2degrees 'exploring options' for landline service
"Given the enormous cashflow bleed to date, I cannot imagine the 2degrees shareholders will be giving this business a dollar more than they have to."
Featured commentMobile phone network operator 2degrees is “exploring options” for entering the fixed line (home phone line and landline broadband) market.
“But it’s very early days,” CEO Eric Hertz told NBR ONLINE.
“As our products mature in the small-to-medium-business space and that [fixed line service] becomes a need, we will find a way to fill it,” he says.
“It doesn’t have to be an acquisition. It could be a partnership.”
Telecommunications Users’ Association CEO Paul Brislen told NBR such a move would make sense.
“Given the move by Vodafone to acquire the TelstraClear asset base, 2degrees finds itself up against two fully-integrated opponents in the market,” he says.
“In an ideal world, 2degrees would have enough backing to be able to buy a fixed line operator like Orcon, and possibly a backhaul operator like FX Networks, and still be able to roll out LTE [4G], buy 700MHz spectrum and advance into rural New Zealand.
“I doubt the company has quite that level of backing but it has to do something about the fixed line side of its offering if it’s to compete in the business market space.”
Mr Hertz would not speak to the specifics of any possible deal, including a possible purchase of Orcon, whose future is rumoured to be part of a stategic review currently under way at parent company Kordia.
Orcon has been the most aggressive of the big five in terms of pushing (VoIP – voice calling over the internet – negating the need for a landline rental).
Vodafone recently told NBR that of its landline sign-ups in June, 40% chose naked broadband or broadband without a phone line rental.
Naked broadband is often chosen by those who have gone mobile-only for their voice calls, or pair a mobile with VoIP calls.
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Comments and questions12
I hope 2degs leverage mobile diverts and fixed mobile calling circles (this stuff is low hanging fruit). How they'll price broadband will be a biggie though - if they opt for an uncapped plan they may be in a prime position to hoover up dissatisfied telecom/vodafone customers for an all of wallet deal covering landline phone, broadband and mobile.
Trouble is no-one is making any money in this space and the clock must be ticking as 2degrees backers get increasingly anxious about getting their investment plus interest back frmo 2Degrees.
Whilst Kordia/Orcon is the only likely fixed line candidate in the sights for 2 Degrees, its not a 'natural' fixed line partner, as it has typically targeted the bleeding edge' internet market segment. This is a long way from where 2 Degrees is currently, if it is looking to 'bundle' fixed and mobile services to common customers.
There's a right way and a wrong way to do VOIP. FX has been doing it wrong, selling the service over inadequately provisioned circuits (I know because I had one and have heard similar reports on Orcon's offering). If you aren't using QoS and your DSLAM is congested, forget about VOIP during peak periods.
Given the enormous cashflow bleed to date, I cannot imagine the 2degrees shareholders will be giving this business a dollar more than they have to. Or put another way, any discretionary capital investment (such as buying an existing business) will have a very high return criteria applied - in all probability so high that it will likely rule it out. More likely they 'lend' their hugely expensive brand name to something without providing capital.
With Telstra gone as a potential buyer, the key decision that 2 Degrees will be focussed on is when (not if) it will seek an IPO.
Unfortunately for them, in the meantime the minority shareholders are going to get bent over the proverbial desk when it comes to dilution...
Thanks to the NZ Government, we have a totally broken telco environment.
Broadband is faster and cheaper but for how long? Vodafone just fell over and 2 degrees isn't too far behind once its investors lose confidence (looking at the state of the NZ market that can't be terribly far from happening)
If I was a 2Dgrees investor, I'd be doing due diligence on the market as well as any intended partners. The short answer is that money is evaporating out of the telco sector as fast as the multinationals can haul it out of NZ
It would make sense for 2degrees to offer a fully integrated landline,mobile and internet service.
Given their very impressive growth in customer base I am sure they would find ready acceptance for such a product.
liberte
Liberte, anyone can get customers if they are prepared to spend the amounts of money on marketing that 2 Degrees have. There is no doubt they have done well with their branding, but the real question is whether they will ever break even from a cashflow perspective. I suspect that is at least 5 years away, so they will need very deep pockets to continue this little gig...
Why not offer a home 3/4G solution? Mobile everything. especiailly with 4G coming.
I dont think 2 degrees own enough spectrum or have enough backhaul to offer any such thing with any degree of performance
@anonymous I agree - if it were that easy then every other mobile player would also be following suit. They're not and 2 degrees is slowly creeping towards extinction
your an idiot, they are creeping towards extinction? but they have now 21% of the market!
Hursh-whatever the hell your idiotic psudenomn is, you can have a billion customers but if the amount of money being made per customer doesnt add up to cover costs then you are not going to survive.
oh and it's YOU'RE an idiot (which given your lack of business acumen you clearly are).
2degrees need to keep investing in their network and paying ongoing costs for staff/plant/premises and ultimately over the short term moving to LTE as Telecom and Vodafone move to it. They probably dont have enough spare cash to do so so extinction is probable unless their investors inject more money (which I'd wager they'd be undertandably reluctant to do given they've hardly seen a nickel back from 2degrees in the last 2 years)