Vodafone extends broadband price rise beyond copper services

Vodafone will raise the price of most fixed-line plans by $4 a month from next month, affecting about 300,000 customers.

The increase follows the Commerce Commission’s Final Pricing Principle determination for the UCLL and UBA copper services, which raised the regulated wholesale price Chorus can charge other telcos to use its copper network.

Spark announced a similar price rise last month. So did CallPlus, which owns the Slingshot and Orcon brands. Other service providers are preparing comparable price rises.

The difference at Vodafone is that its price rises will also affect customers on the company’s HFC cable network in parts of Wellington and Christchurch. Vodafone owns that network, so it doesn’t pay Chorus for wholesale access.

Critics question Vodafone’s decision to raise prices on its unregulated network. The company could argue the Commerce Commission ruling reset the market value of a broadband connection and that it is responding to competitive forces — but it hasn’t.

If the price rise on the cable network proves unjustified, Vodafone customers are likely to switch to other service providers. There are plenty of alternatives.

Fierce competition

And that’s the problem: New Zealand’s telecommunications sector is fiercely competitive.

It’s also barely profitable. Margins across the industry are wafer-thin. Vodafone made a loss last year of $28 million on about $2 billion in revenue. 2degrees lost $36 million on $350 million revenue. Spark is profitable, making $460 million on $3.6 billion in revenue, but much of that surplus comes from the company’s fixed-line phone business, which continues to shrink year-on-year.

Vodafone and Spark have both laid off hundreds of workers in the past year as they struggle to balance the books.

Assuming Vodafone doesn’t lose customers, that $4-a-month increase for 300,000 customers adds up to about $14 million — roughly half last year’s loss.

Contact matters

One thing is clear: telcos were overzealous trimming prices during 2014. That was partly because they anticipated a bigger regulated copper-line price cut and partly because of intense competition.

Even after the recent price rises of around five percent, consumers still pay less for telecommunications than they did at the end of 2013.

I discuss this price rise on Radio New Zealand Summer Report with Teresa Cowie.