In late 2017 the Commerce Commission, New Zealand’s competition enforcement and regulatory agency released its Annual Telecommunications Monitoring Report for the period July 2016 to June 2017 in which, among other things, it detailed market share by ISP.
For smaller telcos it appears to have been a good year, with the collective “other” market share up by 3 points to a total of 7%. This lines up with Lightwire’s experience where Ultra-Fast Fibre, the second largest wholesale provider of UFB fibre, reports that we are now the second biggest provider of services to business clients in Hamilton, which is their biggest market.
But why are we seeing an increase in market share by the smaller telcos at a time where fewer and fewer exist? Since this reports figures were finalised, more second tier telco companies have been purchased by the big players, Digital Island going to Spark for example, but purchases such as Worldxchange by Vodafone and Snap by 2degrees would have been taken into account in this report and should have resulted in a decreased combined market share for the smaller players.
The “other” category appears to include the following brands, and includes both residential and business connections:
- Stuff fibre
- Plan B
- NOW (I assume, although have large Spark shareholding)
- Farmside (although now essentially Vodafone owned)
So why the growth?
- With the advent of MyRepublic and Stuff Fibre there are more low cost providers in the residential space, and while I remain convinced that they will struggle to make a profit, they are picking up clients with their no frills, low cost offer.
- Commoditised services. There are only so many ways you can add value to a residential internet service, so the ability to differentiate is diminished, creating a more even playing field.
- Knowledgeable staff in the business space. Pre-sales design and post sales implementation of more complex services is able to be more tailored/bespoke, and is typically a more personal experience with a smaller player. This often comes back to the operational involvement of shareholders.
- Regulated buy price for fibre services. UFB has introduced an environment where the cost of sale is largely even, meaning that while any ISP can still choose to be a loss leader, the sale price required in order to cover costs is essentially the same for all, and has led to a fairly even set of price points regardless of provider.
- Same capability as bigger players. The technical skill sets held by the people within the smaller telcos is as good as, if not better than, the large players.
- Local knowledge and desire to help. Where a client has a complex requirement such as diverse paths, fixed wireless access, specific cutover time/dates, or billing arrangements, smaller players are better able to provide expert knowledge at a local level.
- Better support. And by better support, I really mean more personalised support, with fewer frustrating call centre experiences.
- Ability to escalate and get things done. With less layers of bureaucracy and a closer relationship with their clients, smaller telcos provide clients with 24/7 access to genuine problem solving resource.
- There is a genuine dislike for the larger players in certain sections of the NZ market. It is certainly not a view held by the majority, but it is held by enough households and key decision makers in the business community that smaller telcos remain the preferred option for many. This dislike is often born out of a poor experience, or a feeling that the same relationship they enjoy with their contact(s) in their smaller provider could not be replicated inside Spark or Vodafone.
What still hinders growth?
- MVNO access and suitability. Smaller telcos really don’t have good access to mobile phone and data services, and progress seems to be extremely slow to improve wholesale offerings in that space.
- Ability for larger providers to run a loss leader position in order to gain market share. Larger providers can run at a loss in certain segments for longer periods.
- Economies of scale is still a thing. Scale helps, albeit not as much as it used to. The more circuits a provider sells, the more the cost of support/transit can be diluted on a per circuit basis.
Where is this heading?
I think we will see the market share of smaller players decrease in next year’s report as more second tier telcos are acquired by the big ones. Additionally, the barrier to entry in this market is greater than ever as last miles access speeds increase, network costs (transit and hardware) are doing the same, so we won’t see many (if any) new entrants.