Government clears path for 'new entrant' to take on Spark, Vodafone and 2degrees

Friday, 15 March 2019

The Government is taking a bet on more network competition, but freed-up radio spectrum could instead be used by emergency services.

The Government has chosen to forego almost $29 million to clear a path for a fourth mobile network operator, or a new technology provider, to take on Spark, Vodafone and 2degrees.

Ministers agreed late last month to charge Spark, Vodafone and 2degrees a total of $166 million to renew most of a key chunk of radio spectrum that they use to deliver 3G and 4G mobile services.

The deal would see most of their rights renewed for 20 years.

But a Cabinet paper released on Friday revealed that the Government had taken advantage of the rights-renewal to carve out space for a fourth operator.

Vodafone argued against having to hand back any of its spectrum, warning that could have an impact in rural areas.

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It has done that by declining each of the three mobile firms the right to renew 10MHz of the spectrum for which they currently have licences, and by taking back another 10MHz allocated to Australia's Telstra that the company does not use.

That will free-up 40MHz of spectrum from 2021 that the Cabinet paper said could be 'allocated to a new entrant to the mobile market to increase competition'.

Alternatively, it could be used for some 'newly-emerging technology' or put to some other use, such as a dedicated network for emergency services, it said.

One new potential entrant had argued against Spark, Vodafone and 2degrees being able to renew all their rights and had expressed an interest in securing freed-up radio spectrum, the Cabinet paper said.

CallPlus founder and Hawaiki Cable investor Malcolm Dick has expressed an interest in taking on the big telcos.

Blue Reach – founded by former CallPlus founder and Hawaiki Cable investor Malcolm Dick – had lobbied for spectrum to be reclaimed by the Government and set aside for new competitors, it noted.

Dick said in 2016 that his plan was for a wireless internet business that would also offer a service akin to a mobile phone service.

Spark spokesman Andrew Pirie was cautious.

'In principle, we support competition [but] we are not sure the market in New Zealand is of the size to sustain four healthy players,' he said.

The Cabinet paper shows Vodafone – which will lose a fifth of its spectrum in the 1800MHz band – fought against the government proposal.

'Vodafone has used its allocation in the 1800MHz band as the backbone of its 4G mobile network and has invested in equipment which can use all 50MHz of its allocation in that band,' it said.

'Vodafone says that removing 10MHz of its allocation in the 1800MHz band would be especially problematic in rural areas.'

The company has been contacted for comment.

The Cabinet paper said the three existing mobile operators would be able to mitigate the impact of losing spectrum in the 1800MHz band 'and avoid any reduction in the quality of service' by bringing forward technology investments, and by investing in 5G.

While bringing forward those investments would cost them millions of dollars, that would be 'largely offset' by the savings they would make from not being allowed to pay to renew all their spectrum, officials from the Ministry of Business, Innovation and Employment suggested.

Cabinet agreed – against the advice of Treasury – that Spark, Vodafone and 2degrees should be allowed to pay the $166m to renew the bulk of their spectrum rights in equal instalments over five years, rather than having to pay upfront.

Interest 'charged a rate that reflects commercial risk' would apply.

The decision to allow payment by instalment appears a concession to 2degrees, which does not have the deep pockets of Spark and Vodafone.

Spark and 2degrees will each need to pay just over $50m to renew 70MHz of spectrum in the 1800MHz and 2.1GHz bands while Vodafone has a bill of just under $65m to renew its rights to 90MHz.