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TRANSCRIPT
Promoting a vibrant mobile market in New Zealand
Trustpower Limited
3 November 2015
Contents Page
1 Introduction 1
2 The lack of dynamic services-based competition in New
Zealand 2
3 What New Zealand may be missing out on… 5
4 Overseas regulatory approaches to MVNOs 8
4.1 Who regulates for MVNO access? 8
4.2 Why regulate for MVNO access? 10
4.3 Why the arguments against MVNO access are wrong. 12
5 Proposal for New Zealand 14
Attachment A Case Studies of MVNO Innovation
Attachment B Global Approaches to MVNO Regulation
page | 1
1 Introduction
The New Zealand Government’s discussion paper for the Telecommunications Act review states that
regulation has been successful in promoting investment by, and competition between, the three
mobile network operators (MNOs) (Spark, Vodafone and 2degrees).1
However, the discussion paper also acknowledges the ‘low number of mobile virtual network
operators (MVNOs) operating in New Zealand’,2 and that the ‘emergence of MVNOs may promote
competition and investment in both mobile and fixed markets’.3
In this report, we:
• show how materially out of step New Zealand is with comparable markets by not having a
competitively significant level of MVNO activity;
• discuss how MVNOs can contribute to a deeper, more vibrant mobile market through
innovations in pricing, customer services and products;
• analyse why policy makers and regulators in a number of other comparable jurisdictions have
regulated MVNO access out of concern that (due to the structure of their mobile markets) MNOs
will have a common interest in restricting downstream services-based competition against their
retail arms; and
• propose to regulate wholesale mobile services and, in doing so, define the services to maximise
innovation opportunities, including putting in place a mechanism for price and non-price
regulation consistent across fixed and mobile wholesale services. This common regulatory
framework would include cost-based pricing principles, with the Commerce Commission using a
Building Block Model.
1 Regulating communications for the future, Review of the Telecommunications Act, September 2015, at para 5.1.4. 2 Ibid. 3 Ibid, 18; 53.
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2 The lack of dynamic services-based competition in New Zealand
New Zealand stands out amongst developed economies for the very low level of services-based
competition in markets downstream from the MNOs.
Most developed countries have highly dynamic services-based competition, with dozens, and
sometimes hundreds, of MVNOs competing against each other and against the retail arms of the
vertically integrated MNOs.
As Figure 1 below shows, MVNOs across a range of other developed countries can account for
anywhere between 10% to 40% of retail market share. In contrast, New Zealand has 6 MVNOs
accounting for less than 2% of the retail mobile base.
Figure 1: Number of MVNOs tracked against market share4
The presence of a vigorous MVNO sector is not necessarily a function of a mobile market being larger
than that found in New Zealand. As Figure 1 shows, countries which face similar challenges of scale
and which have 3 or fewer MNOs, such as Norway, Australia, Ireland and Austria, have many more
MVNOs, accounting for 6 to 20 times more market share than the current pool of New Zealand
MVNOs.
The Commerce Commission has found that New Zealand’s entry level mobile plans compare well
with other countries. However, given the rising demand for high bandwidth data services, the future
driver of consumer welfare will be in mobile broadband, not ‘plain old mobile voice’ and simple data
services like SMS. According to the Cisco VNI Global Mobile Data Traffic Forecast, 2014 – 20195, the
demand for mobile data by New Zealand domestic and business consumers is expected to increase
seven fold between 2014 and 2019, a compound annual growth rate of 48%.
4 Data drawn from a variety of sources, primarily OECD, 2014, “Wireless Market Structure and Network Sharing”, OECD
Digital Economy Papers, No. 243, OECD Publishing; and McKinsey & Company, Virtually mobile: what drives MVNO success, June 2014, p3; Pyramid Research, Market Opportunities and the Evolution of MVNO Business Models in Western Europe, 2014. For a more comprehensive list of sources please refer to Attachment B.
5 Available online at http://www.cisco.com/assets/sol/sp/vni/forecast_highlights_mobile/index.html
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No. of MVNOs
Market Share (as an overall
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Yet New Zealand compares poorly on mobile plans bundling higher calls and data usage compared
with other countries, as set out in Figure 2.
Figure 2: Comparison of New Zealand higher value monthly plans to comparable jurisdictions6
Most of those countries with low price points for 5GB 4G services have a robust level of MVNO
activity based on overall market share. Table 1 below extrapolates the data used for Figure 2 to
assess each country’s 5GB tariff pricing as a percentage of New Zealand’s 5GB tariff.
Table 1: Relative price outcomes for higher value plans in markets with higher MVNO activity than
New Zealand7
Country Relative Price (% of NZ 5GB
tariff)
MVNO Aggregate Retail
Market Share (% of total
market)
New Zealand 100% <2%
Denmark 12% 7.5%
Italy 17% 5.7%
France 25% 10.5%
United Kingdom 31% 15.6%
Norway 36% 15%
6 Data drawn from variously publicly available sources, including information available from each operator. 7 Data drawn from a variety of sources, primarily OECD, 2014, “Wireless Market Structure and Network Sharing”, OECD
Digital Economy Papers, No. 243, OECD Publishing; and McKinsey & Company, Virtually mobile: what drives MVNO success, June 2014. For a more comprehensive list of sources please refer to Attachment B.
page | 4
Country Relative Price (% of NZ 5GB
tariff)
MVNO Aggregate Retail
Market Share (% of total
market)
Australia 44% 13.5%
Japan 46% 7.5%
Spain 53% 12%
While the presence or absence of significant MVNO activity alone may not drive the differences
between mobile pricing in New Zealand and other countries, mobile markets which are more
dynamic than New Zealand’s invariably have a ‘critical mass’ of MVNOs in the competitive mix. These
MVNOs are operating at all levels of the value / quality chain, including the ‘higher’ end of the
market. This is driving better pricing outcomes for consumers.
While price competition benefits consumers, MVNOs can be more than just resellers and in overseas
markets the MVNO model is being used to deliver significant service and product innovation, as
discussed in Section 3 of this report.
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3 What New Zealand may be missing out on…
The Government discussion paper’s observation that the ‘emergence of MVNOs may promote
competition and investment’ is illustrated by the overseas experience of the service and product
innovation offered by MVNOs. Attachment A provides detailed examples of MVNO innovation from
around the world.
MVNO-led innovation can occur in a number of ways:
• innovation in customer service: given the focus on a niche or low margin market, MVNOs often
create unique and innovative customer service practices. MVNOs such as Telmore and CBB in
Denmark have shown the rest of the mobile market how web-based MVNOs – with no physical
distribution channels – can revolutionise customer service models, and in the space of just a few
years these MVNO models have acquired almost 20% of the Danish mobile market;
• innovation in pricing: MVNOs have not only offered lower prices, but have also developed
innovative pricing plans. The Danish MVNO, onfone, introduced the concept flat rate, ‘all you can
eat’ subscription telephone services. Data-only MVNOs in the US have offered innovative carry-
forwards and buybacks for unused data allowances, sharing of data ‘buckets’ between multiple
devices and multiple users and ‘real time’ pricing for data usage. Google’s Project Fi offers unique
international and texting options, with uniform data prices across 120 countries;
• innovation in bundling: without the capital and other commitments associated with a single
technology, and thanks to increasing technology connectivity (both device and radio frequency),
MVNOs have been able, through virtual operator or resale arrangements in other sectors, to
bundle different products with mobile services, such as fixed telecommunications services and
other utilities like gas and electricity. US MVNO Greatcall has had success offering a full-service
emergency response helpline and alert system bundled with its retail offering targeting the
elderly;
• innovation in niche marketing: MVNOs have successfully focused on niche customer segments,
such as migrant or ethnic groups, SMEs, individual professions or social groups, such as the youth
market. This ability to focus on specific areas has led to very innovative marketing strategies,
quite unlike those usually adopted by MNOs. UK MVNO GiffGaff’s engagement of the 15-24 year
old market through the use of branded social networking and peer-to-peer marketing by its users
in place of more traditional advertising targeting a broader demographic is one prominent
example of this; and
• innovation in products and services: MVNOs can access bulk airtime at wholesale rates or have
the ability to create an MVNO from various network / service components so that the MVNO can
bundle the components in way that maximises flexibility in the MVNO offering. These can
provide attractive business models to support the delivery of new services over mobile networks,
such as content-based MVNOs delivering sports, music or other streaming content.
MVNOs are amongst the world leaders in machine-to-machine (M2M) innovation. The MVNO model
is well suited to M2M services because:
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• the ‘swarm’ of high volume, low data content, low value data messages involved with M2M
represent a very different value proposition to higher value, data intensive sessions supplied to
human end users (which is the main business of MNOs);
• M2M supply chains are highly complex involving multiple providers, and require considerable
effort to put together and to manage. Again, with their broad based businesses, MNOs may not
have the focus or resources to devote the effort required to make these M2M supply chains
work; and
• many products embedding M2M devices are cross border: e.g. a European car exported around
the world. The manufacturer usually will not install country specific SIMs. Standard international
roaming services supplied by MNOs will be too expensive to support M2M services.
An M2M Case Study
A leading M2M MVNO, Kore, actively promotes itself as a better M2M partner than MNOs. While
a ‘touting exercise’, the following explanation of the advantages of M2M delivered through an
MVNO illustrates the benefits of greater diversity of choice of provider for businesses
incorporating M2M services into their products:8
As a business that exists in the white space between carriers and customers, MVNO's (mobile
virtual network operators) are often asked: ”why should we buy m2m connectivity from you
and not just go to the carrier direct?”
Carriers are monolithic and slow to respond
Think Titanic or 800 Pound Gorilla. Carriers are utilities, no matter what they try to say
otherwise. They provide a mainly public service, over large infrastructure. In order to
manage the conflicting means of many stakeholders, they simply can’t be that nimble. Every
decision has to be thunk [sic] out in case it upsets a reasonably delicate balance – e.g.
Vodafone Aus offering cheap IPhone deals in 2009/10 nearly killed their network in 2010/11.
M2m is too fickle, slippery and new for them to really get across it proactively. Choose
someone who can respond to what you are doing to innovate.
Financially there are always 99 other things carriers can do that will make more money
True. There are always lists of projects for carriers to improve networks and build new
products. Often even hundreds of competing projects. By the way that Finance Depts.
evaluate NPV and so on, m2m can virtually never rise above the noise – there will always be
many other projects more financially viable. Currently m2m is getting a lot of attention
within C level Telco offices because it is seen as “strategic” – definition – “we don’t really
know what this is but the rest of our business model is getting hammered so we think we
need to do this to keep up with the Joneses.. just in case it turns into something”. The
business model for m2m MVNOs is proven and works. They don’t have to compete with
other projects to make their business run.
8 http://www.korewireless.com.au/blog/the-top-10-reasons-why-you-buy-m2m-from-an-mvno
page | 7
The carrier business model just does not work for m2m
Carriers are built around widespread distribution chains and consumer delivery, with a small
but profitable corporate sidearm that works with business. M2m sort of fits with business,
but then it doesn’t – it has very low ARPU (Average Revenue Per User) and so works against
the way in which Telcos are judged on the stock market. There just isn’t sufficient financial
incentive to change their whole business model to accommodate m2m.
Carriers design one size fits all products
Yep – you can’t get a carrier off the shelf 250KB or less per month plan. Ya [sic] have to buy
the 100MB bolt on to a $0 sim plan? Confused? You ought to be, that is often the point -
making plans so complex, that you are forced to rely on what the sales guys tells you. M2m
can’t be sold out of a shop, or really even by a normal corporate BDM. It is different. You
sure as hell can’t get a custom plan built. MVNOs can often build custom plans or tweak
their standard offerings to really suit your needs.
Carriers always love you …. until someone better comes along
Fad driven? Oh yeah. They are a consumer driven machine. M2m is flavour of the month as is
IoT. This will fade out of corporate memory when WEB3.0 or some new way of providing
comms for a mini phone comes out and rectifies the current scare they have over the future.
This cycle has already ground round a few times since I’ve been in this sector in 2000 – it
takes around 3-5 years. Sometimes it’s CEO driven, sometimes just market trend driven - but
it always happens. Always.
MVNOs depend on their market niche to prosper. They will not desert you in 3 years or 5 or
10. M2m is a long term business.
Unless you are a big name brand they really don’t care
Most carriers think that m2m means getting Kindle or BMW onto their client roster. In the
long run I think that is correct, however the collateral damage is that they over-forecast and
in order to meet these huge targets, go out after everything they can get. Then later they
pare back on the smaller/medium customers, who they are just not set up to work with in
any case. It’s a reality.
An MVNO will stick around for breakfast and for a long time.
page | 8
4 Overseas regulatory approaches to MVNOs
4.1 Who regulates for MVNO access?
Regulated access for MVNOs is in place in many countries around the world, including Germany,
France, Ireland, Spain, Norway, Brazil, Malaysia, and Mexico.
MVNO regulation often takes three forms:
• as a condition for the award of spectrum: for example, a 30% capacity reservation for MVNOs
was applied to all 3G licenses in Hong Kong while in Ireland an MVNO requirement was applied
on one 3G licence and not on the other 2 licences;
• as a regulated access service, often based on an assessment of either single firm dominance of
the leading MNO as in South Korea, or joint dominance between the MNOs, as in Spain; or
• as a condition required for a merger between MNOs to proceed, as in the merger between
Hutchison and Telefonica O2 in Ireland, Telefonica O2 and E Plus in Germany and Hutchison and
Orange in Austria.
Table 2 below summarises our findings. More details in relation to various countries and the form of
regulatory access are set out in Attachment B.
Table 2: Overview of Overseas MVNO Regulation9
Country Spectrum licensing Access regulation Merger regulation
South Korea ���� ���� ����
Japan ���� ���� ����
France
���� ����
(threatened
regulation)
����
Hong Kong ���� ���� ����
Ireland ���� ���� ����
9 See Attachment B for further information, including source material.
page | 9
Country Spectrum licensing Access regulation Merger regulation
Spain ���� ����* ����
Germany ���� ���� ����
Malaysia ���� ���� ����
Chile ���� ���� ����
Austria ���� ���� ����
Denmark
���� ����
(initial regulatory
approach)
����
While the forms of MVNO regulation may differ, they are directed to the common objective of
ensuring competition at the services level on mobile networks.10 The policy or regulatory decision to
intervene behind these different forms of regulation is the same – MVNOs will deliver competitive
benefits to end users but, left to their own devices, MNOs will not provide the necessary wholesale
supply to allow MVNO entry.
MVNO regulation was initially applied in a number of countries but was subsequently withdrawn or
not rolled forward into new mobile technologies because the regulation had been successful in
achieving the entry of MVNOs into the market:
• Hong Kong did not apply its 30% open network access rule to 4G spectrum auction because “the
market environment has changed rapidly over the past decade or so, and more spectrum has
been released to the market subsequent to the assignment of the 3G Spectrum in 2001”11 and as
a result, the regulator was of the view that the market would deliver commercial outcomes for
MVNOs without the need for a regulatory back stop; and
• following the European Commission’s removal in 2007 of mobile markets from its list of
recommended markets, the Danish regulator re-assessed its mobile market and decided that the
wholesale mobile services market was sufficiently competitive. By that time, MVNOs were well
established in the Danish market, and, as noted above, transforming customer service models.
10 The form of regulation chosen to implement MVNO access reflects country-specific factors such as where the country was
in the cycle of spectrum allocation and the telecommunications and competition powers available to the regulator to intervene to achieve the objective of services-based competition.
11 Communications Authority and the Secretary for Commerce and Economic Development, ‘Arrangements for the Frequency Spectrum in the 1.9 – 2.2 GHz Band upon Expiry of the Existing Frequency Assignments for the Provision of 3G Mobile Services and the Spectrum Utilisation Fee’ (15 November 2013), 27.
page | 10
The imminent threat of regulation also has achieved commercial wholesale arrangements for
MVNOs. In 2005, the French regulator, ARCEP, had published a draft finding of joint dominance
between the MNOs in its market and was proposing to regulate access for MVNOs. Before ARCEP
concluded its review, the MNOs reached agreements with MVNOs and the European Commission
advised ARCEP that the rationale for market intervention no longer existed.
In 2013, the French competition authority concluded that MVNOs were not in a position to compete
with the incumbents due to restrictive wholesale contract conditions. To enhance the development
of MVNOs, the Competition Council recommended that competition in the MNO wholesale market
be strengthened through ex ante measure ancillary to the assignment of frequencies. Bids for the
recent spectrum auctions for the 800 MHz and 2.6GHz frequencies included a test for hosting
MVNOs with the objective of encouraging candidates to offer favourable conditions for the hosting
of MVNOs on their network.12
4.2 Why regulate for MVNO access?
MVNO competition exists in many countries where MVNO access regulation has never applied. This
demonstrates two things: First, that the MVNO business case is not an artificial construction of
regulators and regulation. But second, where, as in New Zealand, there is an absence of significant
MVNO-based competition, there may be a ‘market failure’ which warrants intervention, as has
occurred in other countries.
So, why might there be a market failure in the New Zealand mobile market?
When vertically integrated operators earn high or strong returns in downstream retail markets, entry
will be attractive for new operators. But entry at the infrastructure level has high barriers to entry –
the need for spectrum and the high capital costs to build a new network. Entry at the services level
can have lower barriers to entry, and will be the more feasible avenue for increased competition in
mature mobile markets.
Of course, entry at the services level is dependent on the willingness of the vertically integrated
operators to supply wholesale services. While competitors against each other, the vertically
integrated operators have a common interest in resisting entry or permitting entry on terms which
hobble the entrants’ ability to compete. This might not be the result of explicitly agreed or
coordinated behaviour between the MNOs – instead, the MNOs may individually decide that MNO
access should be prevented or restricted. It is their mutual self-interest which provides the collective
outcome of limited downstream competition.
This ability of MNOs to act in a common way to resist or limit MVNO entry falls part if there is
sufficient competition at the wholesale level. Even though an MNO will recognise they may be
trading off retail margin for wholesale margin, it will face the risk that if it does not supply services to
the MVNO seeking wholesale supply, one of its MNO competitors will in mature mobile markets.
Churn of its retail customers to a MVNO hosted by another MNO will result in a 100% loss of margin.
In small 3 MNO markets, the fear that an individual MNO will lose out if it does not wholesale may
not be sufficiently strong to overcome the MNOs mutual self-interest in restricting downstream
competition. The competitive dynamics of 3 MNO markets have been considered by the European
Commission in the context of ‘4 to 3’ mergers between MNOs. In ‘4 to 3’ mergers in Ireland, Austria
12 However, competition concerns over MVNO access have continued to persist in France in the absence of regulation.
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and Germany, the European Commission imposed conditions or accepted commitments requiring
MVNO access by the merged MNO entity.
In the Telefonica-E Plus merger in Germany, the European Commission concluded: “the Commission
considers that the reduced competitive pressure on the wholesale market due to the reduction in the
number of suppliers from four to three is likely to have a negative impact on the merged entity's
incentive to grant wholesale access at attractive commercial terms.”13 The Commission considered
that the shift from 4 MNOs to 3 MNOs was more than an increment step, but that the individual and
collective incentives of MNOs were fundamentally different in a 3 MNO market. The Commission
agreed with commentators that in a 3 MNO market, an MNO was more likely to achieve the
necessary minimum scale through its own retail operation, and therefore would have less incentive
to host MVNOs at the risk to its retail margins:14
In the Commission’s view the proposed transaction is likely to decrease the merged entity’s
incentives to grant wholesale access on favourable terms to MVNOs and Service Providers, as
it will benefit from a larger customer base and an increased brand portfolio. Moreover, in an
environment characterised by reduced competitive pressure compared to today's four player
market, the merged entity is likely to be more reluctant to share new technologies, such as
4G, with its wholesale partners. In addition, the Commission considers that the decrease of
competitive pressure on the retail market is also likely to have negative impact on the merged
entity's incentive to compete aggressively on the wholesale market.
[T]he Commission considers that the main commercial incentives for an MNO to grant
wholesale access to its mobile network consist of (i) a better utilisation of network capacity,
which leads to economies of scale, as well as (ii) of the ability to reach customer groups that it
cannot effectively reach with its own brands.
A number of respondents to the Phase I Market Investigation considered that following the
proposed transaction, the main considerations and incentives to grant wholesale access to its
network would change for the merged entity. These respondents are of the view that the
merged entity would need less MVNOs and Service Providers compared to each of the two
Parties on a stand-alone basis to optimise the use of its network, generate economies of scale
and to reach customer groups, which each of the Parties alone could not reach as effectively.
The following quote (translated from German into English) is a representative example of the
concerns voiced in the Phase I Market Investigation: "[f]ollowing the concentration,
significantly more own customers will be supplied via ONE own network. Therefore, the
degree of network utilisation will significantly increase with the merged entity's] own retail
customers and the necessity of wholesale offers will decrease."
While expressed in the context of a merger which reduces to a market to a ‘3 MNO market’, these
concerns about MNO incentives to commercially negotiate MVNO access are as relevant to a market,
like New Zealand, which is currently at the 3 MNO level and where additional facilities entry is highly
unlikely.
There are some countries with only 3 MNOs where there is still vibrant MVNO activity, such as
Australia. Australia also had a ‘4 to 3’ MNO merger, but the ACCC did not impose an MVNO access
13 Telefonica Deutschland/ E Plus 2 July 2014, 139/2014, at para 812:
http://ec.europa.eu/competition/mergers/cases/decisions/m7018_20140702_20600_4149735_EN.pdf 14 Ibid, paras 804-806.
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condition. However, MVNOs were already well established in the Australian market by the time of
the merger, and the MVNO sector had the ‘competitive momentum’ to continue in a 3 MNO market.
The competitive tension between the 3 New Zealand MNOs, at least at the wholesale level, is likely
to be less than in other 3 MNO markets because:
• 2degrees is a relatively late entrant into a well-established duopoly market;
• 2degrees has a more ‘limited’ national network than the other two operators and remains
dependent on roaming from the established MNOs. The terms of 2degrees roaming
arrangement are not public and it is unclear whether there are direct or indirect restraints on
2degrees resupply of roaming. Reliance on roaming on a third network also can complicate and
limit the flexibility and functionality of the wholesale service provided to an MVNO; and
• 2degrees, in opposing the clearance of the allocation of 700MHz spectrum to Vodafone and
Spark, identified its spectrum capacity constraints as hindering its ability to compete at the
wholesale level:15
Currently only Telecom and Vodafone supply wholesale MVNO services. Retailers that use
wholesale MVNO services have made little headway in gaining retail market share. This could
indicate that the terms available to wholesale MVNO customers do not allow them to compete
aggressively in the downstream market, from which one could infer that competition in this
market is weak.
2degrees is a potential entrant into the supply of wholesale MVNO services and its entry could
result in significant disruption through applying significant competitive pressure to existing
suppliers. As a growing network with traffic volumes that are lower than its rivals, 2degrees
would have an incentive to acquire MVNO customers as a means for more quickly acquiring
economies of scale. However its incentives to enter and compete actively in this market would
be affected by capacity constraints. In particular, it seems much less likely that 2degrees would
seek to enter the wholesale market aggressively if it was concerned about capacity constraints
in serving its own retail base. Spectrum allocations will have a direct impact on capacity and as
a result could directly impact on the extent of competition in this market.
4.3 Why the arguments against MVNO access are wrong.
The opponents of regulated MVNO access argue that it will undermine investment incentives for
MNOs. Competition between MNOs and MVNOs is not a ‘zero sum game’.
First, increasingly, innovation is also occurring at layers above the radio access network and the core
network controlled by MNOs - at the OTT or applications layer or through platforms and devices at
the network edge. These are innovation spaces in which MVNOs can operate without needing to be
vertically integrated down into the basic network. MNOs also compete in some of these spaces as
they seek to develop higher value services for their customers. But as discussed in Section 3, the
environments for mobile broadband are so rich, diverse and dynamic that MNOs cannot be expected
to be able to identify and fully exploit every opportunity to innovate. Opening up the opportunities
for other players to innovate at the services and applications level will expand mobile penetration,
usage and consumption.
15 Covec report for 2degrees, 26 November, 2013, 10.
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Second, there can be circularity in the MNO argument that MVNOs are engaged in no more than
arbitrage and their benefits to end users are only in the form of short term price competition. The
form and extent of downstream competition in which MVNOs can engage can be limited by the
wholesale input offered by the MNOs. If all that is on offer from the MNOs is a slower speed
wholesale product (e.g. 3G with the MNO reserving 4G to its own retail arm) or ‘while label’ versions
of the MNO’s retail plans (e.g. the same plan as retail but with a percentage discount), MVNOs are
inevitably confined to be resale. MVNOs will have the opportunity to engage in price, service and
product innovation when they are able to acquire from MNOs ‘true’ wholesale products where
pricing is decoupled from an MNO’s own retail pricing strategy and the wholesale service is not
technically ‘throttled’.
Third, if MVNOs did impact investment by MNOs, this would be expected to show in
underperformance in mobile broadband penetration or speeds, but this is not the case. Markets
with significant MVNO presence, such as Australia, the UK, the US and Germany, have some of the
highest penetrations of mobile broadband, as Figure 3 below shows.
Figure 3: Total mobile broadband subscribers by country16
In some of these markets, MVNOs are the result of commercial negotiation, such as the UK, while in
others they are regulated (through various forms), such as Spain, Germany and France.
Mobile broadband speeds in markets with significant MVNO competition are faster or similar to
those in New Zealand, as Figure 4 shows.
16 http://www.oecd.org/internet/broadband/oecdbroadbandportal.htm
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Figure 4: Mobile broadband speeds by country17
Again, some of the markets with fast mobile broadband speeds have or have had some form of
MVNO access regulation, including Ireland, Japan, France and Spain.
The most persuasive argument against MVNO regulation is that the market will deliver effective
MVNO competition without regulation. But this is not the case in New Zealand. Not only do the
current MVNOs have a low market share, but their activities appear to be confined to limited resale
competition or niche markets. The MVNO strategy of the New Zealand MNOs seems to be to treat
MVNOs as another channel to the retail market, much like a dealer, or to be able to point to the bare
existence of MVNOs in the New Zealand market as a foil to possible future regulation.
5 Proposal for New Zealand
While acknowledging the competitive benefits of more effective MVNO competition, the
Government’s discussion paper proposes to make no regulatory change to require MVNO access
because the Commerce Commission has sufficient powers to act if it wants.
The same argument could be made about any of the fixed services which are explicitly regulated by
the Telecommunications Act.
As there is evidence of market failure, the Government should act through this review to mandate
MVNO access.
The time that it would take the Commerce Commission to act – either through its general
competition powers or through a Schedule 3 inquiry – will only further delay the benefits to end
users of a richer, more vibrant mobile market. The pace of developments in mobile broadband
suggests that even a limited period of delay will result in a significant loss for consumers.
17 http://www.oecd.org/internet/broadband/oecdbroadbandportal.htm
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The challenge is to find a way of unlocking the mutual, self-reinforcing interests of the MNOs to
restrict MVNO activity to marginal levels. We believe this could be achieved by a fit-for-purpose
regulatory approach which is consistent with the approach for fixed line services but acknowledges
the difference in investment cycles and risks between fixed line and mobile networks.
Our proposal is that:
• wholesale mobile services should be regulated under the Telecommunications Act;
• the wholesale service should be defined in a way which allows the MVNO to maximise the
opportunity to innovate by:
o ensuring 4G services are available on a wholesale basis (not white label / pure resale);
o negotiating its own international roaming arrangements;
o connecting its own value added platforms to the mobile service;
o displaying its own retail name or network identification on the end user handset; and
o supplying its own SIMs; and
o using its own mobile network codes;
• the mechanism for price and non-price regulation should be consistent across fixed and mobile
wholesale services. The principle of intervention is the same – the absence of sufficient
competition in upstream markets. A common regulatory framework makes sense in the rapidly
converging environment of fixed and mobile services; and
• this common regulatory framework would include cost-based pricing principles, with the
Commerce Commission using a Building Block Model (BBM). The BBM approach has sufficient
flexibility to deal with differences in the investment cycle and risk profiles of mobile networks
compared to fixed networks, such as the possibility of shorter investment recovery periods for
mobile networks and any higher risks.
page | 16
Attachment A Case Studies of MVNO Innovation
Annex 1: Case studies of MVNO innovation18
Carrier Plan/Service Features
United States
Karma Mobility Data only plans
$14/GB
$59/5GB (save $10)
$99/10GB (
- Purchase a portable/pocket wifi hotspot device to use the service
- Social model for sharing bandwidth i.e. connect up to 8 devices.
- PAYG with data carryover (data doesn’t expire at end of month, use what you buy)
- Discounts for buying in bulk.
Ting Minutes, Messages and
Megabytes - 7 bundle levels with caps on message, minutes, and megabyte buckets.
- Customers only pay for the level they reach; if the customer uses less than expected, they are bumped down a level
and receive a credit.
- Use up to 6 phones under one account.
Project Fi $20 plan (unlimited talk and
text) + $10 per GB of data - Credit for unused data: 1 cent per unused MB.
- Fixed data cost in 120+ countries
- Fixed calling costs when roaming (20c per minute + unlimited texts)
Greatcall Medical alert/urgent
response service
Adjusted mobile phones .
- Targeting elderly market.
- Splash: one-touch medical alert device including GPS locator service and two-way communication (monthly packages,
with three levels of service.
- Jitterbug adjusted (easy to use) mobile phones with variety of health and medication management apps.
- Choice of voice/text/health services bundles
- Basic plan includes one-touch urgent care app and Link App to keep friends/family updated about health/safety.
- Additional services include check-in calls, access to health professionals for over-the-phone advice.
Movida Hispanic market - low-cost flat fees of 20 cents per minute
- calls to Mexico at only five cents per minute and attractive fees to other
- Latin American countries
- outgoing SMS at only 10 cents per message
18 Information gathered from publicly available information published by the applicable MVNOs.
page | 17
Carrier Plan/Service Features
Operates its mobile business
and services in Spanish as the
primary language
Provides personalised
language and value-added
services to Hispanics
including:
- prepaid offerings for customers who cannot obtain credit approval
- distribution channels convenient for Hispanic communities.
Spain
Panasonic Systems
Communications
Company Europe (PSCEU)
M2M - 2 March 2015 Panasonic has launched its Mobile Virtual Network Operator service, allowing its business devices to
connect with the M2M cloud.
- Panasonic will integrate mobile connectivity across product lines, allowing them to access new Panasonic M2M cloud
services. These could include remote monitoring, data collection and analysis.
- The first product to utilise the M2M network will be the Panasonic Nubo, the industry's first mobile connected 4G
monitoring camera.
- Panasonic also launched two M2M services using the MVNO: remote projector and display monitoring (in use at
Cardiff University), and remotely controlled heating/cooling solutions.
Read more: http://www.prnewswire.com/news-releases/panasonic-launches-mvno-services-for-connected-products-at-
mobile-world-congress-300043096.html
Japan
Japan Communications
Inc. (JCI)
M2M - JCI provides machine-to-machine (M2M) applications. JCI was the first company to offer a dual network solution to
ATM (automated teller machine) operators, combining its PHS service with 3G service in a custom router to ensure
very high availability. As a part of that same offering, JCI includes its PWLL (Private Wireless Leased Line) service,
which is an end-to-end private network solution that ensures financial data cannot be stolen or compromised while in
transit. This service can reduce ATM operators’ average cost for connectivity from over $800 per month to around
$30 per month, while maintaining security standards for financial transactions.
- In 2004, JCI formed a partnership with HP Japan and Panasonic to create notebook PCs embedded with the ‘Telecom
Battery’ (M2M telecom service function pre-installed) to allow internet connection from Start up.
page | 18
Carrier Plan/Service Features
- In 2006, TOLED launched its LED Electronic Display Systems embedded with the JCI ‘Telecom Battery’ see:
http://www.j-com.co.jp/en/release/press_060405-ENG.pdf
- 2012, JCI launched its health check-up station business, and M2M solution (I can’t find a lot about this)
United Kingdom
GiffGaff Crowd-sourced MVNO
Giffgaff money
- Relies extensively on crowdsourcing in its business model. Subscribers are awarded points and are encouraged to
answer other customer support enquiries or submit ideas for marketing, advertising or pricing models. Users can then
convert these points to cash, mobile credit, or donations to charity.
- Unlocks consumer handsets for free.
- Giffgaff money: Peer 2 Peer money lending service in partnership with RateSetter. Initially set up to enable
customers to purchase new phones, expanded for flexible personal loans. https://www.giffgaff.com/peer-2-peer-
lending
Lebara Large scale MVNO offering
full spectrum of plans and
services; aiming to target
media market more
extensively.
- Adding a range of services covering entertainment, finance and communications, including a free voice-over-internet-
protocol (VoIP) and messaging app called Lebara Talk.
- Lebara is also in the process of launching an online Digital Charging System which will provide a single sign-on process
for new and existing Lebara services, delivered and integrated by Chinese networking supplier Huawei.
PLDT UK Filipino market - Local and international Pass-a-load and E-Load services, affordable Data bundles, free 24/7 Filipino-speaking
customer service.
IDMobile Fullscale MVNO - Free 4G and free roaming across the EU.
Italy
Poste-Mobile ‘SuperSim NFC’ - Enables customers to use the PosteMobile app every month to pay bills, transfer funds in Italy and overseas, and buy
goods and services.
- Also carries a range of additional features including transport payment facilities as well as loyalty and couponing
programmes.
page | 19
Attachment B Global Approaches to MVNO Regulation
Regulation
model
Country MVNO entry facilitation No of
MNOs
No of
MVNOs
(may incl
resellers)
Notes and comments
Spectrum
licensing
Access
regulation
Merger
regulation
Entry
intervention by
forced network
access
South Korea ���� ���� ���� 5 2719 • Regulator used its access regulation powers on MNOs with SMP
under the Telecommunications Business Act to facilitate entry by
MVNOs, including by imposing wholesale charges and requiring
Korea’s largest MNO to open up its network to MVNOs.
Japan ���� ���� ���� 5 35420 • MVNO-specific guidelines require MNOs to open their networks to
MVNOs unless there are justifiable reasons for rejecting access. In
one case, the regulator decided that an MNO was required to
grant access to its network to a proposed MVNO after it had failed
to do so previously.
• In addition, assignment of licences for the 900 MHz frequencies
subject to commitments by the licensee to host MVNOs.
France ���� ���� ���� 4 5921 • Regulator’s proposed legislation in 2004 to force MNOs to give
reasonable wholesale access to MVNOs was ultimately abandoned
because the EC vetoed the proposed measures as MNOs had
entered into commercial arrangements with MVNOs,
demonstrating that such mandatory access measures were
unnecessary.
• However, the French Competition Council has advocated for ex
ante regulation ancillary to spectrum licensing on several
19 Korea Investment and Securities Co., Ltd. “’Telecom Services – sector brief” (7 January 2014). 20 OECD, 2014, “Wireless Market Structure and Network Sharing”, OECD Digital Economy Papers, No. 243, OECD Publishing, Annex 1 p75. 21 Authorite de regulation des communications electroniques et des postes (ARCEP), “The mobile services observatory for Q1 2015” (18 May 2015)
page | 20
Regulation
model
Country MVNO entry facilitation No of
MNOs
No of
MVNOs
(may incl
resellers)
Notes and comments
Spectrum
licensing
Access
regulation
Merger
regulation
occasions and as recent as 2013 as it had found that MVNOs were
not in a position to compete with MNOs primarily due to
restrictive contract conditions.
• Currently, the assignment of 3G and 4G licences are subject to
commitments by MNOs to host MVNOs and provide reasonable
pricing. One MNO for example made considerable commitments
to unlock technical, price and contract conditions proposed to
MVNOs with an express reference to the Competition Council’s
opinion.
Hong Kong ���� ���� ���� 3 11 • Assignment of current 3G licenses is subject to an open-network
access requirement of 30% for MVNO use.
• However, the Open Network Access requirement will not be
applied to the next issuing of 3G assignments in 2016 because the
market environment was found to have changed so significantly
that there was sufficient network design capacity to accommodate
all demand, including more capacity than demand on the 4G
networks.
Ireland ���� ���� ���� 4 822 • Regulator’s licence framework for 3G spectrum evaluated bids in
terms of willingness and terms for facilitating MVNOs. Currently,
only the licence held by Hutchison 3G UK contains a condition in
respect of MVNO access that requires it to negotiate an
agreement with an MVNO within a reasonable period if that
MVNO requires access as is considered reasonable.
22 Piran Partners, “MVNO Observatory Annual Report on the UK Market” (March 2014)
page | 21
Regulation
model
Country MVNO entry facilitation No of
MNOs
No of
MVNOs
(may incl
resellers)
Notes and comments
Spectrum
licensing
Access
regulation
Merger
regulation
• The EC has raised concerns that the proposed acquisition of
Telefónica Ireland by Hutchison 3G UK would lead to a significant
reduction in the number of MNOs that are effectively willing to
host MVNOs. It has noted that “[p]rospective and existing MVNOs
would have less choice of host networks and hence weaker
negotiating power to obtain favourable wholesale access terms”.
Whilst the EC’s assessment is ongoing, Hutchinson has reportedly
offered to sell spectrum and offer network access to MVNOs as
“Commitments” in order to approve the merger.23
Spain ���� ���� ���� 4 3524 • In 2006, the regulator introduced measures mandating that MNOs
grant access to MVNOs at reasonable prices. These measures
were endorsed by the EC on the basis of evidence presented by
CMT that the market was not sufficiently competitive and that the
three MNOs at the time held a position of “collective dominance”.
• In 2011, in addition to the mandatory access requirement
imposed on MNOs, the Government assigned 900MHz licenses on
condition that licence holders give network access to MVNOs.
• Since 2012, the regulator has been undertaking a review of the
MVNO market. Its draft proposed measures envisage the
elimination of the wholesale access requirements on MNOs given
the access conditions on issued spectrum licenses and the
increasingly competitive market over the past six years. However,
the regulator would continue to be responsible for resolving
23 Piran Partners, “MVNO Observatory Annual Report on the UK Market” (March 2014) 24 Piran Partners, “MVNO Observatory Annual Report on the UK Market” (March 2014)
page | 22
Regulation
model
Country MVNO entry facilitation No of
MNOs
No of
MVNOs
(may incl
resellers)
Notes and comments
Spectrum
licensing
Access
regulation
Merger
regulation
conflicts (as is the case already) where MNOs fail to reach a
mutually satisfactory agreement.
Germany ���� ����* ���� 4 9025 • There are no MVNO related regulatory requirements.
• **However, the Bundesnetzagentur (national regulator), has set
out principles for the regulation of next generation access (NGA)
networks which are used to inform decisions made by the
regulator, which has a broad discretion .
• The acquisition of e-Plus by Telefonica Deutschland (O2) became
palatable to the regulators and the European Commission through
concessions at wholesale level. Telefonica committed “to enter
into capacity based wholesale agreements with one or several (up
to three) Upfront Mobile Bitstream Access MVNOs (“Upfront MBA
MVNOs”) in Germany prior to the closing of the merger.”
Malaysia ���� ���� ���� 4 8 • In 2005, the regulator published guidelines reflecting its position
on MVNO access conditions attached to 3G licences. The
regulator will evaluate bids in accordance with infrastructure
sharing criteria, including (a) sharing or allowing access to airtime
and network facilities; and (b) maximising use of existing network
facilities including capacity to enhance sharing and reduce
duplication of network facilities.
• The guidelines also state that the regulator does not intend to
regulate the terms and conditions of access for MVNOs due to a
25 McKinsey & Company, Virtually mobile: what drives MVNO success, June 2014, p3; Pyramid Research, Market Opportunities and the Evolution of MVNO Business Models in Western
Europe, 2014
page | 23
Regulation
model
Country MVNO entry facilitation No of
MNOs
No of
MVNOs
(may incl
resellers)
Notes and comments
Spectrum
licensing
Access
regulation
Merger
regulation
lack of evidence of market failure. However, the regulator may
intervene if it is satisfied that such intervention is necessary.
Chile ���� ���� ���� 4 626 • Regulation is rapdily changing the market with over 20
applications to become MVNOs submitted over last 18 months.
• In 2014, complying with a ruling of the Supreme Court of Justice,
dominant mobile operators had to submit an offer of facilities
and/or resale of plans for MVNOs, based on general, standardised,
objective and non-discriminatory criteria.
• In July 2014, with the aim of increasing competition in the mobile
market and promote the entry of MVNOs, the Undersecretary of
Telecommunications executed a Citizen Public Consultation of the
draft of forthcoming regulation to complement the text of the
General Law of Telecommunications in this topic.
Austria ���� ���� ���� 3 1627 • In 2013 3 Austria acquired the network and assets of Orange,
consolidating the market to three network operators, while the
number of MVNOs and resellers is growing steadily. This was
made possible by regulatory concessions by which 3 Austria, as
part of its Orange take-over, must provide 30% of network
capacity to support up to 16 MVNOs.
26 MVNO Dynamics, “MVNOS in Chile: The Opportunity” (March 31 2015). 27 McKinsey & Company, Virtually mobile: what drives MVNO success, June 2014, p3; Pyramid Research, Market Opportunities and the Evolution of MVNO Business Models, 2014
page | 24
Regulation
model
Country MVNO entry facilitation No of
MNOs
No of
MVNOs
(may incl
resellers)
Notes and comments
Spectrum
licensing
Access
regulation
Merger
regulation
Mexico 3 628 • MVNOs have <1%29 market share.
Brazil 4 930 • MVNOs have <2% market share.
Iceland 4 531 • MVNOs have <2% market share.
Peru 3 432 • MVNOs have <3% market share.
Slovenia 4 6 • MVNOs have 5% market share.33
28 https://www.mvnodynamics.com/ 29 Patricia Rey, Business Insight in Latin America (http://www.bnamericas.com/en/news/telecommunications/ift-to-draft-regulation-on-mvnos) 30 https://www.mvnodynamics.com/ 31 https://www.mvnodynamics.com/ 32 MVNO Dynamics, “MVNOS in Peru: The Opportunity” (March 31 2015). 33 Pyramid Research, Market Opportunities and the Evolution of MVNO Business Models in Western Europe, 2014
page | 25
Regulation
model
Country MVNO entry facilitation No of
MNOs
No of
MVNOs
(may incl
resellers)
Notes and comments
Spectrum
licensing
Access
regulation
Merger
regulation
No intervention
(subject to
commercial
arrangements
between MNOs
and MVNOs)
Denmark ���� ���� ���� 4 3534 • The regulator previously imposed an obligation on MNOs to
provide wholesale access for MVNOs on objective, transparent
and non-discriminator terms. These obligations were revoked in
2007 after the regulator found that there was effective
competition in the market rendering the need for regulation
unnecessary.
Australia ���� ���� ���� 3 3535 • There are no MVNO related regulatory requirements.
New Zealand ���� ���� ���� 3 636 • There are no MVNO related regulatory requirements.
United
Kingdom
���� ���� ���� 5 15037 • There are no MVNO related regulatory requirements beyond those
in the published General Conditions of Entitlement to open
networks to MVNO voluntarily.
Italy ���� ���� ���� 4 2138 • There are no MVNO related regulatory requirements as the
regulator has previously found mobile access market was
sufficiently competitive so as to not warrant ex ante regulation.
34 McKinsey & Company, Virtually mobile: what drives MVNO success, June 2014, p3; Pyramid Research, Market Opportunities and the Evolution of MVNO Business Models, 2014 35 Kantar Worldpanel ComTech Research (March 2014) 36 OECD, “Wireless Market Structures and Network Sharing”, OECD Digital Economy Papers No. 243, 2014, p76. 37 Piran Partners, “MVNO Observatory – Annual Report on the UK Market”, 5 March 2014. 38 Piran Partners, “MVNO Observatory – Annual Report on the UK Market”, 5 March 2014.