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Telco sector proof of difference real competition can make - TCF

Peter Griffin, Editor. 08 March 2022, 3:30 pm

The Commerce Commission's long-awaited decision on intervention to improve competition in the highly-concentrated groceries market has received mixed reviews at best.

The Commission today revealed that its analysis of the grocery market dominated by the supermarket chains owned by Foodstuffs and Woolworths NZ generated $430 million in excess profits each year.

The two companies, which claim 80% of the $22 billion market for groceries between them, enjoyed a rate of return on their capital of 12.9% between 2015 and 2019 according to the Commission's final market report. The Commission considered 5.5% to be more in the region of a reasonable return in a competitive market.

But it didn't recommend breaking up the cosy duopoly in groceries by forcing the two companies to carve off parts of their business. It will instead "encourage" the two companies to begin wholesaling groceries to other players in the market.

In many ways, that draws inspiration from the telecoms sector, which saw a wholesale market for network connectivity established with government regulation, the voluntary structural separation of Telecom in 2011 and the creation of Chorus, a network wholesaler, and Spark, the retail player that exists today.

While Chorus has to offer wholesale access to the national fixed-line network to retail providers at the same terms, Foodstuffs and Woolworths NZ would only be required to "fairly" consider requests to supply competitors, but wouldn't be obliged to wholesale groceries to them.

When it comes to groceries the Commission, by its own admission, has proposed "quite a nuanced set of arrangements" to deal with the lack of competition. Tech and telco commentators weighed in with their verdict on that:

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Tech and business commentator Ben Kepes weighs in

Comparing groceries to telecoms services is like comparing apples and… mobile data, but the Telecommunications Carriers Forum today pointed out the difference regulatory intervention and the presence a third player in the mobile network in the form of 2Degrees, has had on prices consumers pay.

The TCF's members include the country's three largest telcos, 2Degrees (which is currently seeking Commerce Commission approval to merge with Vocus Group), Spark and Vodafone.

The TCF pointed out that in the Statistics NZ Consumer Price Index for December many categories of spending faced by households rose, while telecommunications services fell by 1.5% for services and 8.3% for equipment. The cost of fruit and vegetables actually fell 10.2% in the December quarter, but the CPI was up overall by 5.9% last year, driven by increased costs in housing, transport and ultilties. 

"The price customers pay for telecommunications is constantly falling and helping to offset the rises in groceries, fuel, rent and almost every other sector Statistics New Zealand monitors," says the TCF's chief executive, Paul Brislen.

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The Commerce Commission said today that its range of measures, which also include introducing a code of conduct for the grocery chains and removing covenants on land to free up space for rivals to build supermarkets, would likely lead to cost savings for consumers who are currently being hit with inflated prices in the shopping aisles.

Brislen said further work was underway in the telco space to boost competition.

"The Commerce Commission has indicated it will look at a range of issues over the next 24 months including affordability, and that's something the industry welcomes. The TCF currently has workstreams already progressing changes to product disclosure and customer transfers," he says.

"We believe we are well placed to demonstrate world-class levels of affordability and the Commission could tick that one off its to-do list."


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