1. Case by case review of cellular rights

Issue 1.1

What significant changes in cellular technology and in the cellular market do you foresee within the next 10-20 years? How might these changes affect the future use of the 800 MHz and 900MHz MHz bands?

Econet only provides an answer to this question on the understanding that it maintains the whole process under which these questions are asked is flawed and inadequate to achieve Government objectives. Econet believes there will be another order of magnitude increase in the scablilty of GSM/WCDMA handsets. As recent as 1999 and 2000 when the spectrum auction took place, no one in New Zealand considered an environment of 120% penetration. No one could predict even 48 months ago, 2 billion GSM devices. This means lower prices for every consumer in every country, except New Zealand. This means the 900MHz band maintains its current value and there must be competition in this 900MHz band and a safe harbour to build a complete country wide network where there is plenty of scope to build up most rural areas because of the enormous economy of scale in the equipment markets.

However, there’s a hole in my bucket, where is collocation in this discussion?

Because technology is going to become so cheap, there is going to be a massive amount of competition in open portal software space. Except of course in New Zealand where there will not be any open software portals because there is no same technology network competition.

Issue 1.2

What is the current level of spectrum-related investment in the 800 MHZ and 900MHz MHz bands? How might the use of these bands be optimised? What are your intentions in the next few years with respect to this spectrum?

Econet only provides an answer to this question on the understanding that it maintains the whole process under which these questions are asked is flawed and inadequate to achieve Government objectives.

Econet has been rejected in negotiations to buy 900MHz spectrum from Vodafone, which will see Econet mobilise $200mill of investment in the 900MHz band over the next 4 years. The issue here is, Vodafone have a vested interest in ensuring that the renewal costs of the spectrum are ridiculously high (please see Appendix 1).

The issue with regard to the development of the spectrum is, will a rational, integrated OECD look-alike regulatory environment be available and will that regulatory environment respect the entrenched nature of the incumbents at a 100% penetration of mobile. Econet is concerned by the Ministry of Economic Development approach because spectrum development discussions and workshops are being held without a simultaneous discussion of the interplay with other services. It is a networked industry. It is a nationwide infrastructure network whereby every component of the business has substantial interfaces with incumbent monopolists, who have no vested interest in competition. There is a need for fundamental structural change in the way spectrum is administrated and we believe the responsibility should go to the Commerce Commission.

Incumbents complain that TelstraClear and Econet have not built, so there is no problem, so there is no need for change. Given the current regulatory environment, a network build is not rational. A Boston based investor said to us in 2002 "The Fletcher enquiry, the money would be better spent on a boat trip. Thanks for explaining how crazy New Zealand is. The only thing I’m investing in is Telecom shares. You haven’t got a proper regulator."

Econet’s intention with 900MHz

Econet has invested $32m in equipment, cell sites, switch sites, radio plans for Auckland, Wellington, Christchurch, Dunedin, Hamilton and Tauranga (Appendix 2) with a plan for over 450 cell sites. This is before moving to another 300. We require 900 for rural coverage and roaming negotiations. These plans require OECD style regulation of behaviour, spectrum and access Econet is happy to discuss with the Commerce Commission and Ministry of Economic Development conditionality of this rollout. Econet will then agree to OECD conditionality.

The commerce commission made a massive mistake in 2002 by allowing Vodafone to take all the 900 spectrum, but specifically allowing it to get fooled by the Vodafone argument that any new entrant was likely to roam in the rural areas. Without co location and 900 spectrum a new entrant will never get a decent roaming price. It costs a new entrant 4 fold to build using 1800 spectrum and their fore Vodafone can continue to charge an monopoly rent for the roaming service.

Can anybody the MED understand the difference in roaming negotiations if you turn up with a collocation arrangement (so as to avoid and RMA and environmental disaster) and some 900 spectrum?
 

Issue 1.3

Should rights to unused spectrum be renewed? Why or why not?

Econet only provides an answer to this question on the understanding that it maintains the whole process under which these questions are asked is flawed and inadequate to achieve Government objectives.

Asymmetric principles should apply when considering incumbent verses new entrant renewal. The Econet consortium has had 3G-spectrum availability for 5 years and has invested heavily in 1800MHz spectrum. Because there has been no availability of a roaming agreement and because, despite 4 years of negotiations on collocation, there is no collocation code, (that is before one looks at no availability of number portability or rules managing the significant market power of incumbents) it makes it unrealistic to build without creating an environmental disaster, of multiple towers, but also the 1998 Saturn Telecom decision developed into a decision to prevent network building, because it legitimised those with significant market power to shut down new operators.

Vodafone has monopolised the 900MHz spectrum in a manner that has made a mockery of the government so badly that Vodafone has published, on page 14 of its PLC annual report, that it has 3 GSM licences in New Zealand.
 

Issue 1.4

Which of the three options with respect to the length of the renewal period is appropriate? If you do not agree with any of these options, what alternative timeframes do you suggest? Why?

Econet only provides an answer to this question on the understanding that it maintains the whole process under which these questions are asked is flawed and inadequate to achieve Government objectives.
 

Issue 1.5

Do you have any comments on the appropriateness of applying the Covec formula to the New Zealand cellular market?

Econet is appalled that the Ministry of Economic Development would consider using a company like Covec, which is a Vodafone consultant. We note the factual misstatement, on page 8 of the document, whereby Vodafone entered the market in 1998. This is not correct. Any regulator would make a decision on the entrenchment of the incumbent. Whereby the Vodafone network had construction start in 1992, six years earlier. The Vodafone network is 14 years old not 8. Vodafone has had a monopoly. Econet is concerned that there is no discussion of interplay with other services such as collocation, roaming and there is no focus on developing a competitive new network.
 

Issue 1.6

Do you have any comments on the approaches that were examined as alternatives to the Covec formula in valuing spectrum for the New Zealand cellular market? Are there any other approaches that should have been considered and why?

Econet only provides an answer to this question on the understanding that it maintains the whole process under which these questions are asked is flawed and inadequate to achieve Government objectives.