Dual mode phones that hand off to wireless hotspots, enabling users to avoid higher cellular costs are on the way, placing further pressure on the nation’s two main mobile networks to improve pricing and performance.

Locally cellular network providers compete in a $1.8 billion industry where there are 3.8 million cellular connections; Telecom has 1.8 million and Vodafone 2 million. It’s estimated about 86 percent of New Zealanders have cellphones.

According to the OECD our mobile phone charges are among the highest in the world. Future growth appears to be stifled by high calling costs, incompatibility between existing CDMA and GSM networks and the lack of a third competitor.

The Commerce Commission is formally investigating ways to achieve improved competition and pricing. Potential third network contenders TelstraClear and Econet backed off, saying they’ll only review their plans if obstacles to interconnection and roaming are removed.

It’s been suggested new rules of engagement could have the same impact on the mobile market, that opening up the internet access is having on broadband.

Meanwhile revenues from traditional cellular voice services are starting to slow and Telecom and Vodafone have to be technically and culturally creative, delivering new levels of service. The Commerce Commission for example has given Vodafone the go-ahead to expand into the high margin, multi-billion dollar fixed line market.

Current figures show about 15 percent of New Zealanders use mobiles for home and business calls, compared to more than 50 percent across Europe. Vodafone plans to assign its mobile handsets seven digital local calling codes, to access landlines from within a 100metre ‘homezone’, for free local calling. The service should be available by February. Telecom has said it plans a similar mobile-fixed offering at some stage.

The announcement in October that Vodafone had snapped up internet provider ihug for $41 million, to leverage ihug’s move into local call services, gave the network a real edge in fixed-line and broadband.

Meanwhile both Telecom and Vodafone are upgrading their respective cellular networks to ensure they’re capable of delivering broadband internet speeds that rival fixed line access.

Vodafone’s 3G broadband starts at $30 a month, but you’ll need a ‘vodem’ for your PC or Mac, a Mobile Connect Card for your laptop, and a 3G router to share the connection with other devices. Upfront costs are $200 – $300 or lower with a 2-year contract, plus monthly data plans ranging from $30 – $60 ( 200Mb – 1Gb data cap). The network is capable of delivering up to 3.6Mbit/sec with average speeds of 800kbit/sec – 1.4Mbit/sec.

Now Telecom is taking its mobile broadband capabilities to the next level with its Rev-A upgrade in December, providing maximum download speeds of 3.1Mbit/sec (average 800 kbit/sec) and uplinks of 1.8Mbit/sec. It’ll upgrade its national cell sites over the next 12 months to broaden coverage.

You’ll need a data capable mobile phone and a Mobile Broadband card to access the 027 network. Based on existing data rates, casual data downloading is $8 per Mb; a monthly rate of $10 will reduce that to $1 a Mb, and if you pay $99 a month, you don’t get charged again until you hit the 400Mb cap when it’s 50 cents a Mb.

Telecom, having invested more than $250 million in its mobile technology over the past three years, now plans to shut down its analogue 025 network at the end of March 2007. About 400,000 customers had moved across to its 027 digital service in by August leaving 83,000 still to migrate.