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Mobile broadband: why isn’t New Zealand doing better?

mobile broadband is very much cheaper in Norway than in New Zealand, so with higher incomes mobile broadband is far more affordable.

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LTE may not arrive in New Zealand until some six years after its first commercial launch in Sweden and Norway, now that the New Zealand Government is indicating that the analogue switchoff may not happen until 2015.

Does this matter? Do New Zealanders want LTE? Can operators afford to invest in LTE anyway?

Mobile broadband has taken off in many countries – at the end of 2009 there were over 2.8 million mobile broadband services (using datacards) in Australia, comprising 35% of all non dial-up connections.

And in New Zealand? Mid 2009 there were just 150,000 mobile broadband datacard services.

Yes, we’ve heard all the stories: small market, lack of economies of scale, consumers aren’t interested. But are these truly the reasons behind New Zealand’s mobile broadband market lagging that in other countries?

So, let’s see what we can learn from a country that has many similarities with New Zealand.

Norway. Land of fjords and the midnight sun. One of the OECD’s top five countries for fixed line broadband take-up. And an LTE pioneer. It just so happens that Norway is also an excellent comparator for New Zealand – similar population, similar geography, similar market size (Exhibit 1). Also both countries had just two mobile network operators until the recent entry of new players in the local markets – Mobile Norway (2008) and in the case of New Zealand, 2degrees (2009).

Exhibit 1: Comparing Norway and New Zealand [Sources: Commerce Commission, Norwegian Post and Telecommunications Authority, Statistics New Zealand, Statistics Norway]

 
Norway
New Zealand
Population
4,858,200
4,350,000
Land area (sq km)
305,470
268,680
Population density (persons per sq km)
16
16
Population of largest city
586,860
1,436,400
% of population in urban areas
77%
87%
Annual GDP/capita (NZD – PPP)
91,774
42,796
Mobile subscriptions (June 2009)
5,244,608
4,700,000
Mobile subscriptions per 100 persons
108
108
Mobile broadband subscribers (June 2009)
381,548
150,000
Mobile network operators
3
3


So Norway has more than double the number of mobile broadband subscribers. Why would this be so?

We know that incomes are higher in Norway – which means they could afford to pay more. But what we find is that mobile broadband is very much cheaper in Norway than in New Zealand, so with higher incomes mobile broadband is far more affordable.

Oslo resident Hanne pays roughly half the price (around NZD15–17) for a plan with 500MB per month compared to the NZD30 paid by her New Zealand friend Dave. And if our two friends happened to be power users, churning through 4GB per month, Hanne would still be paying just over half (NZD41–51) of the NZD80 monthly fee that Dave pays.

What does this mean in terms of affordability? Hanne as a power user would be paying just 0.6% of average monthly income, while Dave’s mobile broadband would take up 2.2% of average monthly income. Dave may need to think very carefully about what he would need to give up to afford his mobile broadband service.

Not only is mobile broadband far cheaper in Norway, but the monthly plans have some rather attractive features for consumers:

  • options for unlimited use plans where after a specified threshold (dependent on the plan selected) speed falls to 200kbit/s
  • most plans have maximum monthly or daily prices, avoiding “bill shock”
  • some plans have a combination of unlimited use in the evening and at weekends, and a per-MB charge during business hours.

The big question of course is how much extra does Hanne need to pay for LTE? At the moment she can only get LTE from the operator NetCom, but she would pay around NZD120 per month which would include 30GB delivered over claimed speeds of 20-80Mbit/s – if her usage goes over 30GB the speed would be reduced but she would not be charged any more. To put that into perspective Dave would pay well over NZD300 for his 30GB – and that is on 3G, not LTE, so his download speed would average only 3Mbit/s.

Why can Norway afford to invest in LTE – and offer services at reasonable prices – when some claim that New Zealand can’t?

It becomes quite clear when we look at the market structure. Telenor, the incumbent, has over half the Norwegian market, while the No 2 player – TeliaSonera, which owns the Netcom network operator and the Chess MVNO – has just over one quarter of the market (Exhibit 2). The 26 other Norwegian MVNOs also bring another dynamic to the marketplace.

Exhibit 2: Mobile market shares, Norway and New Zealand, December 2009 [Source: NPT, Commerce Commission]
Mobile market shares, Norway and New Zealand

Rather than being content with the status quo, nibbling away at the market leader, a bold strategy has the potential for TeliaSonera to massively increase its market share and boost revenues through first mover advantage. And what better differentiator is there than LTE?

Furthermore, Norwegian mobile broadband traffic increased by 250% in 2009 to reach 6.76 million GB, and as in most other markets worldwide rapid growth is expected to continue. The more spectrally efficient LTE will be essential to remove pressure on capacity in the 3G networks.

In terms of business strategy, it is a no-brainer – TeliaSonera can’t afford not to invest.

And in New Zealand? Yes, Vodafone is the market leader but only just; once Telecom sorts out its network problems and regains consumer confidence the gap may close. Yes, there are MVNOs – now eight, with the recent entry of Orcon – but based on Commerce Commission information their combined market share is less than 2%. Yes, mobile broadband traffic is increasing, but with prices remaining high, traffic is constrained and there won’t be the same sort of pressure on spectrum capacity.

So, the hunger is not there. Investment can be comfortably delayed without a huge impact on market shares and profitability.

The only loser will be the consumer.

Note: All prices quoted were current as at July 2010. Prices converted to New Zealand dollars using purchasing power parity rates from the World Bank.

July 2010

 

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