In its state of New Zealand broadband report IDC says the market is growing but profit is hard to find. IDC questions the sector’s sustainability but later makes the case that New Zealand is a world leader in connectivity.
IDC says New Zealand’s total telecommunications revenue increased 1.1 percent in 2017. It went from $5.36 billion to $5.42 billion. The company warns: “this growth disguises the true story of a market that is displaying extreme price pressure and competition in both fixed and mobile. Average Revenue Per Users (ARPUs) are either flat or declining in both broadband and mobile. In the broadband space retail service providers continue to compete away any chance of strong, sustainable ARPU growth.”
While intense competition means good times for customers, retail costs are rising and margins are falling. IDC reports many in the industry question the profitability of retail broadband as a standalone product.
The report says: “The UFB initiative has commoditised fibre in New Zealand. Consumer fibre plan prices have plummeted from averaging over NZ$200 per month in 2013 to around NZ$85 per month as at February 2018.”
IDC says companies will find it easier to acquire customers through acquisition than to continue offering deals in a cut-throat market. It also notes there’s an increasing dependency on bundling services with broadband to create a profitable overall package.
As a result IDC sees a coming consolidation of those companies without extra service offerings. It says some market entrants are looking to position for a future where they can sell over-the-top services to connected homes.
The report says smaller regional players are at the greatest risk of failure or consolidation in the medium term. It says: “Industry players mentioned that there are several small players with approximately 1,500 – 2,000 customers that are now encountering diseconomies of scale.”
While it sees similar market dynamics overseas, IDC wonders if New Zealand’s unique structural separation model could lead to a lack of innovation or investment in the broadband market.
IDC describes 5G as a huge curve-ball threatening to substitute a portion of the fixed market but finishes by saying: “The signs still overall look positive for the New Zealand telecommunications market. The difference between the thrivers and survivors will come down to not just strategy but considered, effective, relentless and efficient execution of strategy.”