Vodafone NZ could launch discount brand in mobile and broadband

Wednesday, 15 May 2019

Vodafone NZ could copy Spark and launch a no-frills brand like Skinny once it comes under new ownership, Infratil chief executive Marko Bogoievski has suggested.

Bogoievski will chair Vodafone NZ assuming the $3.4 billion purchase of the company by Infratil and Canadian investment firm Brookfield goes through without hitch later this year as planned.

Vodafone NZ will have the right to use the Vodafone brand indefinitely, for an annual fee.

But speaking to Stuff, Bogoievski raised the possibility of a non-frills brand, saying it was the type of initiative Vodafone could pursue to grow its business once it was free of the constraints currently imposed by the British-based Vodafone Group.

Infratil ceo Marko Bogoievski & Vodafone CEO Jason Paris

* 'No heroics' were factored into business case to buy Vodafone NZ, says Infratil's Marko Bogoievski

* Vodafone NZ sold for $3.4 billion to Infratil and Canadian investment firm**

Spark managing director Simon Moutter has attempted to position Skinny as a service that won't beaten on price, and its main Spark brand as one that won't be beaten on value.

Skinny unlimited fibre broadband costs from $73 a month while 'Spark' unlimited broadband costs from $85 for example, and Skinny monthly prepaid plans kick off at $9 for four weeks with Spark's cheapest mobile prepaid plan costing $19.

Bogoievski said he wasn't 'pre-announcing' a similar strategy, but it was an example of something Vodafone had a 'religion' against, which Infratil did not.

'It is not clear to me why you wouldn't at least consider things like that. We are more open to fixed wireless, unlimited [mobile] broadband plans, sub brands or 'fighter' brands, wholesale models, and infrastructure sharing than 'Vodafone PLC' would have been.

'They are optimising a global business and they have to think that way, and we don't need to worry about that – we can do what is best in the New Zealand market,' he said.

Vodafone NZ chief executive Jason Paris had also signalled the company could follow in Spark's footsteps by more aggressively marketing wireless broadband to customers.

Wireless broadband can have a higher profit margin because it removes the requirement to pay wholesale fees to network companies such as Chorus for ultrafast broadband.

Bogoievski agreed a key rationale for the Vodafone NZ aquisition was an assumption that capital spending in the telecommunications industry could be set to drop back after a period of very heavy investment, creating space for higher profitability.

Vodafone NZ is currently in the middle of restructure that will see more of its call centre operations outsourced, to Indian company Tech Mahindra, and which had been tipped to result in other work being outsourced to Vodafone 'centres of excellence' overseas.

Bogoievski said there was nothing about the sale that was 'stopping the in-flight plans of the business'.

Vodafone NZ still had access to Vodafone's 'full suite of global services', he said.

'Some of those just don't make sense any more and are easily replicable in New Zealand at a lower cost. Some might be provided for a period of time, and some of them will be important long-term,' he said.

The later category included functions such as roaming, and the procurement of handsets and network access equipment, he said.

Bogoievski has already turned aheads by talking-up the possibility of phone companies agreeing to share infrastructure, such as 5G access equipment, which would be another way to reduce capital demands on the business.

Commentators tended to be 'fixated on sales and revenue and tend to forget the real economics are in industry structure and the amount of capital you invest', he said.

'What you really want is the future industry to invest the minimum amount of capital necessary to deliver the right services at the right time and that hasn't always happened in the past,' he said.

New Zealand could 'not afford' three full-blown 5G networks because of the number of small cellsites that would be required, he suggested.

'The 'infill' that you need to provide a 10-year full-blown version of 5G is horrific. You would need a high degree of coordination around access infrastructure to pull that off.'

Bogoievski said he was 'neutral' on the idea that network company Chorus could play a role in proving that such infrastructure.

Australian telecommunications analyst Paul Budde said the opportunity for the new buyers would lie in 'cost-cutting' in general rather than a new business model, given the maturity of the industry.

Infratil owns a controlling stake in Trustpower which is estimated to have about a 5 per cent share of the retail broadband market and Bogoievski said Infratil saw merit in applying for Commerce Commission clearance of the Vodafone NZ purchase to ensure it was in 'clear territory'.

'But realistically we don't expect to see major issues,' he said.

'Trustpower makes its own call on broadband and mobile and will continue to make its own calls,' he said.