It is interesting to see what disruption can do to competition in the telecommunications market.

While newcomer 2Degrees has captured only perhaps 5% of the mobile telecoms revenue market in New Zealand its impact has been much greater than that.

The disruption that it has caused to the market has created havoc with the duopoly. Vodafone in particular has been the hardest hit. While the challenger is still having a relatively small effect on revenues, it may have already achieved a 20% market penetration in the prepaid mobile market, and this is coming mainly from Vodafone.

Many of the mobile calls are now flowing to 2Degrees, and while they are sold over that network at significantly lower rates than those available on the other two networks, this represents a significant decrease in revenue to the others. 2Degrees market share in minutes is perhaps already as much as 10% of total mobile calls.

Mobile rates in New Zealand are still among the highest in the developed world and customers are therefore more price-conscious and open to better prices from the competition.

2Degrees also has a chance of becoming a serious player in the mobile broadband market, as the two incumbents, being focused on protecting their more lucrative call market, have not really tried to develop this new market. So 2Degrees is a on a slightly more level playing field here.

This disruption to the market also seems to finally be making Vodafone more serious about its wholesale services. While quasi-wholesale services have been available for several years the pricing has been such that those using the wholesale service were very limited in what they could do with it, and this resulted in a rather low subscriber penetration of MVNOs in the New Zealand market.

Pressed into action, Vodafone is now set to introduce a more attractive wholesale product.

And, finally, the two incumbents have also been put on notice by the regulator. As we have reported in the past the New Zealand market is rather unique. By using on-net and off-net pricing the mobile market in New Zealand is basically divided into two monopolies – Telecom has the majority of revenues generated on the South Island and Vodafone occupies a similar position on the North Island.

While 2Degrees has had some impact on this, both of the monopolist companies still have a 75%-plus market share in the markets they dominate. So it is probable that regulatory intervention will eventually have to be taken to make more major changes to this unhealthy situation.