2degrees backer a formidable foe

How long it takes for a start-up mobile network to make money, was just one of the insights shared by the majority shareholder of 2degrees at a business breakfast in Auckland.

John Stanton, chairman of Trilogy International, the company that has a 52% (and rising) share of 2degrees, was guest speaker at the American Chamber of Commerce function.

Stanton says Trilogy is in New Zealand “for the long term” and when asked to define that he told the audience: “The nature of this business is that you rarely make money in the first five to six years.”

He says the company will continue to invest in 2degrees, but that they could never rule out selling up.

“The majority of shareholders in Trilogy International can gather in a very small room and have a conversation and I’m certainly not willing to say we’ll never do this or we’ll always do that.”

Stanton’s career began in 1979 when he graduated from university and took a position at McCaw Cellular. The US government had just issued spectrum licenses for 734 individual geographies. That meant cellphone companies had to apply for individual licenses in towns and cities across the country. As Stanton observed, the regulatory settings meant that wireless services began as piecemeal operations, but the market drove consolidation on a national scale.

Stanton saw an opportunity in rural communications and founded Western Wireless in 1987. The company acquired licences across 900,000 square miles – roughly 30% of the US, but covering just 3% (10 million people) of the population. After establishing its rural business the company then went after the urban market and became the third mobile network operator in a number of cities, including New York and Los Angeles.

Western Wireless expanded its operations internationally as rules on foreign ownership relaxed around the world. It built mobile network in Africa, the former Soviet Republic, and in central and south America.

Among these was the Voila network in Haiti, which Stanton still has a stake in. He began his presentation this morning talking about the aftermath of last week’s massive earthquake in the small Caribbean nation. He says Voila, which has around 1 million subscribers, has been able to stay on air because cellsites are powered by generators (there is no national power grid) and they only went off air for a few hours shortly after the quake because a 10,000 gallon fuel drum was destroyed. The company employs 575 employees in Haiti, and of that number five have been killed and 51 are still missing. He showed pictures of the devastation and said the international media have done a good job in reporting the depth of the crisis, but not the breadth.

In addition to developing countries, Western Wireless aggressively pushed into established markets, becoming the third mobile operator in Ireland and the fourth in Austria.

After 17 years, Western Wireless was sold to ALLTEL, however the buyer didn’t want the entire international operation. Stanton said at the time Western Wireless had $10 billion in revenue, of which $9.9 billion was from netoworks in the US.

Trilogy International was founded by three partners during a dinner “with probably too much wine”, when Stanton and two shareholders (one of them his wife) agreed to buy back the Haiti and Boliva operations. In 2007, they added a network in the Dominican Republic. The following year Trilogy bought a 26% stake in NZ Communications, the forerunner to 2degrees.

Stanton is therefore a formidable foe for Vodafone and Telecom in New Zealand. He has the experience, he has the money (when another company he had a stake in, T-Mobile US, was acquired by Deutsche Telekom it is reported to have fetched $US 30 billion), and – judging from his performance today – he’s up for the fight.

He spent some time on the issue of mobile termination rates (MTRs), which he claims are a substantial barrier to entry and told the audience that 2degrees would continue to argue for regulatory change in this area. “We will be persistent, we will be polite, but we will be relentless in making sure that we are treated fairly.”

He said he’d only been defeated in couple of markets, one of them being Slovenia, where high MTRs drove them out, and they lost $100 million: “They had a unique way of operating their regulatory environment at the time, where the chief regulator also ran the telephone company and also ran the wireless companies – that’s something we should have thought about,” he quipped.

He says the company is no stranger to dirty tricks and has, over the years had to deal with rival’s blocking their distribution channels - that is paying stores not to stock their mobile products.

Stanton also talked about the need to innovate on networks through creating “mobile wallets”, mobile to mobile video conferencing (Stanton has invested in a company that specialises in compressing videos for mobiles) and location-based services.

Pictured – Trilogy chairman John Stanton (far left) with Trilogy executives Rick Dunn and Ann Saxton.