FOCUS: 2degrees Gains Ground Against Telecom NZ, Vodafone

2nd Aug 2010 05:02

By Lucy Craymer Of DOW JONES NEWSWIRES WELLINGTON (Dow Jones)--Telecom Corp. of New Zealand Ltd. (TEL.NZ) and Vodafone New Zealand Ltd. are losing ground in the country's competitive cellphone market as new player 2degrees attracts more customers. The threat for the dominant players may increase as privately-owned 2degrees begins to gain ground in third generation wireless services and data markets, analysts say. Until 2008, New Zealand's mobile users had two clear choices--Telecom and Vodafone New Zealand, the local unit of U.K.-based Vodafone Group PLC (VOD)--which allowed the providers to hike prices and operate with strong margins. But over the last 18 months, several mobile operators using Telecom or Vodafone's networks have begun operations. The launch of 2degrees in August last year partly on its own network and partly using Vodafone's network, has shaken up the sector. 2degrees is a joint venture set up by Trilogy International, Tesbrit B.V., Hautaki Ltd. and KLR Hong Kong Ltd. IDC telecommunications analyst Rosalie Nelson said 2degrees successfully launched itself "as cheap and cheerful" and it is now estimated that the firm had managed to pick up around 4% of the mobile market with all its customers on prepay contracts. The move has been detrimental to Vodafone, whose first quarter ended June 30 figures showed it had lost nearly 35,000 prepaid mobile customers although it had 10,000 more on account customers. The company admitted the loss came following dramatic changes to the market on the back of 2degrees's entry and the offering of wholesale services to a raft of mobile providers. According to NZ's Commerce Commission, Vodafone's market share in New Zealand was around 49.6% as of Dec. 31, while Telecom had 46.6% and 2degrees had 3.8%. "2degrees has had a very successful launch--one of the most successful of any telco anywhere in the world. To come into a market like New Zealand, which has two strong network operators and to take 4%-5% market share so quickly is impressive," said Vodafone spokesman Paul Brislen. Around 83,000 customers have moved from either Telecom and Vodafone in the last year, according to 2degrees. At its last count in February, it had 206,000 active customers. 2degrees is now ready for a second assault on the market -- mobile data. It says it has imminent plans to launch a 3G network commercially, which is currently being tested, and plans to launch retail outlets so it can move into selling mobile phones with long-term contracts attached. Nelson said it is likely 2degrees will continue "disruptive pricing," which will increase competition in the sector particularly the data sector. "Revenues (for Telecom and Vodafone) aren't going to grow quite as fast as the number of connections and the actual traffic because of these points of competition," she said. But Vodafone and Telecom are keeping a brave face. Brislen said as 2degrees makes use of its network, it had become one of Vodafone's largest customers. "We've taken the pragmatic view that it's better to have these (MVNO's) mobile virtual network operators on our network, maximising our investment than on another network and it's working well for us," he said. For Telecom, hit by numerous outages on its 3G network and only one MVNO agreement, the numbers are likely to be worse. But Telecom spokesman Mark Watts said data for the mobile sector would not be available until Telecom reports in mid-August. He added that the sector was very competitive "as shown by the arrival and consolidation of the likes of 2degrees" but Telecom is confident about the product it is selling. -By Lucy Craymer, Dow Jones Newswires; 64-4-471-5990; [email protected] (END) Dow Jones Newswires August 02, 2010 00:02 ET (04:02 GMT)