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Strong Industry Support for Ihug Action

Ihug says it has strong industry support for Tuesday's legal challenge against the Government's cellular spectrum auction.

The company is hoping to set up its own mobile network, offering New Zealanders significant discounts on digital cellphone calls.

Currently, only Telecom and Vodafone have rights to use mobile radio spectrum.

Ihug Director Nick Wood says his company made an early approach to the Government in late January. Mr Wood says the Government recently backtracked on earlier assurances that the spectrum auction will not be anti-competitive.

Ihug's main concern is focused on the Government's failure to implement any second generation (2G) spectrum protections in the upcoming auction process," he says.

"It seems odd for the Government to decide a cap (acquisition restriction) is warranted for the sale of third generation spectrum, but not second generation."

Mr Wood says the Government was initially in favour of a spectrum cap.

"We specifically requested a cap after reading the Ministry of Economic Development's first draft rules in March. As recently as April 5, we received a letter from the Minister of Communications acknowledging that Ihug has raised '..a competition issue that should be addressed.'

"The Minister later wrote to the entire telecommunications industry, requesting submissions on the issue of a 2G spectrum cap. The industry response was 73% in favour."

Ihug's decision to seek a judicial review of the planned auction has attracted immediate support from the Telecommunications Users Association of New Zealand (TUANZ).

There is also support in the telecommunications inquiry team's first draft report, released last week. This report endorses Ihug's stance on second generation, in several key areas. The report:

a.. Recognises the Government has not made 2G services subject to any spectrum cap. b.. Recognises the competition issue, noting that any new entrant in 3G would have to wait two to four years before entering the market, by which time the two existing operators "would be well entrenched". c.. Concludes there is a "significant risk" that the benefits from additional competition in the supply of mobile services "will not be as great as they could be, both in the near term (prior to 3G), and once 3G services become available." d.. Concludes that such competition issues in respect of "spectrum acquisitions are best dealt with by measures such as spectrum caps and 'use it, sell it or lose it' provisions. Nick Wood says New Zealand consumers may be the big losers if the government presses ahead with an auction where small, innovative newcomers are effectively shut out.

He says competition is essential in the developing mobile market, and he says remains confident Ihug has a strong case to put to the High Court in Wellington on Tuesday.

ENDS

ADDITIONAL BACKGROUND

· Mobile networks require suitable radio spectrum to operate. Currently only Telecom & Vodafone have rights to use mobile radio spectrum.

· The Government is about to auction additional radio spectrum that can be used for both 2G mobile networks (today's voice and narrowband data mobile technology) and 3G mobile networks (tomorrow's broadband data mobile technology).

· The Government has introduced a spectrum cap as a form of protection on the spectrum set aside for 3G mobile networks. This is to ensure that four operators have the opportunity to provide competitive services. It should no longer be possible for one or two big players to have a monopoly or duopoly.

· However 3G network technology is still under development and is still two-four years away. In contrast 2G networks and 2.5G networks (which provide a good measure of 3G data services) can be built today to offer increased competition, with the expected result of significantly lower prices - as already seen in toll and Internet access prices.

· The Government has chosen not to implement any form of protection on the 2G spectrum. The Government requested submissions from interested parties on the subject of a 2G spectrum cap, but chose to ignore the fact that more than 70% of these submissions were in favour of such a move. Sections 3.5 and 10 of the draft report on the Ministerial Inquiry into Telecommunications (released on Thursday) supports Ihug's case, as does a statement issued last week by the Telecommunications Users Association.

· The current auction rules do not prevent one or both of the existing mobile network operators from buying the entire 2G spectrum, simply to prevent competition. At the same time, a wealthy foreign investor could also acquire the entire raft of available 2G spectrum, without restriction. Ihug believes New Zealanders want competition and lower prices now, rather than having to wait several more years.

For More Information, Contact

Greg Ward

Media Liaison

Ihug

Phone: (09) 521 2410

Mobile: 025 387 037

Email: greg.w@ihug.co.nz

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