Telecom and Vodafone had a "date with destiny" after 2degrees released its prepaid price of 44c per call and 9c per text, ABN Amro Craigs broker Chris Timms said yesterday.
"Whether Telecom and Vodafone respond to today's pricing will depend on the level of traction that 2degrees propositions gets in the marketplace.
"Presumably, they will wait a few months and be willing to cede some lower value market share initially rather than drop prices across the board."
However, if 2degrees grabbed 4% to 6% of the mobile market quickly, then it was expected Telecom and Vodafone would match pricing, he said.
A further warning for the incumbents would be if 2degrees built out its sales and distribution channels with a more "meaningful retail presence and reach".
In the short-term, Vodafone might be more wary than Telecom partly because of it had a higher proportion of its base on prepaid (73%) compared to Telecom (63%) and it was initially more exposed to SIM card swaps given the majority of Telecom's customers were still on the CDMA network.
Mr Timms said the central plank of 2degrees' price proposition was half-price voice calling.
The company was always going to focus on prepaid voice given the flexibility afforded by the wide spread between current retail rates and the termination rate.
The headline offer appeared attractive.
The only catch was that billing was on a minute/minute basis, like Vodafone, while Telecom's XT prepaid billed on a minute/second basis.
The complexities of billing and credit management meant post-paid offerings were unlikely from 2degrees anytime soon, he said.
"Further, the competition in the business space, where rates are significantly lower and substantial handset subsidies are the norm, means this is unlikely to be a focus for 2degrees," Mr Timms said.
Telecommunications Users Association (Tuanz) chief executive Ernie Newman said he was delighted at 2degrees' offer.
"I always knew they were going to come in based on price, but their prices are very low. They've cut the price much more than I'd anticipated.
"That is proof that New Zealanders have been paying far too much from the established duopoly."
Mr Newman was sure Telecom and Vodafone would and cut their prices in response.
"That's what happens in the marketplace, but I think people will be entitled to take a slightly jaundiced view of that."
New Zealand had been waiting for a third operator for a very long time and he was sure it could succeed.
All the economic evidence was that when there was a duopoly, there was not real price competition.
"We've seen here illustrated very graphically the extent to which it is possible for these prices to come down, which the others have been resisting for all these years."
It was wise for 2degrees to tackle the prepay market first, he said.
2degrees chief sales and marketing officer Larry Moore said there was plenty of room for profit, despite saying its rates were much cheaper than Telecom and Vodafone.
"I don't think we should compare ourselves necessarily to the rates in the market. We should be looking at international rates," he told NZPA.
"There's been excessive profit taking in this market by the two incumbents. Basically we've come out with simple, clear pricing, basically good value for money."
Mr Moore said 2degrees had tackled the prepay market first, but there would be rollouts of other parts of the market in future.
"We believe that basically the part of the market that hasn't been given value is the prepay end of the market," he said.
"But you'll see us move very quickly into other parts of the market, again with the same level of disruption and compelling market that we've brought to prepay."
The 2degrees launch in Auckland also previewed advertisements featuring New Zealand comedian Rhys Darby, who played Murray in the Flight of the Conchords television series.
2degrees customers can top up from more than 6300 locations, pick up SIM cards from 2500 locations and get a top-up, SIM card and handset from 340 stores.
Handsets range in price from $79 to $649.
2degrees at a glance
• Launches today
• Voice calls at 44c per minute - half the price of Telecom and Vodafone
• Texts at 9c each
• Only offers prepaid.
