Telecommunications: The Consumer Wins Again

14 November 2017

Telecommunications services are a commodity and this has driven the price of services, especially consumer mobile and fixed broadband, to levels that were only a dream a few years ago.

Here is some context. My 13-year-old son gets more for his $10 per month prepay mobile plan today than I got for my $35 plus handset post-paid plan in the late 1990’s. At that time text messages were 20c each and only available from Vodafone.

My home fibre broadband connection, without a phone attached, costs $95 per month and gives me 103Mbs/sec throughput at quiet times and at the worst times I still see 70Mbs/sec. When I moved into my current house in late 2001 dialup, at 56kbs/sec was all we had.

All this transformation has been very good for the consumer and has driven a massive change in the way we consume telco services. Our household has ditched the fixed line because only telemarketers and political researchers were calling on it. Instead we use mobiles, Skype, Facebook and Whatsapp to communicate locally and internationally. We disconnected traditional Television a year or so ago because of the ads and our entertainment is delivered via the internet consuming Netflix, Youtube and online games on a PS4.

Commoditisation enables competition

The ever increasing commoditisation of services, along with the entry into the market of a large number of new fibre suppliers and telecommunications retailers, has created a highly competitive market place. There are now around 80 companies fighting to provide broadband services to an increasingly demanding client base.

This phenomenon is not unique to Telecommunications. It is very typical in the open market that is New Zealand to find multiple players fighting for share. In another example, the retail electricity market has 32 actively trading retailers. In comparison Texas has 38 retailers for 28 Million people.

Fierce competition has meant a constant driving down of retail pricing. As an example, a Skinny fixed broadband unlimited plan at $68 a month, delivered on 100 Mbps fibre. This price leaves Spark with only $16 out of the $68 after paying Chorus’ wholesale charges.

In response Spark is refocusing towards wireless broadband rather than continuing to fight a “race to zero” price war over fibre based services. Spark are now pushing very hard the idea that connectivity should be wireless and are offering services on their 4G mobile network at the same rates to homes as the ADSL products.

Spark Digital boss Simon Moutter commented at the company annual meeting,

“Spark has reoriented its business towards a wireless future and making a strategic shift from a traditional telco with international interests to being a New Zealand-focused digital services company.“

It now looks like the relationship between Spark and Chorus, which was never an easy relationship, has moved to an all-out war.

Chorus has responded by saying they will become an active wholesaler, pushing their products in the market. This is a big change from being a passive wholesaler. For customers on ADSL there is a real challenge from the 4G fixed cellular broadband. This type of service has been very effective for rural customers who had slow or non-existent broadband available.

What does this mean for telecommunications customers?

I don’t see any downside, if you have fibre in your street, choose a provider and enjoy. If currently have a VDSL connection available, stay on that, the service is high speed and low latency.

For those who are unlucky enough to have ADSL only there are two camps. Some will get good speeds and others will not be so fortunate. If your ADSL is not up to scratch then I believe that the 4G Spark service is an excellent option. With 5G just around the corner, even more options will be available in the near future.

Once again competition has brought better services at lower prices to consumers. It’s the lumbering old Telco’s that are paying the price.