Vodafone’s price rise

Vodafone will raise the price of most fixed line plans by $4 a month from next month. It says the price rise will affect about 300,000 customers.

The price rise follows the Commerce Commission draft decision over the price lines company Chorus can charge 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 similar price hikes.

The difference at Vodafone is that the price rises will also affect customers on the company’s cable network in parts of Wellington and Christchurch. Vodafone owns the network so it doesn’t need to pay Chorus to service cable customers.

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

If the price rise on the cable network proves unjustified, Vodafone customers will decamp for other service providers. There are plenty of alternatives to choose from.

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. It made $460 million on revenue of $3.6 billion. Yet much of the surplus is down to the company’s fixed line phone business which is steadily shrinking year-on-year.

Vodafone and Spark have sacked hundreds of workers in the last year as they struggle to balance the books.

Assuming Vodafone doesn’t lose customers, that $4 a month charge for 300,000 customers works out at around $14 million: that’s half last year’s loss.

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 largely a response to the intense competition. Despite the recent prices rises of roughly five percent, consumers pay less for telecommunications than they did at the end of 2013.

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