NZ 700-MHz allocations will stifle competition

Phil Marshall/Tolaga Research

The 700-MHz LTE spectrum band is coveted for its superior coverage relative to other LTE bands such as 1800 and 2600-MHz. This superior coverage is particularly important in countries like New Zealand with sparse population densities and unbalanced competitive market conditions, see Figure 1.

Figure 1: New Zealand’s modest competitive conditions and sparse population density raises the importance of 700-MHz spectrum allocations

Source: Tolaga Research, World Bank, TCNZ Investor Day 2014

Historically the mobile communications market in New Zealand was a duopoly operated by Telecom NZ and Vodafone, and was one of the more expensive places in the world for mobile services. In 2009, 2degrees launched mobile services with aggressive pricing strategies, to become the third operator in the New Zealand market. 2degrees has grown market share and driven market prices to more appropriate levels, but still remains a market challenger with 11% share, with Telecom and Vodafone having 52% and 37% respectively.

Throughout 2013, the Ministry of Business Innovation and Employment (MBIE) prepared for its 700-MHz radio spectrum auction, which culminated in licenses being awarded to 2degrees, Telecom and Vodafone. A total of 60MHz of spectrum was in the offing. In the initial auction round, Telecom and Vodafone each purchased 30MHz and 2Degrees 20MHz at a reserve price of ($NZ0.49 per MHzPOP). The remaining 10MHz of spectrum was auctioned in a subsequent round, with Telecom being the successful bidder, offering to pay $NZ1.87 per MHzPOP for the license. New Zealand’s Commerce Commission has yet to decide whether Telecom should be awarded the additional 10MHz.

On May 22, 2014 the MBIE issued two optional licensing plans, one which has Telecom and Vodafone each with 30MHz, 2Degrees with 20MHz and the remaining 10MHz being retained by the Government. The other plan has Telecom with 40MHz, Vodafone 30MHz and 2Degrees 20MHz of 700-MHz spectrum. Given New Zealand’s unique demographic and mobile market conditions, the dominant players will gain a tremendous advantage in the mobile broadband market by having additional 700-MHz spectrum. Unfortunately the asymmetrical 700-MHz licensing structure that is being proposed by the MBIE will negatively impact the competitive conditions that have been driving New Zealand towards a desirable mobile industry structure that benefits the consumer.

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