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2Degrees: still plenty of growth at the 10 year mark

By Pattrick Smellie

Aug. 5 (BusinessDesk) - Some said it couldn't be done.

Some expected 2Degrees - New Zealand's third largest mobile telecommunications operator - would die on the vine as it simultaneously squeezed margin out of the Vodafone-Spark market stranglehold while ploughing hundreds of millions of dollars into third and fourth generation mobile technology.

Now they're saying the same about 5G and new chief executive Mark Aue isn't having any of it.

"I always find it somewhat amusing, coming from the likes of (his old firm) Vodafone, that 2Degrees gets said not to have enough cash."

"They said we couldn't do 3G or 4G and we did it. It will be the same for 5G," says Aue, who took over as 2Degrees' third chief executive in June.

As to Vodafone's announcement last week that it will deploy 5G by the end of the year in four centres, Aue says: “Is it real 5G versus a trial versus marketing spin?"

Widespread deployment of 5G will be incremental and is “some distance away for scale and use cases,” he says. That allows him to argue 2Degrees will be able to use its comparatively puny balance sheet and $250 million in funding lines to invest in 5G as opportunity emerges.

He professes no interest in the idea tossed about at times that would see a current network operator, perhaps Chorus, buy 2Degrees’ network operation and underpin the ongoing existence of an independent third mobile operator of scale by becoming a base customer.

More likely are more mutual collaborations with competitors such as the Rural Connectivity Group, which has worked to ensure efficient investment by the three network owners in remote and rural coverage, he says. “RCG has worked very well.”

Contrary to commonly heard suggestions, the company’s Toronto-listed owner, Trilogy International Partners, is a “very committed shareholder to the 2Degrees business and the New Zealand market,” says Aue. That's in spite of a rocky share price ride in the last year, with the shares plunging from a high of C$4.24 and C$1.22, and most recently trading at C$2.65.

“They’re not about to go anywhere in the short term at all. We do have the cash and the funding available. I’m not worried about that.”

The company turned a profit for the first time three years and has been “self-funding” since.

Aue bases his bullishness on the fact that, unlike his main competitors, 2Degrees still sees substantial market share growth opportunities where Spark and Vodafone are “cannibalising their own customer bases”.

“There’s still market share to be gained whether or not the margins are being shaved. 2Degrees, compared to my main competitors, is in material growth.”

Stuck with the tag of being a mobile operator, he points to the fact that its enterprise offering is used by the Ministry of Primary Industries, district health boards and universities.

“In business, it’s about building credibility as a whole-of-business service offering,” Aue says, claiming 2Degrees as a prime mover over the last decade in collapsing what had been among the highest broadband costs in the OECD.

“In 10 years time, there will still be three (mobile) networks,” he says. “We’ve proven the benefit to New Zealand”.

He cites company-sponsored research suggesting the combination of new investment and competition has delivered national economic benefits worth $13 billion, with perhaps $30 billion in the decade ahead, compared to conditions before 2Degrees entered the market.

2Degrees was also the first telco to partner with Huawei, but it has not lodged a similar application with New Zealand's cyber-intelligence agency as Spark has lodged, seeking permission to use Huawei equipment in its New Zealand 5G rollout.

The Government Communications Security Bureau has declined Spark’s application in what threatens to become a major test of diplomatic relations between New Zealand and China if the ban is not overturned.

From Aue’s perspective, “we would hope that Huawei are kept in the mix”.

“They’ve been a great partner” and would add competitive tension to the procurement of 5G equipment.

“It would be good to have them competing from a 5G perspective.”

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