Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Commerce Commission to investigate mobile market

Media Release

Issued 10 October 2006/052

Commerce Commission to investigate mobile market

The Commerce Commission announced today that it has considered barriers to entry to the cellular mobile services market and will be investigating possible changes to the regulatory framework.

Under Schedule 3 of the Telecommunications Act, the Commerce Commission can decide to investigate a telecommunications market if it considers that a lack of competition may be disadvantaging consumers.

Telecommunications Commissioner Douglas Webb said the Commission has been concerned for some time that New Zealanders are paying too much for mobile voice calls, and that New Zealand has low mobile usage when compared to other OECD countries.

“Existing competition does not appear to have increased mobile usage, and we haven’t seen significant new entry into the mobile market,” said Mr Webb.

“The Commission considers the current regulatory settings may not be creating sufficient incentives for that entry to occur.”

Mr Webb said that more competition should bring lower prices and more innovative deals for customers.

“The Commission will now investigate the market to determine whether these issues can be addressed by some form of regulation,” said Mr Webb.

Douglas Webb said that while the Commission has a heavy regulatory workload over the next few months, it wants to make early progress on the next phase of this project. More information concerning the timing and scope of the investigation will be available shortly.


The Introduction and Executive Summary of the report follow, and the full report, A review of cellular mobile market entry issues, may be viewed on the Commission’s website



Cellular mobile services were launched in New Zealand by Telecom in 1987. BellSouth began offering a competitive service in 1993. Vodafone acquired the BellSouth network in 1998. Customer acceptance has grown rapidly and today the number of active mobile subscribers is close to 3.8 million. This level of penetration is consistent with leading European and US markets.

The range and quality of mobile voice and data services available in New Zealand compare favourably with other OECD countries. Both Telecom and Vodafone provide 3G services in major population centres and have announced plans for further network upgrades to increase data rates in areas of 3G coverage. These plans seem to be consistent with the major trends observed in mobile markets in other OECD countries.

New Zealand is unusual amongst OECD countries in having only two competing mobile networks. Most countries have at least three networks, with some having four or more. Telecom and Vodafone have also taken different technology paths, with Telecom using CDMA and Vodafone using GSM. The implications of these technology choices have relevance to the conditions for further entry, primarily in relation to the incentives facing those operators to provide domestic roaming services required to support new network build.

Telecom and Vodafone compete for market and revenue share. Network capabilities, handsets, and service bundles are all used as points of differentiation. Levels of customer churn appear to be at least as high as in other countries and may spike following the introduction of cellular number portability in early 2007.

Notwithstanding these indicators of competition between Telecom and Vodafone (and to a markedly lesser extent, TelstraClear as a reseller of Vodafone retail plans), there are features of the mobile market that suggest that competition in this market is limited. While there is some dispute as to comparative pricing data, retail prices for mobile voice calls remain significantly above the midpoint of other OECD countries across all user types.

In a competitive market, a scenario of low usage and high prices, along with high fixed and low variable costs, would be self-correcting. Competitors would reduce prices towards marginal cost to drive utilization of their networks and thereby spread fixed costs over the higher volume of traffic.

The fact that this has not occurred suggests that there is room for enhancing competition through new entry. Yet new entry has not occurred to any material extent. This review has examined the reasons for the absence of entry and the nature and extent of entry barriers. This has helped the Commission to decide whether a further investigation of regulatory changes is warranted to promote competition. In the course of the review, the Commission has also identified other areas where governmental action could be warranted, and in such cases will provide its views to the relevant ministries.

Executive Summary

During its investigation into mobile termination rates, the Commission identified several features that suggested a lack of effective competition in the cellular mobile services market, including a highly concentrated market structure, significant barriers to entry, and high pricing in comparison with other OECD countries.

On 10 May 2006, the Commission announced that it would examine the reasons for lack of new entry into the cellular mobile services market as a prelude to deciding whether or not to commence an investigation into possible changes to the regulatory framework

The Commission held a series of meetings with parties who have a material interest in the mobile market and reviewed the state of competition in the market for mobile services.

The mobile services market is characterised by significant fixed costs and, in relation to voice calls, relatively high prices and low usage compared to most other OECD countries. In such a market, competition would be expected to lead to existing operators seeking to increase usage on their networks in order to benefit from economies of scale. In the prevailing market conditions we would ordinarily expect new entry.

The fact that entry has not occurred suggests that there may be barriers preventing or constraining entry into the market. The Commission therefore examined the nature and height of possible entry barriers to the mobile services market.

The need for new entrants to offer nationwide coverage to compete effectively in the mobile services market with incumbents who already provide national coverage is a barrier to entry. The current regulated roaming and co-location services have a role to play in overcoming this barrier, but may not be fully suitable for this purpose.

The Commission has therefore decided that there are reasonable grounds to use its powers to investigate:

 amending the terms of the national roaming service;
 moving the national roaming service from a specified to a designated service; and
 moving the co-location service from a specified to a designated service.

The Commission will commence an investigation under Schedule 3 of the Act into whether or not to amend the terms of the current roaming service. The investigation will consider amending or clarifying aspects of the service description dealing with matters such as, roll-out obligations, roaming on 3G networks and inter-network roaming. The investigation will also consider whether the service should be moved from a specified service dealing only with non-price terms to a designated service dealing with both price and non-price terms.

The Commission will also commence a Schedule 3 investigation into whether or not to amend the co-location service. The investigation will consider whether the service should change to become a designated service, which will allow the Commission to set price terms. Should the Commission’s current review of the co-location code submitted by the Telecommunications Carriers Forum reveal unresolved issues with non-price terms, the Commission may decide to expand the scope of its investigation to include those issues.

The Commission considers that there are reasonable grounds to commence an investigation under Schedule 3 of the Act into whether or not to regulate wholesale access to capacity on mobile networks, but has decided not to begin such an investigation at this time. Instead, the Commission will monitor the commercial developments that are taking place around wholesale access and will wait to see if there is entry at the network level. If facilities-based entry does not occur in the near term, the Commission will reassess whether to commence such an investigation.

The practice of mobile operators setting different prices for on-net (calls within the same network) and off-net (calls between different networks) may in certain circumstances be a barrier to entry by a competitor. However, so long as mobile-to-mobile termination rates do not diverge significantly from the prevailing fixed-to-mobile termination rate, the on-net/off-net pricing differential is not likely to be a significant competitive concern.

“Pocket” pricing (differential pricing to geographic or customer segments) by an incumbent operator in response to potential entry by a competitor may under certain circumstances be anti-competitive and therefore a deterrent to entry. If such a situation were to occur, it would be examined on a case-by-case basis by the Commission under the Commerce Act.

The unavailability of spectrum in the 850/900 MHz range for new entrants is a barrier to entry as it raises the cost of entry. The Commission will discuss the concerns raised by the industry with the MED and will invite the MED to give weight to the benefits of new entry in its review of cellular spectrum renewal.

The Commission will advise the Ministry for the Environment of the concerns raised in relation to the Resource Management Act and its impact on the roll-out of cellular networks.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Stats NZ: Election Boosts October Job Numbers

Job numbers were boosted by general election staff in October 2020, along with rises in the manufacturing, retail, and hospitality industries, Stats NZ said today. Filled jobs rose by 27,667 to 2.2 million in October 2020 compared with September, after ... More>>

Government: New Year Border Exception For Seasonal Workers In The Horticulture And Wine Industries

2000 additional RSE workers to enter New Zealand early next year employers must pay these workers at least $22.10 an hour employers will cover costs of managed isolation for the RSE workers RSE workers will be paid the equivalent of 30 hours work a week ... More>>


Grey Power: Is Disappointed To Learn Of More Bank Closures

Many older people are being left without essential services because of cost cutting and the march of modern technology. It is now expected that most banking transactions can occur via the internet or telephone. Jan Pentecost, President of the Grey Power ... More>>


Media: Discovery, Inc. Completes Acquisition Of New Zealand’s Mediaworks TV Ltd

Auckland, New Zealand, December 1, 2020 - Discovery, Inc. (“Discovery”), the global leader in real-life entertainment, has completed its acquisition of New Zealand’s leading independent free-to-air commercial broadcaster, MediaWorks TV Ltd, now operating ... More>>

Department Of Conservation: Big Year Underway At Albatross Colony

Familiar faces are returning for the new season of Royal Cam, with a big breeding year underway for the toroa/northern royal albatross colony on Otago’s windswept Pukekura/Taiaroa Head. More than 120 albatrosses, a taonga species, have returned ... More>>

Real Estate: ASB Survey Reveals Majority Of Kiwis Expect House Prices To Keep Climbing


House price expectations are soaring as New Zealand’s housing market shifts up a gear. But stretched affordability is putting a dent in perceptions of whether it’s a good time to buy. While Kiwis reveal they do expect interest rates to fall further. ... More>>

Stats NZ: Births And Deaths: Year Ended September 2020

Births and deaths releases provide statistics on the number of births and deaths registered in New Zealand, and selected fertility and mortality rates. Key facts For the year ended September 2020: 57,753 live births and 32,670 deaths ... More>>