Through a post on the TUANZ blog I happened on a 2011 report by Venture Consulting for 2degrees Mobile entitled “Economic Study of the Benefits to the New Zealand Economy of New Competition in the New Zealand Mobile Market“.
The total estimated benefits from 2007 to 2021 are given in the report as:
Direct investment: $5.3 billion
Indirect investment: $3.4 billion
Competition dividend: $1.4 billion
The first two items correspond to expenditure by 2degrees and its suppliers on “capital and reinvested revenues”. These are costs, not benefits. If 2degrees did not exist, these resources could have been used for something else. We shouldn’t count them as a “benefit of new competition”.
The “competition dividend” is better — it reflects the estimated effects of lower prices in the mobile market as a result of increased competition. However much of the $1.4 billion calculated by Venture is a transfer to consumers from producers and not a net welfare benefit. The true net welfare benefit depends on how much usage (quantities) in the mobile market changed as a result of lower prices caused by greater competition. The fact that consumers pay lower prices for the existing level of usage doesn’t generate a net welfare benefit.
Doing this analysis the right way would not give a Big Number, but it would be a robust, meaningful number. The huge numbers estimated by Venture don’t tell us anything about the true benefits of competition.
Don’t get me wrong — I’m all for competition and I think 2degrees has had a significant effect on mobile market competition in New Zealand. I just wish they had analysed it properly.