Mobile calling gets competitive

Compared to Europe, UK and Australia the number of companies competing in New Zealand’s mobile calling market is low. The small size of our market has been a deterrent, but as Mark Jennings reports, the emergence of new players shows this is changing.

Last week, a bunch of journalists and tech writers gathered in a small, dimly lit room at Sky City to hear Australian online retailing mogul, Ruslan Kogan, launch his pre-paid mobile phone plans in New Zealand.

Kogan is the embodiment of his company’s products – efficient, no frills, and aggressively competitive.

There was no “welcome” or “it’s nice to be here”.

Kogan, dressed in a black T-shirt, got straight down to it with a bald assumption: “Kiwis have been screaming out for more mobile access”.

Whether that’s true or not, the real reason Kogan Mobile has entered the market in New Zealand is because Vodafone wants it here. Vodafone needs a product to compete at the discount end of the market but it’s not keen on using its own brand.

It could’ve done what Spark did back in 2012 with Skinny and developed a sub-brand but as new Vodafone CEO Jason Paris told Newsroom: “Why reinvent the wheel, we can save ourselves a lot hassle by going with Kogan Mobile.”

Kogan Mobile is what’s known as an MVNO, mobile virtual network operator. MVNOs are common in Europe, and in The Netherlands they’ve have captured more than 33 percent of the market.  But they have never taken off here and MVNOs have a market share of just one percent.

That rises to 5 percent if you count Skinny, which is not a true MVNO.

MVNOs don’t own or operate a physical network; instead they buy network time at a wholesale rate and sell it to their own customers.

The concept was pioneered by Virgin in the UK when it launched its mobile brand in 1999.

A report for the Commerce Commission by international consulting firm Red Dawn said the MVNO model “has gained considerable traction globally, leading to 1,482 MVNOs today.” 

These brands have approximately 337 million customers representing 4 percent of the global market.

Up until now, New Zealand has had just four true MVNOs.

Vocus, Compass and Digital Island use the Spark network and offer bundled products aimed at the business market.

Warehouse Mobile, which uses the 2 degrees network, targets the discount or low cost segment of the consumer market.

By comparison, The Netherlands has 65 MVNO brands and Australia has 40.

The Red Dawn report concluded that the size of the New Zealand market does not appear “to provide sufficient critical mass – i.e. niche segments will be small in terms of the number of subscribers”.

It identified the youth segment as a “feasible size” with an addressable market of around 640,000 people (13.35 percent of the population is aged between 15 and 24 years).

According to Red Dawn, an MVNO probably requires 50,000 subscribers to break even, so a brand would need to capture at least an 8 percent share of the youth market to turn a profit.

It is likely that Kogan will go after this segment with its pre-paid plans which can only be purchased online.

Red Dawn says operators, like Kogan, attract new customer segments that large scale operators (such as Vodafone) can’t because they “have built  a monolithic brand and do not speak the language of emerging segments.”

At the Sky City event, Ruslan Kogan’s language was centred on the word “incredible”.

Prices, deals and service were all “incredible”.

Paris described Kogan as the “Pak n Save” of telcos and acknowledged that “ this was not a market that Vodafone had been playing strongly in”.

There is no doubting Kogan’s success in Australia.  The company has signed up hundreds of thousands of customers in less than four years.

It’s best deals, which go as low as 44 cents a day, are for customers who prepay for a year.

Chris Abbott, Vodafone’s Head of Public Policy says Kogan’s “extra-large package” which offers 32 GBs of data could be 40 to 50 percent cheaper than the best deals being currently offered by the major telcos.

Kogan told journalists that his company was able to offer “incredible prices” because it is digital only and focuses on “extreme efficiency.”

“ We have the lowest cost base of any operator in the world,” he said.

One way the company saves money is by not having any staff answering telephones.

“No call centres – that is part of the business model. AI (artificial intelligence) can send (online customers) in the right direction very quickly. You’re not subsidising people who like to call customer service lines for a chat.”

Kogan told Newsroom that he had ruffled feathers in Australia with his aggressive tactics.

“A lot of competitors don’t like us because we’re always pushing the boundaries and offering amazing deals and but that just tells us we’re doing our job well – we’re a challenger brand and our customer’s opinion is the only one that matters.”

Kogan markets its products through digital channels but is trying to make some noise with a special introductory offer on its highest inclusion plan. Those who sign up this month to an annual plan for 32GB of data, and unlimited standard calls and texts to New Zealand and Australia, get the first 30 days for $4.90.

Kogan’s arrival will take some heat off the Commerce Commission which has been heavily criticised by Vocus NZ CEO Mark Callander for not regulating the mobile market so that MVNOs have a real opportunity to establish, gain scale and become competitive.

Callander said, “the fact that 99 percent of the almost 5.5 million mobile connections in New Zealand were sold directly by the three mobile network operators was clear evidence the MVNO market was not functioning”.

In a preliminary report released in May the Commerce Commission said it was satisfied that with three national mobile networks, sufficient competitive conditions at the wholesale level existed and it expected more MVNOs  would emerge if they are commercially viable.

Kogan is likely to be the first of three new MVNOs into the market.

In November 2018, Trustpower, the Tauranga based electricity generator and retailer, announced it had signed an MVNO agreement with Spark but it is yet to show its hand.

With nearly 400,000 customers across its services, the power company has a significant base to market its mobile offering to. It has already had good success bundling power, gas and broadband to consumers.

The third new player is My Republic, a Singaporean company that sells ultra-fast broadband in Singapore, Indonesia, Australia and New Zealand.

My Republic recently became an MVNO in Singapore and is chasing younger “tech savvy” customers. It has indicated it will enter the mobile market in Australian and New Zealand.

While the newcomers will find it hard going against the big three network operators the mobile market suddenly looks to have a more competitive feel about it.

* Vodafone is a partner of Newsroom.

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