Tuesday, August 11, 2009

Telco Rip Off: A Cliff Notes Version Of The Fight Against Telecom and Vodafone

By Benedict Wee

I've been meaning to write an article about the current mobile tyranny we suffer under the two big telco giants Vodafone and Telecom and why we should support government regulation but the "Drop The Rate Mate" campaign has beat me to the punch.

What I'll do instead is summarize the notes I've been gathering to simplify the situation about why the government should step in so Kiwis everywhere will be able to leave behind the archaic and expensive mobile rates the two telcos are charging and finally join the rest of the developed world in using our mobiles to communicate without trepidation.

The situation:
  • Mobile Termination Rates (MTRs) - This is the rate one telco charges another if you call/text someone from another network be it from a mobile or a landline.
  • New Zealand has one of the highest mobile termination rates amongst first world countries.
  • Vodafone and Telecom charge around 15 cents per minute for calls and 10 cents per text to contact someone from another telco.
  • This charge is passed to us the consumer, who have to pay for them. That is why it costs $0.89 per min to call and $0.20 to text someone from another network.
  • Commerce Commission - A watchdog group that ensures fair practices and promotes competition amongst companies (in this case, telcos) so we get the best value.
  • The Commerce Commission says the rates are way too high. A proper rate should be about 4-7 cents per minute for calls and 0.5-1 cents per text. Even then the rate would still be considered expensive.
  • This means we pay over 2 times the amount for calls and 10 to 20 times more for texts.
  • Because of this abhorrent activity, mobile users either resort to using two mobiles or congregate under one telco to avoid paying MTRs.
  • As a result, Vodafone and Telecom make a massive profit from charging high MTRs, almost 2.5 billion in the last 10 years.
  • The Commerce Commission is asking the government to step in and regulate MTRs so the prices are lowered and we pay less.
  • Vodafone and Telecom want to remain independent and do not want the government to regulate. They lower their rates slightly under a pretense to show they do welcome competition. The rates are still too high.
  • New mobile telco 2degrees has difficulty entering the market because the MTRs are too high for a startup company to afford. As a result, they're unable to offer much a cheaper, more competitive rate and hence are left to charge $0.44 per minute for calls and $0.09 per text.
  • The Commerce Commission will be accepting submissions by the different telcos which will be compiled and then sent as a recommendation report to Steven Joyce, Minister for Communications and Information Technology. He will then decide if the government should intervene and force the MTRs down, giving telcos a fair chance to compete and thus resulting in cheaper calling rates for us.
  • 2degrees and 7 other organizations want to support the regulation for lower MTRs and have set up the "Drop The Rate Mate" campaign to not only draw the attention of the public, but to combat Vodafone and Telecom who will employ fierce lobbying tactics to discourage the Minister from government interference.
How it harms Kiwis and New Zealand:

High costs: Because of artificially inflated MTRs, we pay hundreds more than we really need to.

Low usage: We avoid using our mobiles/landlines to communicate as a result of the high cost.

Double phones: We resort to using double mobiles in order to work around the high costs of contacting someone.

Artificial group segregation: Those unable to afford/don't want to use two mobiles are then left with no choice but to follow the telco which most of his/her contacts use in order to minimize the extra charges. If 13 out of 20 of a person's group uses Vodafone then said person is driven to choose Vodafone as well and will be hesitant to contact the other 7 who are on different networks. This segregation is artificially manufactured and spreads till a monopoly is formed.

No competition: Because MTRs are charged so high other competitors find it difficult to start their own telco and are discouraged from doing so. What is left is two companies who continue to dominate the market and are able to set whatever price they want without anyone being able to challenge them.

Stunted Technological Growth: This bit was not mentioned by anyone but it incenses me the most. Because we are unwilling to use our mobiles often and think that calls/texts/data is at a premium, we've all adopted a phobic or indifferent mentality towards new technology which is counterproductive to our society.

As technological innovation continues to evolve by leaps and bounds it is essential that we keep up with its progress and learn how to use these new-fangled gadgets to improve our lives, the economy and New Zealand as a whole. By charging ridiculously high rates consumers are discouraged from utilizing an everyday device that has been around for decades to communicate with each other.

The telcos have inadvertently created a time warp that has set us back years where contacting each other with mobiles was considered a luxury. What proves this theory is the lack of mobile choices in our shops and the high cost of purchasing them despite contract subsidies. The end result of not thinking of our mobiles as playing a big part our lives is an apathetic attitude towards not only new mobile technology, but all kinds of technological advancement by extension.

If you do feel strongly about this issue and would like to support the "Drop The Rate Mate" campaign, you can sign the petition on their website here.


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