Mobile fees cut gives new entrants 'golden opportunity'

New entrants to the mobile telecommunications market have a “golden opportunity” to win market share on the back of a decision to cut fees, says a brand loyalty specialist.

Professor Malcolm Wright says a decision by the Commerce Commission to reduce mobile termination rates means 2degrees and any subsequent new operators are likely to gain new customers.

He says the attractiveness of Telecom and Vodafone could be harmed by their reluctance to reduce costs.

“There is a powerful incentive for the big players to keep fees as high as possible. They will count on inertia to maintain their customer base, and extract super-normal profits from the market.”

But he says while inertia may keep much of the existing customer base, it won’t attract the new customers that are vital to maintaining market position.

"The threat to Telecom and Vodafone is not so much that their existing customers will defect,” Professor Wright says. “Existing users can be hard to budge, as they can be reluctant to leave behind a network of friends using the same provider, all of whom benefit from network specific deals.

“The danger for anybody who doesn't drop their price is rather that they will fail to acquire new customers, leading to erosion of their market share over time. It’s like a leaky bucket – if you don’t keep filling it up, it will eventually wind up empty."

Mobile termination rates are fees mobile network operators charge for calls and texts on rival networks. From today, texting charges will drop to less than a cent, when previously they cost nearly ten cents. Call rates will drop from 17 cents to less than four cents next April.

Professor Wright, who leads the School of Communication, Journalism and Marketing, is part of an international study of the impact of defection and acquisition rates on brand share. The study involves Massey University, Loughborough University in England and the Ehrenberg-Bass Institute for Marketing Science in Australia. The results were presented at the Quantitative Marketing conference in Vienna in 2010, and are currently under review at the Journal of Business Research. Professor Wright has also published work on benchmarking defection rates in the European Journal of Marketing in 2010.