Cold call on 2degrees' future

04:19, Jul 03 2013

2degrees' future is bleak with the company's situation "even worse now than when the company launched in 2009", Australian analyst Paul Budde says.

2degrees' market share of "around 10 per cent" was not enough to sustain its national operation. Its success last month in obtaining a $165 million loan and overdraft facility from the Bank of New Zealand made no difference to his previous pessimistic assessment, Budde said in a new research note.

Other leading telecommunications analysts, including IDC's Glen Saunders and Gartner analyst Neil Osmond, have been more upbeat in their comments.

2degrees chief executive Stewart Sherriff estimated last month that 2degrees had about a 12 per cent share of the $2.4 billion mobile market, and a 21 per cent share by customer numbers, and said he saw no reason why the company could not capture a third of market revenues.

2degrees reported a net inflow of cash from operations for the first time in 2012, while nearly halving its total annual loss to $47.2 million.

But Budde said mobile operators in all developed economies were finding their average revenues per customer were falling as smartphone makers and application providers grabbed a greater share of the overall pie.

At the same time, network operators were having to increase their investment to support the increased use of mobile broadband.

The only way forward for them was to cut costs, he said, which would require they shared their network infrastructure.

"Every upgrade in mobile infrastructure - from 2G, to 3G, to 4G, and next to 5G - requires more mobile towers deeper into the market and the question is how economically viable is it to duplicate or 'triplicate' this purely 'me-too' utility-based infrastructure, with all the value add being exploited by the smartphone and app providers."

Former communications minister Steven Joyce all but ruled out the current government obliging mobile operators to build a shared 4G mobile network in 2010 during a visit to China, saying he believed network competition was preferable.

But Budde said some sort of "nationally based wholesale mobile facility" similar to Chorus' fixed-line network was inevitable eventually "either for economic reasons or because of regulatory consequences".