Telco levy shows market becoming more competitive

Nothing does a better job of showing the shifting shape of New Zealand’s telecommunications than the Commerce Commission’s latest stab at deciding who pay what for the Telecommunications Development Levy.

The levy or TDL is effectively a tax on telcos to help pay for rural services and other functions that were once the responsibility of a state-owned monopoly. It’s a hangover from when the government privatised Telecom NZ.

When Telecom NZ was still government-owned, there was a social obligation for people living in towns where providing telecommunications services is relatively cheap to subsidise those living in rural areas where stringing wires between buildings is more expensive. This was not a bad deal for city customers, a bigger, inclusive network is more valuable for everyone.

Everyone above a certain level pays a share

Companies above a certain size pay TDL contributions depending on their share of the total telecommunications business. There’s a question over what part of their business counts, but it’s a good first approximation of the relative size of New Zealand’s telecommunications companies.

In 2014, Telecom NZ, soon to be Spark, accounts for around 40 percent of the total qualifying market revenue. That’s down from 70 percent share of revenue in 2007.

Some of the change in Telecom's share is because of the Chorus demerger. But even if you add Chorus' share to Telecom's, there’s still a sizeable 10 percent fall in Telecom’s market power.

Vodafone, which now includes TelstraClear remains in second place with a share of around 30 percent. I added the Commerce Commission numbers for Vodafone NZ and Vodafone fixed to reach this number. In 2007 Vodafone was around 24 percent of the market and TelstraClear accounted for 5.5 percent. The market share of the combined business has barely changed in seven years.

Chorus, now totally separate from Telecom NZ is in third spot with about 20 percent.

The remainder are still relative minnows, collectively they add up to less than 10 percent. This might not sound much, but the 2007 also-rans were barely one percent of the total. So this is where the change has been greatest. The TDL shows New Zealand's market is becoming more competitive.