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REPOST: Revealed - Vodafone’s secret deal with 2degrees

Mon, 22 Mar 2010

The story below - "Revealed: Vodafone’s secret deal with 2degrees" - (republished below) was originally published on August 5, 2009.

Within an hour of it appearing, the Commerce Commission demanded that the story be removed from NBR’s website, citing a potential breach of Section 100 of the Commerce Act, which provides the government agency with powers to prohibit disclosure of information, documents and evidence.

The statute allows for fines of up to $12,000 a day for a company deemed to be in breach of an order, but only a court can decide if an offence has been committed and set appropriate penalties.

The commission launched an investigation into NBR’s story (plus a second, less detailed, account in The Independent).

NBR did not supply the commission with any information. Instead, the publication’s lawyer sent the commission a letter asking for more information on its investigation. The commission did not respond.

Last month, in an unrelated matter involving an investigation into Air New Zealand, a High Court justice ruled that the Commerce Commission had overstepped its power with Section 100 gagging orders - which were ruled to have breached the Bill of Rights Act.

The commission is appealing the judgment.

Public interest
In demanding NBR’s August 5 story be removed from its website, the commission said that parties must be able to give it commercial information in confidence.

In an August 14 editorial in its print edition, NBR asserted public interest and free speech arguments. The paper also noted it was not clear that Section 100 applied when information used in an article was drawn from an outside source.

Australian website ZDNet noted that public submissions were part of the regulatory process, but that information placed on the commission's website was often rendered nonsensical due to "an enormous amount of documents with large chunks of information blanked out. There doesn't appear to be any rules as to what is redacted."

Hypocrisy
NBR also noted it was disingeneous for 2degrees to call for a wide swathe of Telecom's data to be made public; and, more widely, that all the telcos are saying it's in the public interest for all deals and data to be put on the table, except their own. To quickly summarise the situation:

- 2degrees wants its MTR deal with Vodafone kept secret
- 2 degrees wants Telecom’s on-net, off-net calling ratios, revenue splits and other calling data to be made public
- Telecom is happy for its MTR agreements with other telcos to be made public
- Telecom wants all of its customer calling stats kept secret
- Vodafone wants 2degrees’ MTR deal made public
- Vodafone wants all other deals kept secret

Vodafone has also challenged 2degrees to make details of their roaming deal (not covered below) public. Outside Auckland, Wellington, Christchurch and Queenstonw - where 2degrees has built its own infrastructure - 2degrees customers roam on Vodafone's network.



Revealed: Vodafone’s
secret deal with 2degrees

Wednesday August 5, 2009 - 03:02pm

In November 2008, in the dying days of the last Labour government, Communications and IT Minister David Cunliffe was determined to clear the path for 2degrees’ launch.

A meeting was convened between Vodafone, 2degrees and Labour strongman Trevor Mallard - then minister for economic development.

A source says that at the climax of discussions, a fed up Mr Mallard gave Vodafone just more hour to reach a mobile termination rate agreement with 2degrees - or face a fresh investigation on the issue from the Commerce Commission (mobile termination rates - MTR - are what one telco pays another when a call or txt terminates - is received - on another’s network).

The two mobile operators duly stitched up an MTR agreement, which has remained confidential ever since - to the infuriation of Vodafone, which has maintained that 2degrees has been complaining loudly about MTR, while in reality knowing it was in line for sweetheart rates.

The source says that at the time, “2degrees thought the deal was the best thing since sliced bread”

Yet, to Labour’s dismay, the new carrier failed to launch by the end of the year. And when National came to power, 2degrees saw the chance to push its MTR luck further.

The Commerce Commission - which under the new government is investigating MTR a third time, regardless of Labour’s promise (again, to Vodafone’s chagrin) - has told NBR it has no issue with the deal being made public.

However, 2degrees said no dice. “We respect the confidentiality of our agreements,” said head of corporate communications Bryony Hilless.

Terms revealed
Now, NBR has obtained the terms of the secret MTR deal.

There are three key elements.

One, Vodafone gives 2degrees a “new entrant” discount of around 33%.

For mobile-to-mobile calls, Vodafone charges other telcos 15 cents a minute, but 2degrees will only have to pay 10.75 cents per minute.

For txt, Vodafone’s MTR is 9.13 cents per message. 2degrees is charged 6.25 cents.

The second element is asymmetry: 2degrees pays Vodafone 10.75 cents a minute to terminate voice calls. But when as call terminates on Vodafone’s network, it pays 2degrees the full whack: 15 cents a minute.

The same applies to txt, with Vodafone paying 146% of 2degrees’ rate.

The third is that MTR is charged by the second, from the first second - which, says one source, makes it pretty rich that 2degrees charges by the minute.

Vodafone wants the Commerce Commission - which has so far based its MTR sums on Vodafone’s headline rate - to take its 2degrees deal into account when weighing whether market termination rates are competitive.

The commission recently recommended that MTR be reduced to 7.2 cents per minute immediately for voice calls, and 3.8 cents per txt, with a series of further cuts through to 2015. A review and consultation process is now underway, with communications minister Steven Joyce likely to make a decision on the matter in the New Year.

Many independent observers, including Tuanz, representing 500 corporate customers, have strongly backed the commission’s call for voice MTR of 7.5 cents or below.

For its part, Telecom has challenged all carriers to agree to a voice MTR of 7 cents a minute - though by 2015, rather than immediately as the commission is angling.


 

Postcript I
Recently, in a split decision, the Commerce Commission decided to accept Telecom and Vodafone’s voluntary undertakings (2degrees having withdrawn its submission) to cut mobile termination rates in lieu of regulation.

Communications Minister Steven Joyce is currently taking submissions on the commission’s recommendation. He is expected to make a final ruling by the end of this month.

2degrees will continue to wail, but in the voluntary undertakings deliver almost everything it wanted on txt, and a voice rate cuts are near its desired target, too - even if they’ll now take longer to get their.


 

Postscript II
On February 12, 180 days after its launch, 2degrees announced it had 206,000 active customers, or around 4.5% of total mobile connections in New Zealand.

The number was more than double what analysts had expected.

It was easy to see how the new mobile operator was keen to showcase its success.

Especially as it will soon have to target more sophisticated customers as it evolves from 2G prepay to 3G contracts.

And 2degrees will argue that with the real, 3G battle about to begin, MRT is more important than ever.

But I also wonder if its 206,000 customer milestone announcement undid, at least in the public mind, all the clever work of the droptheratemate.co.nz campaign (I campaign that I found disingenuous for failing to reveal the true terms of the Vodafone-2degrees deal, but nevertheless an effective one.)

Throw in the fact that Trilogy is ploughing more money into 2degrees, and favourable movement on MTR, and it’s not a telco that’s looking like it needs a lot of government help.

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REPOST: Revealed - Vodafone’s secret deal with 2degrees
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