2008 New Zealand - Telecoms Overview and Analysis

BuddeComm’s 2008 New Zealand - Telecoms - Overview and Analysis publication provides a detailed overview, including statistics, forecasts and analysis, of the regulatory, infrastructure, fixed network voice and VoIP sectors of the New Zealand telecommunications market, as well as an overview of the key market players.

The telecoms industry in New Zealand has undergone significant changes over the last year. While the results of these changes will not have a significant impact on the market in the short term, they will profoundly alter the telecoms market over the next five years. Until late 2007, it was envisaged that the most important and positive development was the change in attitude of the incumbent from one that has historically provided resistance to regulatory change, to one that is prepared to work together with the industry in a more mutually beneficial way. Unfortunately the industry got a rude awakening in late 2007 when Telecom launched its cabinetisation program, without a clear transition plan for the rest of the industry.

The total telecoms market in New Zealand grew by 1.1% in the 12 months to June 2007 to $7.54 billion. BuddeComm predicts that the total New Zealand telco market will grow around 0.9% in 2007/08 and 2.8% in 2008/09. Telecom maintains a stranglehold on the local access market in fixed-line voice and broadband.

The bundling of voice, data and video services (triple play) and mobile services (quadruple play) are likely to develop on a more large scale fashion in New Zealand in 2008 and 2009. We expect the local access voice market to fall further over the next few years, as phone call prices and volumes continue to drop and more people give up their traditional home phone line and move to alternative access networks such as mobile and VoIP as well as products based on data and IP-based solutions.

Over time, the new environment will open up lots of new opportunities for everybody involved. These include the value-added infrastructure opportunities such as data centres, content hosting, network management, etc. But equally a range of innovative customer services can be built on the new wholesale products and perhaps more importantly open networks will create a great new environment for digital media, e-health, tele-education and smart grid applications in which there will now be much wider scope for a variety of organisations to participate.

In the meantime however, the outlook for competition is bleak. There still are no attractive wholesale products and prices here are set to increase. Vodafone/ihug is behaving as yet another monopolist and TelstraClear has retracted to the Trans Tasman and corporate market, showing very little industry leadership.

Annual change of total telecom market revenue by service - 2005 - 2009

Key highlights - Key players in the market

• Telecom will undergo a period of transformation over the next one to two years, as it transitions to its NGN and makes the necessary adjustments required to implement Operational Separation. We therefore forecast negative revenue growth of around 1% in 2007/08.
• However, with the very low level of any real competition the company will be able to maintain its position in the market with relative high margins.
• Without a new coherent overall strategy in place, TelstraClear has drifted into a very dangerous position. The company must change its business model and move further and deeper into marketing and sales, utilizing the wholesale products that will increasingly become available.
• Vodafone has introduced a triple-play fixed voice, mobile and Internet service to the market, as well as putting into place its Fixed-to-Mobile Convergence strategy. This is great for consumers but is undermining competition.
• Kordia’s purchase of Orcon, gives Orcon the opportunity to target the small business segment with higher-end Internet, wireless access, and voice services. Orcon will also have opportunities to move into new areas such as IPTV, while Kordia now has the opportunity to leverage a retail-focused ISP.
• CallPlus is considering both WiMAX and ULL as technologies that can meet its requirements. This will enable it to intersperse MSANs/DSLAMs with WiMAX based on the economics in particular areas, thus building independent infrastructure.
• Maxnet anticipates an increased range of wholesale DSL access options and better pricing from 2008 onwards, and will continue to roll out new Telecom wholesale services as they become available.

Telecommunications infrastructure

• The progressive introduction of ADSL2+ broadband will eventually enable the delivery of new services on top of Telecom’s broadband infrastructure. Services delivered, by the company itself, over its NGN in 2008 should include VoIP, video calling, converged fixed/mobile offerings, Interactive television and VoD. This faster access will also be critical for the growth of digital media services.
• However it will take a couple of years for these services to become widespread and it will not be until 2012 that Telecom’s NGN network will have been completed.
• For the past few years the industry has seen a significant rise in the use of wireless technologies in competition to the more traditional copper and fibre optic-based solutions. A number of niche fibre optic networks have also been established, but their overall impact has been negligible.

Regulatory

• The New Zealand Government confirmed that it was going ahead with its plan on the Operational Separation; however the implementation depends far too much on Telecom’s voluntary cooperation.
• The government also issued draft determinations on price and non-price terms governing Telecom New Zealand’s provision of ULL and co-location services. Despite this there is still a lack of good wholesale products and prices are going up.
• The government’s decision to proceed with the operational separation of Telecom and to introduce new services such as LLU, naked DSL, and a wider range of regulated wholesale services, are scheduled to begin to be introduced into the New Zealand market by the beginning of 2008; however, Telecom’s cabinetisation plan could make rollout of some of these services difficult.
• The Commerce Commission seems set to require new entrants to build out their networks to 80% of the population within five years in return for the right to roam, as it saw no business case for networks that didn’t provide national coverage. We doubt if this is going to happen.

Fixed network voice and VoIP markets

• The local access market in New Zealand dropped by 2% in 2006/07; BuddeComm predicts that it will drop by another 4% in 2007/08.
• This trend is anticipated as phone call prices and volumes continue to drop and more people give up their traditional home phone line and move to alternative access networks such as mobile and VoIP as well as products based on data and IP-based solutions.
• Mobile calls still have not made any serious impact on the fixed call markets, as mobile charges are amongst the highest in the world.
• Growth in consumer VoIP services will gradually impact traditional fixed-line services in New Zealand over the next five years as well as fixed-to-mobile revenues.
• The traditional landline will gradually disappear as the analogue based PSTN will be fully decommissioned by 2012, as Telecom by that time should have completed the rollout of its NGN.
• Telecom’s cabinetisation announcement will see a $1.5 billion investment in fibre network, replacing 2,000 local exchanges.