Lower rates lift 2 Degrees prospects

A fast growing company Like 2 Degrees Limited can benefit from the recent decision of the Government to reduce Mobile Termination Rates, Massey University ‘Brand Loyalty Specialist’ Professor Malcolm Wright said.

He said new entrants to the mobile telecommunications industry would also have a golden opportunity to win market share.

He predicted that Telecom and Vodafone, the two largest players, would not attract new customers if they continued with their reluctance to reduce costs.

“There is a powerful incentive for the big players to keep fees as high as possible. They will count on inertia to maintain their customer base and extract super-normal profits from the market. But while inertia may keep much of the existing customer base, it will keep new customers away,” Professor Wright said.

The Commerce Commission announced significant reduction in the Mobile Termination Rates on May 5, 2011, ending an era of exorbitant rates charged by two companies that held the market in their grip. The announcement related to calls and text messages carried from one network to another.

Telecommunications Commissioner Dr Ross Patterson said Mobile Termination Rates for calls would drop to less than four cents by April 2012.

Rates for text message, pegged at 0.06 cents, took effect on May 6, 2011.

New Zealand was among the last OECD countries to introduce regulated Mobile Termination Rates. Prior to the announcement, the prevailing rates were 15 cents and 17 cents per minute respectively in the Telecom and Vodafone networks. The termination rate for text messages was 9.5 cents per minute in both networks.

Dr Patterson said the rates would affect 4.7 million mobile connections currently in use in New Zealand.

“These changes are intended to address significantly competition problems in the wholesale mobile market, which have resulted in high retail prices, particularly for prepay customers – a low number of mobile calls and high rates of people switching networks, compared to other countries,” he said.

Dr Patterson said the Commission was concerned that the price of calls and text messages between people on different networks was significantly higher than the rates paid by people on the same network.

“These price differences create significant barriers for the net entry and growth of small mobile operators,” he said.

According to Professor Wright, if large companies like Telecom and Vodafone do not drop their Mobile Termination Rates, they would lose market share in course of time.

“It is like a leaky bucket. If you do not keep filling it up, it will eventually wind up empty,” he said.


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