2degrees' situation bleak - analyst

TOM PULLAR-STRECKER
Last updated 12:50 03/07/2013

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Australian analyst Paul Budde has reiterated his bleak assessment of 2degrees' future, saying in a new research note that, if anything, the company's situation was "even worse now than when the company launched in 2009".

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

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 $2.4b 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 in-flow of cash from operations for the first time in 2012, while nearly halving its total annual loss to $47.2m.

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".

Contact Tom Pullar-Strecker
Technology reporter
Email: tom.pullar-strecker@dompost.co.nz
Twitter: @PullarStrecker

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