Spark, Vodafone, 2degrees and Orcon are the market.

Moving the NZ telco market

The rest are important and essential, but none of them can move the market. The big four can.

The next largest is Sky Network Television with around a one percent market share. Trustpower comes in at sixth place with roughly the same share.

At a stretch you might consider these in an analysis. After the top six you are dealing with minnows.

From that point of view taking out one of the big four changes the competition landscape a great deal.

It may not reduce consumers absolute choice on paper.

They remain free to pick from 90 service providers. Yet the majority of consumers will pick one of what could soon be the big three. At best they will consider the top five remaining players where there were six.

In that sense, the merger means a significant reduction in competition.

Expert view

Competition experts at the Commerce Commission will chew over this in coming weeks. They’ll get input from rival telcos, consumer groups and other industry players.

2degrees and Orcon suggest a stronger number three will ‘enhance’ competition.

That does not make sense if you agree consumers are reduced from four to three choices. Or, let’s be generous and say from six to five choices.

Does a merger enhance competition?

It does not make sense from another point of view.

Spark is more than three times the size of 2degrees. Vodafone is about two and a half times the size of 2degrees.

Adding Orcon to 2degrees does not make it much bigger. 2degrees is 12.5 percent of the market. Orcon is four percent. Together they are make up 16.5 percent. Spark and Vodafone have a 77 percent market share.

They will continue to dwarf the merged business.

The merged company won’t unnerve the big telcos in the short term. It will be an irritant more than a threat.

Smaller telcos

A merged, resource-rich business higher up the market could be bad for Sky or Trustpower.

Meanwhile the new business is as likely to increase pressure on the smaller telcos. Wiping them out would not be good. If they struggle as a result of the merger, then competition would suffer.

This is what Commerce Commission experts need to balance: the marginal impact of a slightly larger third player on the top two versus the impact of a larger third player on the remainder of the market.

Cost savings

In the past companies looking to merge would talk about ‘synergy’. It almost never happens. New Zealand’s telecommunications sector has a poor record when it comes from deriving rationalisation value from a merger.

There are potential cost savings1 and the opportunity for 2degrees to sell mobile to the 4 percent of customers arriving from Orcon.

None of this is to say the Commerce Commission will or won’t refuse the merger. But we can’t assume the decision is straightforward. There’s more to look at than meets the eye at first sight.

https://comcom.govt.nz/news-and-media/media-releases/2022/statement-of-preliminary-issues-released-for-vocus2degrees-merger


  1. Although previous mergers show integration can be harder than it looks. Think of Vodafone and TelstraClear or iHug. ↩︎

Selling broadband and energy as a bundle

Connections between telecommunications and the energy sector are not new. They could soon become more important.

When the New Zealand government first planned its fibre network three groups bid for contracts.

Chorus wanted the entire project. At the time it was part of Telecom. Axia Netmedia, a Canadian business, was the second bidder.

The third bidder was a consortium of power distribution companies. Each bid to build fibre in one or more of the 30-odd regions.

Northpower, Enable Networks and a group of power companies in the central North Island all won contracts.

These businesses are wholesale fibre companies and electricity distributors.

Power retailers selling broadband

In recent years power retailers have entered the broadband market. Both Trustpower and Contact Energy have sizable retail telecommunications businesses.

They come from power and now play in telecommunications.

Orcon comes from telecommunications and now plays in power.

In 2016, Vocus acquired Switch, an energy utility. It used this to offer power to customers at CallPlus, Slingshot and other brands.

It became Vocus Energy. You can find that brand today, but it is more common to see it as Orcon Power.

Orcon’s power potential

Power didn’t rate a mention in the 350 word press release announcing 2degrees merger with Orcon.

You have to read the attached Notes to editors, which is, in effect, a footnote to learn:”

“…Orcon Group, a fully-owned subsidiary of Vocus, is an integrated New Zealand telecommunications and energy business…”

Later, the press release expands on this in a ’key numbers section. Orcon has 40,000 energy customers.

This could prove to be far more important than that modest mention suggests.

Orcon has convinced almost one in five of its 200,000 plus customers to add power to their monthly broadband bill.

2degrees has around 1.5 million customers. If the merged company can convince these to move, it could mean 300,000 more power customers. That would make Orcon Power, or a rebranded version of the same, a giant in New Zealand electricity retail.

At the same time, it will make shareholders a lot of money.

Power and broadband networks

Up to a point, wholesale power and broadband are natural partners. They both operate physical distribution networks. You could string fibre from power networks. Before UFB, power companies built their own fibre networks to control their systems.

Places, like, say, cellphone towers, tend to need both a fibre connection and a power link. Combining the two makes sense.

The relationship between retail power companies and broadband is virtual more than physical.

Both businesses rely on sophisticated billing systems. It’s not that hard for savvy operators to combine power and broadband billing systems.

Years ago, service providers sent bills by physical mail. It was a significant cost each month. Printing both bills on one sheet of paper then stuffing and delivering a single envelope represented a major cost saving.

The savings are not on the same scale with electronic billing, but there are some benefits.

Would you like fries with that?

For power companies that sell broadband and telecoms companies who sell power, the main attraction is upsizing.

It costs a fast food outlet money to get a customer to walk in the door. There is marketing, a lot of marketing. And there is the cost of researching, buying and fitting out suitable real estate in places where there is a demand.

Once that customer arrives at the counter, there’s a small margin on the first thing they buy. If they can be upsold, the profit margin on the total transaction is higher.

Margins

A similar logic can apply to selling power and broadband together. It could increase the profit margin. Yet it doesn’t have to. Increasing the size of the sale means more profit even if both purchases carry the same margin.

After all, it’s not as if anyone has to do much more work to transact a power sale alongside a broadband sale. The extra revenue comes at almost no extra cost.

It would be worth doing if this were the only reason to sell power and broadband together.

There are two other points to consider. Both are important.

Harder to grasp

First, combined bills are more confusing to understand.

It’s easy to comparison shop for broadband. There are few variables. Line speed and download data are the main ones. Broadband providers offer a limited range of speeds and data options. Many customers pick a speed and choose unlimited data.

Comparing say, 2degrees broadband with Orcon broadband is simple.

You can’t say the same for electricity. Take a look at Consumer’s Powerswitch website. The combinations and options are confusing.

In some cases the power companies that bundle broadband are among the most expensive. You may get cheap broadband, but the combination can end up costing more than buying separate services.

It’s hard to tell. Sure you can spend an evening with a spreadsheet working things out. But there are many variables. It is difficult for an outsider to get a simple, clear picture.

Asymmetric information

None of this is to say the companies selling power and broadband combined are in any way unethical. The issue is asymmetric information, they know more about this than you do.

What is clear, is that selling power and broadband bundles is lucrative.

There is another huge advantage for companies that sell power and broadband together. It is much harder for customers to walk away when they have both.

The companies who sell bundles like to talk about ‘customer retention’.

It is simple for a broadband customer to switch from one provider to another if a better deal comes along. This happens all the time. In the business this is churn.

Reducing churn

The other business term you need to know at this point is the cost of customer acquisition.

Remember the fast food example? It costs McDonalds or KFC money to get a customer to walk in the door.

Likewise, broadband service providers spend money on advertising and other lures to win new business. This cost means the company may not break even with a new customer until they have been on the books for a few months. The longer they stay, the better the long term margin for that customer.

Getting customers to buy power with their broadband means they stay longer. That makes them more lucrative customers.

For consumers the benefit of having to pay a single monthly bill for two services is a small convenience. One less invoice to forget. It is a handful fewer mouse clicks or phone screen taps each month.

It may look like a cost saving, but you can often do better by buying separate services.

Before choosing a power and broadband bundle you need to check two things. First, get a better understanding of what you pay for electricity. The Powerswitch website can help.

Second, recognise that unravelling a bundle could be more difficult than it looks. Give thought to how you might do this if it is necessary.

How the Orcon-2degrees merger affects competition

Simple answer is ‘less than you might think in the short term, but watch this space’.

Orcon’s merger with 2degrees became official on New Year’s Eve.

The move brings together New Zealand’s third largest retail telco with the fourth largest.

As a consolidation play, it will alter the market dynamics at the margin.

It is not a radical competitive reset.

Let’s put it in perspective

At the time of writing, Spark accounts for around 44 percent of the retail telecommunications market by revenue.

Vodafone is roughly 33 percent of the market.

Orcon plus 2degrees has around a 17 percent share of New Zealand retail telecommunications revenue.

There are more than 90 other retail companies. Of them, Sky and Trustpower each have about one percent market share. The remainder are tiny compared to what is now the big three.

These figures come from the latest Commerce Commission telecommunications development levy allocation determination published on December 14.

The TDL figures include wholesale fibre companies and Kordia.

To get the market shares quoted above the wholesale fibre companies were removed and the remainder divided up.

Not a huge change

Before the merger 2degrees had around a 13 percent market share.

The merged third player is bigger at 17 percent, but not bigger enough to reshape the wider telecommunications market in the immediate future.

That said, there are pockets of the market where the change could be more significant over time.

Mobile market

Mobile market shares by subscribers 2020 - Commerce Commission figures
Mobile market shares by subscribers 2020 – Commerce Commission figures

Spark and Vodafone are neck and neck in the mobile sector. With a 19 percent market share, 2degrees is half the size of each of its rivals.

Merging with Orcon is not going to change that in the short term. Orcon is one of the largest mobile virtual network operators (MVNOs) but the entire sector adds up to around one percent.

Adding Orcon’s mobile customers to 2degrees would be no more than a rounding error.

Over time the new business will have the opportunity to cross sell mobile services to its customers. And it can expand on the bundled deals 2degrees offers to existing broadband customers.

As a strategy it is going to be a long, hard slog. There is no guarantee it will go anywhere without aggressive pricing, but margins are tight enough now. The merged business does not have much room to manoeuvre on price.

Broadband

Estimated fixed broadband retailer market share by connections
Estimated fixed broadband retailer market share by connections 2020 – Commerce Commission figures

The Orcon-2degrees merger is likely to have its biggest impact on the broadband sector. Together the two companies have roughly the same market share as Vodafone. Each of them would be 20 percent of the market, compared with Spark’s 40 percent.

2degrees gives Orcon a realistic entry into fixed wireless broadband. That covers off a missing part of its existing portfolio.

In the past Orcon has kept the brands of the various broadband businesses it has acquired. Orcon, Callplus, Slingshot, Stuff Fibre and Flip remain in the market even if they share infrastructure and services behind the scene.

Given that history, it looks likely that the new business will keep the 2degrees broadband brand. That’s by no means certain. One possibility is for Orcon to rationalise its brands after the merger.

Having multiple brands gives Orcon-2degrees the option of differentiating products.

Consumers

Retail consumers may not see much change in the short term. It is not as if people have a close relationship with their service providers.

2degrees had the luxury of painting itself as a more customer facing rebel compared to the corporate monoliths of Vodafone and Spark, but that’s more a clever marketing stance than a practical reality.

Merging customer service operations has always been something of a disaster in New Zealand telecommunications.

It’s possible Orcon and 2degrees have a better formula for this than Vodafone. Anyone who has been close to the industry for a long time might not be optimistic about that.

The new business would like to tell you about the opportunity to sell power services to 2degrees customers. This deserves a story in its own right. Maybe another time.

It will be interesting to see if the 2degrees retail stores make many changes after the merger. Apart from offering a wider range of broadband brands, it’s not clear what else can happen here.

Business

The business and enterprise sector is where then merger could make the most impact in its early stages.

Both Orcon and 2degrees have targeted the more lucrative business market and, because of their size, have been able to be more creative than their bigger rivals when it comes to cutting deals.

Yet until now, they’ve been kept out of many of the biggest deals because they lack scale and a wide enough portfolio.

The merger gives Orcon better mobile options for its business customers. That’s something that has been, not a weakness, but a less explored avenue in the past.

Likewise, Orcon has the infrastructure in place to give 2degrees a much better story when approaching potential enterprise customers.

Potential savings

Companies don’t merge on this scale unless there are opportunities to make substantial savings. In almost every case this means jobs.

It can also mean premises. Both Orcon and 2degrees have fancy, new head offices at the posh end of town. Some of that may go. Or it maybe these buildings are rationalised and other offices close.

Orcon owns fibre around New Zealand, which 2degrees can now use to backhaul broadband and mobile towers. This opens the door for services in areas such as IoT and edge computing.

There is no need to run duplicate office sites in other cities and towns around New Zealand. Likewise the buildings where servers and telecoms hardware are housed. That can all be tidied up.

A merged business may not need as many customer service or sales staff. There will be roles and teams across the businesses that can be consolidated.

Employees

At the time of the merger 2degrees has 1200 employees, Orcon has a shade under 600. Unless it plans massive investment and expansion, the number of consumer facing employees will fall by the end of 2022.

At the same time, there could be opportunities for others in the business and enterprise space.

None of this will be fast. It will take months for plans to be finished and decisions made.

This could be an exciting time for staff, but alway a worrying one as teams and individuals work out they may soon be out of a job.

A press release issued at the time the merger was finalised suggests the merged business will be a stronger challenger to the two leading brands.

That’s true, but as we’ve seen, the merged business remains dwarfed by Spark and Vodafone. Executives at those two telcos will have spent summer revisiting plans and projections, but may not see a pressing need to change any strategies.

Regulations

What may have changed for the rest of the industry is a tweak to the regulatory landscape.

If Vodafone or Spark had sought to buy 2degrees, that would have set off alarm bells at the Commerce Commission.

Now there is a third substantial player in the market, there may be less objection if, say, the owner of a smaller telco wanted to cash out and Spark or Vodafone wanted to buy.

The test is about whether a move would lessen competition. It would now be harder to argue, say, a Spark takeover of a minnow would change market competition in any meaningful way.