Reseller News

$15B investment pays off for NZ, but 'fair' profitability needed

Cost of services "lower than ever" says NZ Telecommunications Forum
  • Rob O'Neill (New Zealand Reseller News)
  • 06 August, 2020 08:00
Geoff Thorn (TCF)

Geoff Thorn (TCF)

Telco industry organisation the NZ Telecommunications Forum is warning of challenging industry economics after the release of its latest industry report.

The forum said that in recent years, New Zealanders had benefited from a significant fall in the cost of telecommunications services, with average prices now "lower than ever". 

Consumer Price Index data showed telco prices had fallen markedly over the past decade, at a time when costs had risen steadily for other key services such as electricity, gas and local authority rates.

“While this has been great news for consumers, the current industry economics are challenging the ability of the industry to keep investing at the rates required to ensure New Zealand can benefit quickly from the best technology the world has to offer,” TCF CEO Geoff Thorn said when releasing the report.

In an online event to launch the report, Vodafone CEO Jason Paris said resiliency comes with a cost.

"We want to continue to build world class networks that make New Zealand competitive internationally," he said.

"That means we can't get taxed by government on spectrum or levies to a point where it becomes unaffordable or difficult for us to roll these networks out and to invest in these applications."

COVID-19 had reset the industry as an essential service and that was an opportunity to demonstrate that the industry should be able to get more value for the services it provides, Paris said.

"There will be a customer who walks into a Vodafone today who happily buys a $2000 iPhone and then complain about $20 to connect to it," he said.

"The economics are out of whack. The value equation is out of whack. 

"It's an industry issue but it's also a resetting of customers' expectations in terms of the quality of  the products and the connectivity that New Zealanders get."

There needed to be a return on investment for telcos to continue to invest, Paris said. 

Thorn said the lockdown experience was a great reminder of the importance of fair industry profitability, as telecommunications companies need to be in good financial shape so they can continue to make the huge investments required in new services and technologies.

“We’ve seen how technologies like fibre and 4G have transformed the way New Zealanders use telecommunications – with the adoption by consumers and businesses often exceeding initial expectations," he said. 

"We can expect the same to happen with the next wave of technologies – 5G, the internet of things, gigabit and 10 gigabit broadband, or whatever is around the next corner. 

"The telecommunications sector is keen to ensure New Zealanders continue to reap the benefits of world- class networks and services in the years ahead.”

The report itself does not address those issues, focusing rather on achievements to date, network performance and demand changes over the course of the COVID-19 lockdown as well as issues of digital deprivation.

The COVID-19 experience highlighted the importance of New Zealand’s world-class telecommunications networks and services, the TCF said.

The high quality of New Zealand’s telecommunications networks and services had paid off and would underpin the post COVID-19 economic rebuild.

Digital activity surged during the lockdown as business operations moved from the office to the home, and education shifted from the classroom to the living room. 

Daytime broadband traffic jumped by as much as 85 per cent, while traditional voice calling was up 70 per cent (see chart below).

Network traffic during the COVID-19 lockdown surged dramatically.Credit: Chorus, via TCF
Network traffic during the COVID-19 lockdown surged dramatically.

“It was a significant test for the telecommunications sector, and collectively the industry stepped up to meet unprecedented levels of demand. The importance of what the industry does gave new meaning to the phrase ‘essential services’ and cemented widespread recognition that telecommunications is vital to the nation’s wellbeing,” Thorn said.

Thorn said previous investment totaling about $15 billion over the past decade meant the country had the telecommunications capacity and resilience to serve New Zealanders well in this time of crisis.

The Ultra-Fast Broadband (UFB) programme in partnership with government means 82 per cent of homes and businesses now had access to fibre. This would rise to 87 per cent by end 2022. 

In addition, the Rural Broadband Initiative (RBI) was extending mobile and high-speed wireless broadband coverage to 99.8 per cent of the population by 2023. 

New Zealand currently ranked third in the world for mobile connectivity and twelfth for the impact of communications technology on a nation’s economy, digital competitiveness and future growth.

The lockdown also reinforced how those who don’t have the necessary access to affordable broadband – and the skills and devices to best use that access – were at a real disadvantage. 

TCF members were working with community groups on various subsidised broadband initiatives as well as supporting government efforts such as the Ministry of Education’s distance learning package.

The industry overall was also committed to being socially responsible when addressing financial hardship among customers, the TCF said.

However, there would come a time when some of those industry efforts for social responsibility would have to be replaced by social welfare, Thorn said.