New Zealand Telco Market Outlook


Executive summary

We expect the overall retail telco market to remain almost flat (2019-2023 CAGR 0.4%) with mobile growth driven by a move to post-paid plans and 4G/5G to offset the structural decline in fixed voice. 


  • Total retail revenues will reach NZ$5.5bn in 2023

  • With UFB deployment nearly complete and the launch of 5G and Hyperfibre, we expect a rise in competitive intensity as players look to capture share across a broader set of product offerings

  • Fixed voice continues its structural decline as subscribers shun the landline and migrate away from standalone fixed voice services to mobile bundles and broadband + VOIP bundles

  • The UFB rollout is on track and 79% of the population can access UFB as of September 2019. The Government’s target is to make UFB available to 87% of the population by the end of 2022

  • The NZ Government recently announced a set of reforms including a move towards utility-style regulation, copper deregulation in areas where UFB is available, and increased oversight over quality and reliability of broadband services


Figure 1. Retail telco market revenue growth rates by segment

SOURCE: VENTURE INSIGHTS


Fixed Voice & VoIP


Fixed Voice revenue will continue to contract at a CAGR of 11.5% between 2019-2023 as subscribers shun the landline and migrate away from standalone fixed voice services to broadband + VOIP bundles


Mobile


Mobile revenues will continue to drive a majority of the telco market growth at a CAGR of 3.9% on the back of increasing smartphone penetration, rising data consumption and a rise in the number of devices per household. Total revenue set to reach NZ$3.3bn in 2023

However, this market is about to see a rise in competitive intensity and incumbents are expected to lose some consumer wallet share as competition emerges in the higher ARPU post-paid segment


It has been 10+ years since MVNOs launched in NZ. Their current subscriber share is only 1% (5% including sub-brands), but this could change with the entry of super cheap MVNOs such as Kogan


5G, including spectrum auction for 3.5 GHz band in early 2020, is a key trend to look out for in 2020. Spark and Vodafone are already offering 5G services to their customers


Fixed Broadband


Fixed Broadband revenues are expected to grow moderately across our forecast horizon at 0.3% CAGR during 2019-2023, driven by rising penetration of fibre and household growth, reaching NZ$1.5bn in 2023


Gigabit speeds are driving the adoption of 100Mbps and above plans, which now account for 88% of Chorus’ fibre connections. Average connection speed for Chorus customers in now 100+ Mbps


While wireless broadband may not pose enough of a risk to fixed broadband for now, there is scope for significant take up with almost one-fifth of respondents from our latest NZ survey indicating they are willing to switch to a wireless broadband service within two years. An updated survey will be published shortly.


UFB - 79% population coverage by September 2019


Target – 99.8% population coverage by the end of 2023


SOURCE: VENTURE INSIGHTS, THE MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT (MBIE)


Rollout progress – UFB ahead of its targets

The UFB has completed 87% of its targeted rollout with 79% New Zealanders able to connect and more than 879,000 connected homes and businesses


The UFB had completed 87% of the network rollout by September 2019, 1% ahead of schedule, and was comfortably on track to achieve its rollout targets of 2019. The UFB rollout has progressed rapidly and has outpaced the NBN


While the UFB's take-up had lagged behind its Australian counterpart over the years, but both UFB’s and NBN’s take-ups were almost equal at 55% in 2019. We expect UFB take-up to surpass the Australian NBN’s over the next year


In New Zealand, consumers have a choice between continuing with their existing copper service and moving to the UFB. In Australia, consumers must migrate to the NBN within 18 months of the NBN becoming available or risk having no internet access


We note that the Government’s announcement to deregulate copper access in areas where UFB is available accelerated the UFB take-up. This will be further accelerated as UFB wholesale prices are reduced. For instance, Chorus will reduce its wholesale pricing from NZ$65 in 2018 to NZ$56 by mid-2020


We also expect higher fibre take-up to be driven by the rising penetration of video streaming services and the increasing number of connected devices per household


Figure 3. Take-up rates – UFB vs NBN


SOURCE: VENTURE INSIGHTS, MBIE


Note: *NBN by June 2019 *UFB by September 2019


Figure 4. UFB Households and businesses able to connect in 000’s

SOURCE: VENTURE INSIGHTS, MBIE


Note: Planned forecast ended in June 2018


Telco market forecast by vertical


Mobile maintains its dominance while fixed voice continues to lose share as consumers embrace VoIP services. Total retail revenue will reach NZ$5.5bn in 2023


The NZ telco market has seen a flurry of activity in the last four years with the sale of 700MHz spectrum for 4G, increasing fixed broadband speeds, the launch of multiple SVOD services, the rise of bundled mobile plans and further industry consolidation, the launch of 5G and the sale of Vodafone to a consortium of Infratil and Brookfield Asset Management


The 4G and 5G rollouts in particular have enabled telcos to offer wireless broadband services as an alternative to the existing fixed broadband technologies and the UFB


Fixed voice continues its structural decline as the mobile phone becomes more ubiquitous. Consumers are shifting their allegiance to the mobile phone for voice and mobile phone calling has overtaken fixed voice calling. VoIP services are also becoming a preferred choice for voice communications


We forecast growth in Mobile driven by higher smartphone penetration, more competitively-priced smartphones and unlimited plans, and the arrival of 5G networks. We expect modest growth in Fixed Broadband driven by the UFB rollout. Altogether we expect the retail telco market to remain flat through to 2023


Fixed Broadband: We expect revenue growth of 0.3% CAGR across our forecast horizon from 2019-23Mobile: We expect revenue growth of 3.9% CAGR through to 2023 to reach NZ$3.3bn


Figure 5. Total Telco market revenue by vertical

SOURCE: VENTURE INSIGHTS


Retail telco market forecast by vertical


Mobile revenues will account for more than 60% of the NZ telco market driven by rising penetration of postpaid and higher take-up of mobile bundled offerings


We believe growth in the NZ telco market will be driven by mobile and fixed broadband while fixed voice will continue its structural decline


Fixed broadband: We forecast fixed broadband to increase its revenue share in the retail telco market from 21% in 2011 to 27% in 2023, driven by household growth at 1.0% CAGR and sustained household penetration of 90%. We also expect revenue growth to be driven by an increase in the number of devices connected to fixed broadband networks at a per household level


Mobile: We forecast mobile revenues to remain the largest segment of the NZ telco market and increase its share to 61% of the total market by 2023. We expect this to be driven by the rising penetration of the postpaid segment, higher bundled mobile plans and increasing penetration of 4G networks and early 5G networks


Fixed voice: Fixed voice will continue its structural decline within the NZ telco market decreasing from 37% share in 2011 to 12% in 2023, as customers cut the cord by migrating to mobile only service


Figure 6. Total Telco market revenue by vertical (NZ$mn)

SOURCE: VENTURE INSIGHTS


Mobile forecasts


Mobile to remain the largest and the most competitive segment of the overall telecommunications market with NZ$3.3bn in revenue in 2023


We estimate mobile market revenue to grow at a 3.9% CAGR to reach NZ$3.3bn by 2023, driven by enhanced bundled offerings, higher proportion of post-paid plans, improved 4G networks and the launch of 5G services by the MNOs


We expect growth to be driven by increased levels of penetration with a substantial portion of the population owning multiple devices


  • Service revenues are forecast to increase as a result of the rising volume of mobile data consumption and enhanced mobile connectivity

  • M2M revenues are forecast to grow at a 17.2% CAGR (2019 – 2023) as a result of increased connectivity across networked devices driven by broader industry migration and adoption of Internet of Things (IoT)


Venture Insights forecasts the following (by 2023):


  • Penetration (excl. M2M) – will increase to 149% by 2023;Subscribers – we expect subscribers to grow at 3.7%, above population growth at 1.2%; and

  • ARPU – we expect Mobile ARPU to remain steady at NZ$30 till 2023, supported by growth in post-paid plans in place of prepay plans where the former also has a more predictable pricing and revenue stream


Figure 7. Mobile forecast

SOURCE: VENTURE INSIGHTS


Fixed Broadband forecasts


Rising broadband penetration and household growth to drive fixed broadband revenues

We expect Fixed Broadband revenue to increase slightly across our forecast horizon to 2023 at a CAGR of 0.3%. Increase in subscriber numbers will be offset by pricing pressures as bundled services, e.g., with utility offerings, will put pressure on broadband ARPUs

The UFB rollout is ahead of schedule in terms of number of premises able to connect, driving up subscriber numbers


We forecast the following (by 2023):


  • Penetration to be sustained at 90% of households, driven by continued UFB rollout and a push by Spark for its fixed wireless services to reach more remote homes;

  • Subscribers to grow at a 1.0% CAGR to 1.7m subscribers by 2023, driven by growth in households at a CAGR of 1.0% and stable penetration rate; and

  • Fixed broadband ARPU expected to decline at a CAGR of 0.7% through to 2023, driven by limited price power in the market, bundling with utility services and the higher take-up of unlimited data plans.


Figure 8. Fixed Broadband forecasts

SOURCE: VENTURE INSIGHTS


Fixed Broadband demand drivers


Unlimited data connections become mainstream driven by the rising popularity of video streaming services


Increasing penetration of video streaming services in New Zealand is driving a rapid increase in data demand. About one out of every four New Zealanders are using a video streaming service. Monthly data consumption per connection increased by more than 3.5x and overall monthly network traffic increased by more than 7x between 2014 and 2019 on the Chorus network. We believe this accelerated growth was driven by the launch of SVOD services such as Lightbox and Netflix in 2015


The increasing penetration of streaming devices and Smart TVs along with broadband bundles that combine SVOD services with traditional broadband will only add to the growing demand for data. In addition, traditional video providers are moving online – TVNZ has started streaming all its channels


Unlimited data connections now account for seven out of every ten households in New Zealand. We expect the demand for unlimited connections to keep growing through to 2023, fuelled by increasing online content and emerging technologies such as AR/VR with fibre enabling a majority of the growth


A very high penetration of 100Mbps or faster plans also contributes to the increase in data consumed