Battered Spark 'facing classic incumbent dilemma', broker warns

Wednesday, 5 February 2025

Spark’s share of the broadband market has been on the slide, Forsyth Barr believes.

Telecommunications giant Spark is losing market share in the broadband market as well as the mobile market, broker Forsyth Barr believes.

It warned in a research report that Spark was facing “a classic incumbent dilemma” of whether to cut prices to retain customers “or continue to bleed market share”.

The broker said that its own research using “a web-scraping tool” that tracks web traffic suggested broadband rivals Contact Energy, Mercury Energy, Sky TV and Starlink had captured significant market in the past six months.

That appeared to be primarily at Spark’s expense, it said, forecasting Spark would lose about a 1% share of the broadband market in the year to the end of June with “downside risk to that estimate” and lower margins.

As many households rarely change provider, market movements on that level can prove significant over time.

The uptake of relatively profitable “fixed-wireless” broadband appeared to have stalled, ForBarr said.

Fixed-wireless is offered by Spark, One NZ and 2degrees and used to be seen as often the best broadband option for the 13% of households without access to fibre-optic based ultrafast broadband (UFB).

But rural households were increasingly turning to the satellite-based service provided by Elon Musk’s Starlink, Forsyth Barr said.

It forecast about 2% growth in Spark’s total fixed-wireless connections for the 2025 and 2026 financial years, then “a slow, terminal decline” from that year onwards.

The Commerce Commission advised in 2023 that Starlink was providing faster peak-time download speeds than alternative technologies for those without access to fibre, with telecommunications commissioner Tristan Gilbertson describing it as offering “a step-change in performance”.

Spark chief executive Jolie Hodson has had to deliver unwelcome news to shareholders over the past year, but the company says it has strategies to improve performance.

In urban areas, fixed wireless services were facing stronger competition from a low-cost UFB service wholesaled by fibre network operator Chorus, Forsyth Barr warned.

It separately reported last month that Spark appeared to have lost about a 1.4% share of the mobile market last year, with rival 2degrees the main beneficiary.

Spark spokesperson Althea Lovell said it didn’t have any comment on Forsyth Barr’s research, but would be providing an update on its mobile and broadband market performance at its interim results announcement on February 21.

She confirmed Spark was consulting on a proposed restructure that could see a net reduction of five “leadership roles”.

The company signalled in August that hundreds of jobs could go across the business in the wake of a disappointing annual result that led to a near 7% fall in its share price, and warned in October that it didn’t expect to meet its previously forecast operating profit in the current financial year.

Chairperson Justine Smyth and chief executive Jolie Hodson had to face hostile and at times misogynistic questions from shareholders at the company’s annual meeting the following month.

“We have four strategic priorities to improve performance – driving momentum in our telco core, simplifying our portfolio, transforming our cost base, and delivering long-term growth through our data centre strategy,” Lovell said on Tuesday.

“Over the last year we have made changes to our operating model in line with these focus areas and to align our cost base to our changing markets.”

Spark shares were trading at $2.88 in mid-afternoon trading on the NZX Tuesday, down 46% on their value a year ago.

Forsyth Barr forecast they would continue to under-perform the wider market.