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Drop the Rate, Mate! Campaign Launch

Opening Statement

(Matthew Hooton on behalf of whole group)
2pm Tuesday 11 August
Duxton Hotel, Wellington

Slide One: Drop the Rate, Mate!

The issue today is mobile termination rates. We have eight organisations here today – representing hundreds of thousands of farmers, students, workers, Maori and all consumers – who are sick of Kiwis being ripped off when they use their phones. The campaign we are launching today is a popular campaign, designed to involve everyone who has a mobile phone or land line. It’s called Drop the Rate, Mate!

Slide Two: “The Commission’s preliminary view is that [a] qualitative assessment provides sufficient net benefits to support a recommendation that [mobile termination rates] should be regulated.”

Drop the Rate, Mate! is in support of the New Zealand Commerce Commission which has recommended exactly that – drop the rate. The “mate” we refer to is Communications and Information Technology Minister Steven Joyce. The campaign is designed to give him the assurance that doing the right thing – accepting the recommendation of the Commerce Commission; and making mobile termination rates internationally competitive – has the support of the vast majority of New Zealanders. The campaign is designed to be a counterweight to the power of the corporate lobbyists at Telecom and Vodafone. You could say it started with TVNZ Sunday’s authoritative documentary on the issue on 12 July.

For those of you new to the issue, a mobile termination rate is the fee charged when you call or text someone on a different network. What happens is that your friend’s network charges yours for receiving the call or text, and this gets included in the price you pay. In most developed countries, termination rates are set by the competition watchdogs because of the distorting effects on competition that they can cause.

Slide Three: Graph: Termination Rates Internationally

Here, in New Zealand, Telecom and Vodafone have been allowed to set termination rates themselves. This graph shows what that has meant. In some countries, the termination rates are zero. In virtually all countries they are lower than they are here. Telecom and Vodafone rip us off to the tune of 15 cents per minute for calls and 10 cents per text. To put that in perspective, the New Zealand rate for calls is at least double many rates overseas. For texts, the Commerce Commissions says we are being charged ten times what we should be. Page 2 of 4

Slide Four: “The mobile market in New Zealand [has] high retail prices and low levels of usage.”

These usurious rates hurt consumers. The Kiwi phone user pays hundreds of dollars a year more than they should, and we make fewer calls to and from mobiles because it is so expensive. That hurts productivity and the economy. As the TVNZ documentary made so clear, Kiwi ingenuity means many of us carry around two phones to try to get around the rates. The poor and the low paid are among the hardest hit, because they tend to be prepay customers – and prepay rates for calls and texts are more expensive than those on contract. NZUSA and Unite will have something to say about that later. The land line market is also grossly distorted because it costs so much to call a mobile from a landline. These are the sort of immediate effects the Commerce Commission worries about, but the more dynamic effects are worse.

Slide Five: “The provision of [mobile termination rates] at prices above cost represents a barrier to efficient entry and expansion of the market.”

The main reason the big two want to keep the rates so high is because they make it so much more difficult for competition to emerge. New Zealand has just got its third mobile entrant – but we’re a decade behind the rest of the world where all developed countries have three, four or more. Fixed line services remain dominated by Telecom.

When the issue of mobile termination rates comes up, Telecom and Vodafone are very quick to say: “Oh, it doesn’t really matter because we have mates’ rates.” But that just goes to show the extent of the rip off. Those mates’ rates are pretty much the real cost of connecting all calls and texts – as the Commerce Commission has made clear. It’s only when we’re on a limited mates’ rates deal, or a closed network bundle, that we’re actually paying what we should be.

Telecom and Vodafone also say that it all nets out – that when a Vodafone customer texts a Telecom customer, the Telecom customer will probably text back, and so the ten cents just goes back and forward without being passed on to the consumer. Well, to a certain extent that is right. Many billions of dollars each year get charged backwards and forwards but the net effect, we think, is that Telecom pays Vodafone over $100 million a year. And that reveals the truth about mobile termination rates. They aren’t about efficient pricing or even raising revenue for the big two. Their main effect is to try to keep new providers out of the market. That’s because, when a new entrant emerges, most of its customers will have to call or text friends on the old networks – so the new entrants’ prices have to be higher than they want them to be.

The value of this to the incumbents is very clear – it’s why Telecom is happy to fork over that hundred-odd million to Vodafone each year: because it slows new competitors entering the market and taking market share. It’s why the former global CEO of Vodafone told the NBR a few years back that if all countries’ systems were like the New Zealand system he could retire early. Our system hasn’t changed. He’s now retired. The cosy Telecom/Vodafone duopoly has endured, ripping off Kiwi consumers. If Telecom just committed to lower prices, it could immediately pass that hundred million onto its own customers rather than sending it to Vodafone’s corporate headquarters in the UK. Page 3 of 4

Slide Six: “Reductions in MTRs are likely to increase competition, resulting in:

• a reduction in retail prices, and

• increased efficiencies,

which will result in substantial long-term benefits to end-users.”

The Commerce Commission has been working on this since 2004. This slide is its summary of the conclusion it has reached. The process now is for the Commission to accept submissions from interested parties, and then to provide Mr Joyce with a final recommendation. Mr Joyce must then make the decision about how much we’ll all pay, and whether there will be genuine competition, and better coverage and services. As I said, this campaign is about giving Mr Joyce comfort that doing the right thing, accepting his Commerce Commission’s advice, is also the politically smart thing – that the vast majority of New Zealanders support the Commerce Commission recommendation and demand lower rates. Mr Joyce is going to come up against ferocious corporate lobbying by Telecom and Vodafone. This campaign is about saying the people are behind you, Mr Joyce, and they’re behind your Commerce Commission.

Slide Seven: Website Home Page

To give people an opportunity to say that to the Minister, we’ve launched this website at www.droptherate.org.nz People can also text their support to 022 DRP IT M8 People can support the campaign by agreeing to have their name put up on our site. If they are afraid of reprisals from Telecom and Vodafone, they can also ask us to keep their name confidential.

We have also commissioned polling by Curia Market Research Ltd. Curia has found overwhelming support for the Commerce Commission, for Mr Joyce to do the right thing, and for the Drop the Rate, Mate! campaign.

Slide Eight: Polling Data

Eighty-one percent of Kiwis know they’re being ripped off by Telecom and Vodafone. 81% of us also want Mr Joyce to accept the Commerce Commission’s draft recommendation. These aren’t uninformed responses. 73% of New Zealanders accurately agree with the proposition that mobile phone charges are higher in New Zealand than in similar countries. Only 3% disagree with this proposition.

The public also implicitly understands the underlying issue. 86% and 88% of New Zealanders respectively believed that it should cost about the same to call or text someone on a different mobile network as to call or text someone on their own network.

We also asked the public about voluntary reductions. Telecom and Vodafone are expected to make yet another round of promises to lower MTRs voluntarily. The Curia study found that 55% of Kiwis just don’t trust companies to lower prices voluntarily. The full Curia report is in your pack with the media statements.

Slide Nine: Graph: Termination Rates Internationally

Let me now introduce the initial support group. Page 4 of 4

We approached a number of telecommunications companies with a particular interest in the landline market – because, as I said, the MTR rip off also distorts the landline market. All strongly supported us. All were too afraid of the corporate power of Telecom and Vodafone to give their logo to the campaign. Daniel Hopkirk at Airnet in Hawkes Bay was the exception, brave enough to be involved.

Sue Chetwin will be known to you all – the CEO of Consumer New Zealand, formerly the Consumers Institute. Sue represents all consumers in New Zealand.

Federated Farmers represents farmers who of course depend on cheap, reliable mobile services on-farm, and they depend on cheap, reliable landlines – they get neither because of MTRs.

The Federation of Maori Authorities represents Maori commercial interests – both as consumers of telecommunications like everyone else, and as important investors in bringing new competition to New Zealand. Maori own around 20% in the new player, 2degrees. If it is successful, it will rival the Fisheries Commission in terms of its importance to building the economic base of Maori.

The New Zealand Union of Students’ Associations represents 180,000 students in New Zealand – often on pre-paid services, and all being ripped off.

Ernie Newman from the Telecommunications Users Association of New Zealand is the founding father of the cause. What he doesn’t know about this issue isn’t worth knowing.

2degrees is of course the new entrant to the market, offering lower prices than Telecom or Vodafone but wanting to be cheaper still. This is CEO Eric Hertz’s first visit to Wellington since his OE 25 years ago.

Our eighth sponsor is Unite – probably the most innovative union in New Zealand, representing the lowest-paid workers in New Zealand, and growing fast. Its members are classic victims of the Telecom/Vodafone duopoly.

Finally, while these are the eight sponsors who have got this campaign off the ground, it is really a campaign that belongs to those who sign up to it, at www.droptherate.org.nz They will speak louder than eight organisations.

ENDS

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