Introduction

This is a flawed process and is a repeat of the 2000 disaster whereby the MED auctioned spectrum with no regulatory environment in place; again the MED is making a huge mistake by having no decent respect for the impact that a proper OECD style competition policy would make

Econet Wireless is a new entrant mobile telecommunications company that has invested over $50 million and has budgeted for another NZD $200 million investment. This investment will generate a positive outcome for New Zealand consumers. Econet has had its plans consistently delayed because of the failure for regulatory policy to align itself to that of the OECD.

The New Zealand spectrum market is characterised by having the only GSM monopoly in the OECD and the only country in the OECD where there is a monopoly in 900MHz GSM spectrum.

Econet’s base position is that spectrum management in New Zealand is a mess and that there has been a disaster as spectrum has been monopolized and allocated poorly. Regulatory bodies have deferred to incumbents rather than to international regulators in seeking an effective policy. Decisions for New Zealand consumers are made by the EU community and international vendors. The GSM decisions made by the Europeans affect all New Zealand consumers. The tragedy was that New Zealand regulatory bodies didn’t follow the rulebook set by the Europeans to create same technology competition.

The policy that New Zealand won’t issue licenses but merely sell spectrum reflects poorly on New Zealand understanding of the complexities of interplay in a networked industry. The New Zealand taxpayer has suffered as spectrum valuation has been ridiculously low but New Zealand consumers have also suffered, as mobile prices are the highest in the OECD.

It’s Econet’s position that spectrum management can only be discussed simultaneously with the interplay of competition rules surrounding access to incumbent’s networks and behaviour of those companies with significant market power.

Moreover, to discuss the renewal and valuation of spectrum management rights without first creating a framework to ensure (re) allocation of that spectrum in a manner which actively encourages and assists new entrants cannot but fail to achieve the government objective of ‘maximizing the value of spectrum to society as a whole’. The presumption that this objective is achieved merely by ensuring the government earns a few dollars for the spectrum is astounding, more so when one compares the spectrum valuation to the (acknowledged) monopoly rents currently being extracted from the NZ public.

Econet is extremely disappointed in Clause 2.25 of the PWC discussion paper. This reflects the intellectually bankrupt thinking that spectrum policy can be pursued independent of competition and regulation policy. The casual assumption that it is in the public good to allow the current incumbent operators to continue to each respectively monopolize the most cost effective spectrum for covering the country is breathtaking in its naivety.

New Zealand must generate OECD style road rules, which are respectful to the current market landscape, which means a new entrant must start at 100% penetration where one player has 66% of all traffic.

Any new entrant has a bottleneck problem with 900MHz spectrum similar to collocation, roaming and number portability. Policy failure has meant that Vodafone has monopolized it. The MED or the Com Com has obviously encouraged Vodafone to consider selling a chunk on 900MHz to Econet as in a 4 week period, Vodafone sent Econet a letter saying  "we need all the 900 spectrum," (letter dated 17 April) to change its view and actually offering us a block.

As with all Vodafone requests "PRICING IS PATHETIC"

In roaming, pricing is appalling and non commercial (opening pricing was 86c a minute) In collocation, pricing is pathetic and reflects a monopoly rent component.

The very interplay of bottleneck services in order to build a network Vodafone wants to extract a monopoly rent from Econet.

Econet requests that Vodafone be forced to rent Econet some 900 MHz spectrums at TSLRIC pricing for the 5 years from 2006 to 2011. At which time Econet can then buy a 20-year lease from the MED.

Upon purchase of this spectrum Econet should pay an asymmetric renewal valuation that is because the MED, needs to understand (as illustrated in the PWC report) that Vodafone and Telecom will game the valuation of the renewal to drive it as high as possible (even though they have to pay more themselves because it creates a barrier to entry and raises the capital cost for new entrants, and prevents a new entrant from being able to lower mobile phone prices (so monopoly rents are still able to be charged by the incumbent )

Without focusing on a license based “get a network built methodology “, the MED is going to get captured with an appalling 90s logic
Being technology agnostic is not going to cut it, because it won’t lead to a same technology out come

Econet has a fundamental objection over the terms of reference and scope of this discussion paper. A meaningful discussion on spectrum valuation and renewal simply cannot be sustained in the absence of clear policy that encourages competition in this market by:

1. Ensuring new entrants have access to the 900MHz band in order to achieve cost effective coverage on urban fringes and in rural areas
2. Ensuring new entrants are nurtured and given reasonable protection from new technologies while establishing themselves. A fractured competition with competing technologies, fighting over the scraps of the market will never bring competitive pressure to bear on the incumbents.
3. Protecting new entrants from anti-competitive behaviour in the market place by the incumbents, as seen in Telecom’s response to Saturn cable in the 90s
4. Providing new entrants with the rights to quickly and easily avail themselves of roaming, co-location and number portability, not at some price set arbitrarily by incumbents intent only on protecting their market share, but on sensible, cost-based terms set by an independent regulator.
5. Links spectrum management to competition management and industry regulation.

Econet believes that the cellular spectrum rights in the 800 and 900MHz band cannot and must not be renewed in their current format. In the absence of an appropriate regulatory policy on spectrum, Econet believes that following procedure should be followed:

1. The Telecom allocation in the 800MHZ band should be reduced to less than 886 MHz to allow use of the full 25+25MHz spectrum available for standard GSM use (i.e. 890-915MHz and 935-960MHz).
2. The 900MHz band appropriate for GSM should be divided up into four equal portions, and reserved for use by GSM and UMTS networks only (subject to UMTS use not interfering with GSM use).
3. The four portions should be allocated to holders of the 1800MHz spectrum being Vodafone, Econet, TelstraClear and Telecom.
4. The new holders should pay a nominal fee for the spectrum. The objective of the process should be to create a competitive mobile industry, not to derive a token income for the government.
5. Telecom should be allowed continued use of the 850MHz band only as long as it operates a CDMA 2000 network in that band.
6. Vodafone should be required as a condition of the renewal to rent (at TSLRC pricing) at least 4MHz each of 900MHz spectrum to other interested 1800MHz spectrum holders until the new management rights at 900MHz are effective.

This submission has been prepared by Econet Wireless for the Ministry of Economic Development.