Has 2degrees shot itself in the foot?
Our new mobile operator’s launch went largely to script, with business users ignored (there’s no 3G data, data cards or BlackBerry support, for example, and international roaming rates are steep) but killer pre-pay rates that undercut Telecom and Vodafone by half. But even at the low-end of the market, 2degrees’ tactics could backfire, reckons one analyst.
Pre-pay price slash
If you’re on pre-pay, then 2degrees rates are mouth-wateringly cheap. Voice calls are 44 cents a minute, compared to 89 cents a minute on Telecom and Vodafone pre-pay plans. Txts, at 9 cents, are also half the cost. Calls to other 2degrees mobiles cost 22 cents a minute, and calls to 21 countries (including Australia, the US, UK, South Africa and China) are included in the 44 cent flat rate.
New Zealand has a much higher rate of pre-pay customers than the OECD average (71% by MED figures). And on the face of it, it seems the low-hanging fruit should just fall into the 2degrees' basket.
Not so fast says IDC analyst Rosalie Nelson: “My biggest challenge with this approach is that no matter how much 2degrees may argue about closed net pricing [mobile termination rates], the reality is that this is what the market is accustomed to having their Best Mates and their TXT2000.” Cajoling them into paying by the txt won’t be easy.
Ms Nelson says the way 2degrees plans have been pitched, it’s possible that many budget users will buy a 2degrees sim as their second sim card.
For 2degrees, that could be a very bad thing, with a customer swapping in their Telecom or Vodafone sim for outbound calls or txt on their plan that rewards them for sticking to a circle of frequent contacts, and using their 2degrees sim on the same phone for getting in touch with less frequent contacts.
That would put 2degrees on the wrong side of the mobile termination rate equation (MTR being what telcos pay each other when a call terminates on the another's network).
Live by the mob ...
Ms Nelson's theory is backed by reaction from the mob. The new carrier has a huge following on Facebook - nearly 9000 strong - but reaction to today's plans was decidedly mixed (even allowing for some gaming from rivals). Some are as enthusiastic as every; others grouse about the lack of a $10 txt or best mates style plan.
2degrees' new boss, Eric Hertz, can be under no illusion that his company's launch line-up is swimming in the shallows. His last role was chief executive at Seattle's Zumobi.com, a Microsoft spin-off that develops smartphone apps for Apple's iPhone and other high-end handsets.
Wither data?
Ms Nelson was more relaxed about 2degrees paucity of data support. There are no 3G cards, tethering support or in fact any 3G data of any kind at launch. Phones can get Edge data (rated at 240Kbit/s) but there are no plans and the casual rate is a nosebleed 50 cents a megabyte/$500 a gigabyte. There is no BlackBerry support, no iPhone and, bar the Nokia E63, a very workaday, narrow selection of handsets (seven from Nokia, two from Samsung; the company is banking on many bringing their phone with them to its network).
2degrees’ Tex Edwards emphasises that “this is a marathon, not a sprint ... we're focussing on prepay because that's where the pain is right now". 3G data, data cards and other high-end frills will follow.
Mr Edwards words echo those of of new chief executive Eric Hertz, whose last role - at tiny smartphone application start-up Zumobi.com - made him keenly aware of the potential of smartphones, netbooks and other devices beyond the cellphone, giving rise to his 500% market penetration theory.
Ms Nelson tends to agree, saying that 2degrees has done a good job of branding itself, and that data will no doubt follow once the carrier is established. At this point, she says, it’s hard to tell if the voice and txt focus arises from technical challenges, or a strategic decision to focus exclusively on the low-end of the market at this point.
2DEGREES: VITAL STATISTICS
Headquarters: Newmarket, Auckland
Chief executive: Eric Hertz
Chairman: Bill Osborne
Founder: Tex Edwards (2000)
Former names: Eco-net; NZ Communications
Owners: Trilogy International Partners (US) - 52%; Communication Venture Partners (UK) - 26%; Hautaki Trust (provider of spectrum) - 20%. Balance held by private investors, including Tex Edwards’ KLR Hong Kong.
Investment so far: $250 million
Tax payer funding (via the Hautaki Trust): $10 million
Network: 2G/3G Own infrastructure in Auckland, Wellington, Christchurch and Queenstown; customers will roam - invisibly, to them - on Vodafone’s network outside those areas. Nationwide network build promised; no time table
Chin wag free sim card triallists: 50,000
Customer projection (ABN Amro Craigs): 100,000 first year (2% of market), 200,000 second year (more projections here)
Retail strategy: No company-owned or dedicated stores. Will sell sim cards and phones through partners including Noel Leeming, Bond & Bond, Dick Smith Electronics, Warehouse Stationery, Pak & Save, New World, Foodtown, Countdown, Woolworths, Shell, Mobil and BP. Direct retail presence promised by new chief executive Eric Hertz, down the track.
Accidental benefactor (Pinot Noir category): 2degrees.co.nz
RECENT COVERAGE
2degrees strikes home zone deal with Telecom Wholesale
Bang or whimper: analysts weigh 2degrees' market impact
Retain partners ruin 2degrees' big reveal
New 2degrees boss sees 500% market penetration
2degrees boss quits just ahead of launch
2degrees new majority owner speaks out
2degrees to launch without own retail stores
Telecom offers to halve MTR, but much slower that the ComCom wants
2degrees: co-location delays cost us $37 million
2degrees: that Commerce Commission warning letter in full
Back to home
Back to top
Print
Email
Share
Delicious
Digg
StumbleUpon
Reddit
Google
Yahoo
Technorati
Scoopit
NBR SERVICES
SUBSCRIPTIONS
Sign up for NBR subscriber content or email alerts
Latest
Comments and questions48
Looks like it is targeting lower income earners who have no need for fancy 3G, and do not have the credit ratings for calling plans.
Still better than what Voda and Telecom have to offer. If 2degrees can offer this at launch, think about how much we've been ripped off by the other two. Surely they will continue to roll out their offering and make inroads into data and post pay. You said it yourself Chris, Hertz has a background in the Tech end of the market, surely he will take 2degrees along that path no?
looks like data plans are coming; smart to focus first on where 70% of kiwis are with their mobile, ie on pre-pay - and halving the call rate is a bloody good start
Vodafone won't divulge how many people actually use the 2000 texts per month that it trumpets as great value because it's bugger all. The average no of texts sent each month is 150, and that makes 2degrees very attractive to many
... does anyone make a phone with dual sim card capability so you don't have to 'open the hood' to switch between plans and carriers?
I think there is some untapped potential (here and internationally) for plan/carrier arbitrage but I think the carriers would hate them with a passion!
They don't need to take on vodafone and telecom in every market segment right now. They are clearly going after a specific part of the market with a very compelling product. This gives them a chance to work out any kinks and then expand to other segments. It would be nuts not to expect more compelling offerings from them which frankly is not hard to do given the fairly awful options offered by the incumbents.
Clearly written by somebody who missed the text revolution and is out of touch with the current market.
check your facts Vodafone
and that's revealing
Those huge text plans make almost nothing for the company. Really do you think they want customers who only bring in $10/mo yet cost them more to provide this because the MTR is so damn out of proportion?
Vodafone you've been ripping us off for so long.....
clearly written by someone who missed the communication revolution and can't put a decent conversation together and would rather communicate via 2000 SMS! Give me 22c per minute calls and 9c SMS any day. 89c for calls and 0.5 SMS? Right.
Hey you pre-pay peasants, stop complaining about Vodafone's expensive call charges, just keep texting, no one else in the world texts but we force you to
I get stung for sending about 800 texts a month on a Vodafone 500 text plan. With kids, texting is part of everyday life.
Ummm, 150 TXT a month average, can you cite a source for that info?
clearly written by angry young out of touch with 70% of NZ Voda employee....
doesn't everyody else?
Awesome start 2 Degrees, I can only hope it gets better and improves. Excellent for package for an average user and best part no contracts, maybe this will perhaps push New Zealand call prices down
LOL! at most of the comments:
1. The market only uses texts because weve been rorted on call price for years
2. A new mobile company comes out at 50% of or hal price for prepay and you all whinge...
3. Smartphone use is probably less than 10% in NZ - someone who knows the accurate fugure please comment
4. The prepay market is 70% of the market - looks like gret strategy to me!
5. This little new competitor just commenced and has undercut voda and tcom by 50% - say thankyou!! by mopving to its service - I will be!!
6. Their adverst put voda and tcom into the shade..good campaign and USP!!
7.Voda an Tcom wil ahve to alter value propositions for the prepay market..LOL! yay!!
8. Lets hope the COm COm actually dont get derailed by politicians who should have little or no influence over their actions or recommnedations which are only influenced by greedy companies rorting NZers...
9. Go 2 degrees!!!!( disclsoure: I have no afifliation ot any telco)
Yes there are many avilable - widely used in the UK due to the same issues...
I can't believe people are wingeing about 50% reduction in call and text prices... and as for data ... they have only just launched people give them a break! They have future built their network to 3G so its obviously coming soon
Man people complain over nothing!
good rates well below Vodafone & Telecom, I'm pretty sure other services kuming soon.
Having lived in Aussie then moving to NZ I simply cannot bring myself to pay the ridiculous mobile fees charged by Voda & Telecom. Even the supposedly 'discounted handsets' to go on plans makes me laugh. I use pre-pay and still happy with my 5 year old Treo 650. I cannot justify the expense and getting locked in for 24 months, every time I do the maths pre pay comes out on top. I run my own business and get by fine on pre pay so I will certainly be making the switch. Telecoms XT advertising turns me off eg some overpaid Top Gear wally and some lame fashion person, give me a break. 2Degrees whole campaign is much much better and connects with me, probably cost them a lot less too.
Yeah i'm sure there are crying into their weetbix about losing a percentage of the prepay, boohoo, I lost my lowest value customers....
There are lots of them, though currently they are primarily on 2.5 gen GSM. In Hong Kong last week I saw a Korean rip off of the iPHONE (selling for NZ$250) that had TRIPPLE sim card capability! (it worked too as my nephew found out to his delight!)
The problem with dual sim phones is that I haven't been able to locate any 3G models (links welcome).
Free-range, nationwide network-hopping is also tricky in that I'm not aware of any phone that supports both 850MHz (Telecom) or 900MHz (Voda, 2degrees) W-CDMA.
Various handsets (including the iPhone and the BlackBerry Storm) do support the 2100MHz band too, which Telecom, Vodafone and 2degrees are all using in main centres. That makes for easier network hopping, but also lots of broken fingernails or bent paper clips as you extract sim cards.
Used to love Palm's set-up, which let me slot a sim card in or out like an SD card.
the opinions of rosalie just go to show you how silly analysts are. good on 2 degrees for not putting all their eggs into one basket and releasing everything at once. If im guessing right 2 degrees have thrown the low prices in the face of telecom and vodafone, urging them to respond (they will be silly not to) once they have reacted i would expect 2degrees to bring out competitive deals such as best mate and txt 2000 to really peev them off. the average nz'lander has been getting ripped off for far too long, change needed to happen and were all anticipating 2degrees to give it a damn good go. cheers.
You guys complain so much about what? I mean you believe your existing network who 2 degrees leach off is ripping you off? you think no one uses 2000 texts? What else do you people think? PIGS CAN FLY!!! woohoo.... its a no brainer....there has never been competition in the market and now there is! so why not watch this space........ or are you guys blind too and typing via brail keyboards?
yes you can get dual sim phones so you dont need to swap the sims i have a few at home so you can operate both networks at the same time and receive calls on either sim at 1 time, i think you can also get an insert for the phone if you dont have a dual sim phone
yea there are several dual sim phones on trademe such as anycool branded ones
Don't blame the network when you get your issues
Texts actually cost the telcos virtually nothing to send.... they are limited in length so that it runs on the same sort of signal that the cell phone uses to regularly 'ping' off towers locally anyway.
Once the hardware is in place there is NO cost to the telco for texts. Even at 2degrees price we are being ripped off!
just like BellSouth these idiots will be gone before the next world up. Why will they disappear.. dumb business case.. ants dont feed on elephant dung.. it isnt nutricious. even if they do mange to eat something it is always at the risk of being trampled
who is going to be able to save them when the cashflow dries up? not the duopolists .. nor an international player .. who might otherwise look at India or Asia.
why oh why is so much nervous energy being wasted on something that isnt unique, doesnt have a compelling argument and it doomed to the scapr heap before it starts.
One only hopes our Maori group that is involved isnt loosing out like the Tainui did with the warriors and the waikato stadium
Get 5% market share, get bought out by Telstra.
Not difficult. They'll get as many low end bottom feeder customers they can find and then... flog the lot of to the Aussies.
All over by 2012 before they have to invest anything in upgrading to LTE.
We have been ripped off for far to long well done 2 degrees i look forward to seeing what this fight does to the competition but i will be hanging in with the new and small guy no mater what the competition now tries to offer ,as a matter of principal.
Thanks
No Chris, 2degrees has not shot itself in the foot. With one Vodafone on-account (not business) phone and three pre-pay phones in the family, I would have switched over to 2degrees today provided all 2degrees to 2degrees calls were standard 22 cents and not linked to some recharge conditions. I think there is more to come from 2degrees gradually. Vodafone has lot to loose as I would be keen to take my land line broadband elsewhere once I switch over to 2degrees.
2 degrees are targeting a market that is overly price sensitive and has little to no brand loyalty - not a good recipe for profitability methinks
Then there's the little matter of customer support. - No dealers plus a reliance on retailers for whom 2 degrees is one mobile brand of many. I'd hate to have to get a dud SIM, billing query or broken cellphone sorted out quickly with 2Degrees...
At the end of the day, 2 Degrees are being built to be fattened up and sold. Trouble is I pity the poor sucker that buys the wreckage of 2degrees in a couple of years time after they've bled a pile of cash and alienated a whole lot of users.
I signed up to TXT2000 but I don't TXT that much every month, so I terminated it. 2degrees offering is perfect for me, even the data rate, I'm getting the SIM card tomorrow.
You guys forget that Voda TXT2000 doesn't apply to overseas. Voda charges 40c for overseas (I've been ripped off), while 2degrees charges 9c!
gregc5 hey what planet do you live on? The cost is small if the text is delivered on the same network its sent on(that is why on net deals are good like txt 2000) But as soon as the text leave the home network the cost is high. You need to find out the truth before you make dick head comments.
Go go 2degrees website to read the cheerleading version. From NBR, the company needs tough love.
As Rosalie @IDC noted, there is room in the market for a better data plan in the market. Ex 2degrees boss Mike Reynolds said the same, noting NZ mobile data rates were twice the cost of Singapore and Aussie.
Yes, so far, 2degrees has failed to come through on data (which matters for business users, and the army of pre-pay teens on Bebo). It says it will, soon, and I look forward to covering that when it happens.
What a glass-half-empty article. To be a good journalist you have to trash companies with good ethics? That must make Chris Keall award winning.
Great - bring it on. When it gets to HB I'm in.
There's obviously a great deal of interest in all this - so a lot of peeps think they pay too much at the moment. I do - there's little reason why the cellular network should not be considered infrastructure and consolidated - instead of three towers in every location.
I'm all for the state purchasing the network - there's no advantage to competition, and what's the difference between it and the roading network?
Landline network should never have been given to Telecom either, what a mate's rates rort that was; put them in jail with Philip Feild, not half the criminal they are.
At the end of the day the profits are being gouged from the consumer, and our only hope is that competition drives prices down now we no longer have a dualopoy.
Basically, if we don't know 2 degrees cost structure how do we know these entry level prices are not just loss-leaders?
While I'm ranting, I resent having to pay Telecom for a landline just to run Telstra broadband.
Someone crack the minister upside the head for me, please!
Have a happy day everyone
what? even if you send 150 texts on 2 degrees, its still cheaper to send 150 on telecom or voda. $10 is offered by telecom and voda for 2000, and for 150 on 2degrees for 150 it would be $13.50. no matter what 2degrees for texting (despite the cheap sound to it), is still expensive.
company fail.
look. its simple they give them selves a kick in the arse.
if you look @ data cost (the aparently price behind charging)
on vf it used to cose 10c per KB.
1bit=8characters,1KB= 1024 bits.
if i could somehow send my TEXT as data. instead of being allowed only 160 characters for 20c. imagine how much characters u could send if it was 1kb of data for 10c on VF. thats like 8192 characters per text for the cost of 10c for 1kb. not 20c for 160characters
thats where its obviously not right.
i meant byte. =/
Dont forget about the free stuff. I toped up $50 on my 2 degrees and got 180 free text and 20cents to ant land line for a month.
Hope 2 degrees sorts it data soon
Telecom and vodafone are over charging every body.
Yes, dual card phone is available, but not in famous brand. I got one at Hong Kong, only 100, can put two cards at a time and it's great! I reckon the telecommunicate company here is making too much and not keeping up with the rest of the world.
Post new comment or question
To share this article, click on a service below