Friday, March 18, 2011

Mobiles across the ditch

I'm going to quote at length from TUANZ's e-mail TUANZ This Week because I can't seem to find it as web content.

It’s been a busy week with two of the industry’s biggest challenges being tackled within hours of each other.
First up we had a two-day conference on that most enduring of topics – mobile termination rates (now called Mobile Termination Access Services because why have a three-letter acronym when you can have a four).
A quick search of Computerworld’s archive talks of MTR way back in 2005 but by then it was a already festering sore.
This week should be the last nail in its coffin. The Commerce Commission has been given the remit to regulate, it has recommended that it should set the price, the Minister has agreed and the parties are now all jockeying for position.
The two-day conference was really the last chance for everyone to make clear their views on the matter at hand. The Commission’s draft report recommends moving to pure bill and keep (BAK) for TXT messages (that is, each company sets the price and bills its customers accordingly and keeps all the money rather than sharing with the other network if the TXT goes to another network), and a low level of roughly 4.5c/minute for voice calls (down from what is currently on a like for like basis about 18cpm) defined as being “cost based” (more on that later).
There is to be no glide path down to these rates (even though overseas that is typically the way it’s done) and there’s no difference to be had between calls from a mobile phone to a mobile number and a fixed-line to a mobile number. This is a good thing because it leads to nonsense with telcos routing calls oddly for best pricing.
The conference really came to life, however, around one extra element – on-net pricing.
In its submission, 2degrees called for a ban on on-net pricing for the two big guys Telecom and Vodafone. Its rationale, and one I think merits extra investigation, is that because of the huge difference in pricing between on-net and off-net pricing combined with the market share each telco has in various regional areas (2degrees calls them regional monopolies) then any new entrant has a double hurdle to clear. Not only does it have to offer sharper pricing, it also has to compete with a bigger problem in that individual customers can’t move to a new network because all their on-net friends will find they’re off-net and stop calling them.
The Commission put up a draft clause that could require the telcos to charge exactly the same for off-net calling as they charge for on-net. They’d be free to set that rate, but they wouldn’t be allowed to discriminate between calling types.
This caused immediate uproar from Telecom and Vodafone who went in lawyers blazing and if this clause is included in the final recommendation, I’d say we’re sure to see one or the other telco call for a judicial review.
Legal shenanigans aside, it’s an intriguing point. If I want to move to 2degrees (and I have) will my on-net buddies stop calling me from Vodafone (I use Vodafone because I’m based in Auckland where, according to various figures, Auckland’s share of voice traffic is over 70% and TXT is over 90%). If they do stop calling, there’s nothing 2degrees could offer me at that point to entice me over – those incoming calls (amusingly called “call externalities” by the industry) are too important for me to miss.
In our submission, TUANZ called for a different approach to TXT because of concerns around spam (we’d like to see some small fee retained – I’d originally thought a hybrid BAK system would work but Graham Walmsley from CallPlus said that would prove to be costly and complex so why not go for a low price point, say a third of a cent, and leave it at that. I quite like that and if Graham’s happy then that might work well).
On call pricing I’m happy with the drop and not too concerned about a glide path (Vodafone suggested that the glide path should be in there over two or three years if only so the Commission could look to see whether or not consumers are seeing pass through benefits from it. I like that, but I’m absolutely sure the telcos will pass on the savings to us because if they don’t we’ll vote with our wallets and I’ll put them on the wall of shame. So no to a glide path).
As for on-net price differentials, there’s definitely something there but having a morning’s chat about it at the end of the MTAS process doesn’t feel right to me. I’d rather we had some robust metrics, some clear understanding of how it would work in practice (and how long we would keep it up for) and its impact on the customer. Would we see Vodafone immediately withdraw BestMate and Family (and TalkZoneZero, it’s business calling group plan) or would it open them up to non-Vodafone numbers as 2degrees suggests.
Telecom is doubly unhappy because it sees its any-net regime as giving it a competitive advantage in XT and certainly having to not think about on-net and off-net is a big win for their customers. Telecom also suggested that such a decision would be open to other companies playing silly buggers with pricing – while they didn’t call 2degrees out on it, they’re clearly referring to 2degrees’ TXT ME race which has seen customers programming smartphones to spam the Telecom network and is costing Telecom tens of thousands of dollars a month.
Interestingly, 2degrees’ submission says that while on-net pricing will be banned for Telecom and Vodafone, it wouldn’t for … 2degrees! In Europe apparently it’s not uncommon to find regulators who will ban the incumbents from doing something but not the new entrant. So perhaps we’ll see 2degrees doing Best Mate while Vodafone can not.
If I was a betting man I’d say we’ll see about 4.5cpm for voice (the median figure or 25th percentile but definitely not 75th percentile for those that are following closely), a commercial deal between carriers for TXT backed up by a watching brief from the Commerce Commission (probably about one third of a cent per TXT) and a clause banning the differential between on-net and off-net for a three year period with annual reviews. Telecom and Vodafone will put in for a judicial review and that will go against them but make them look like lumbering giants behaving badly.

It is always hard to know where things will land in NZ. But I'm an absolute believer that on-net pricing is destructive of the formation of effective markets - if only because it makes it so hard to price compare. Also there is no justification for differential F2M and M2M rates - a matter I think the ACCC is considering. And the price should be "cost based" - but the more I think about it the more the original Gans and King proposition of marginal cost pricing not average incremental cost makes sense. That brings the number lower than 1c/min - not even 4.5c/min (though that 4.5c is in New Zealand zlotys).

Novae Meridianae Demetae Dexter delenda est

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