TORONTO-You could call it short-term pain for long-term gain. At least that’s what the Canadian wireless carriers must be hoping. They’re rapidly winning new customers, but at a cost to their bottom line.
Bell Mobility announced in May it’s shedding 10 percent of its work force in response to the cut-throat pricing plans that have become standard fare in the industry. The company, which has 1.5 million cellular and PCS customers across Ontario and Quebec, has seen its revenue per subscriber drop to CAN$50 (US$34) from CAN$60 (US$41) in early 1998.
The aggressive price wars and heavy marketing blitzes waged by Canada’s four national wireless carriers have contributed to losses for all the players. BCE Mobile (operating under the Bell Mobility banner), Rogers Cantel, Microcell Telecom, and Clearnet Communications are showing strong subscriber growth. But about half of the new customers are buying prepaid services that yield lower margins. The carriers are also deeply subsidizing their handsets.
The wireless industry accounts for roughly 15 percent of the CAN$23 billion (US$15.7 billion) telecommunications market.
“Since Industry Canada issued the four national wireless licenses, the carriers have been fighting fiercely for market share, and that’s dragging down their bottom lines. The good news is that industry penetration is expected to double to about 40 percent in the next five years, and the profit scenario for the carriers will improve,” said Iain Grant, managing director of the Brockville, Ontario-based Yankee Group in Canada.
Based on the latest statistics (first-quarter ’99), Mobility Canada, a consortium of 15 companies representing the wireless entities of the Bell group, commands 55.4 percent of the Canadian market. The other incumbent carrier, Rogers Cantel, holds second place with a 32.2-percent share. The two newcomers that received national wireless licenses in 1997, Clearnet and Microcell, each have captured 6.2 percent of the market.
The group of four may soon become five. Analyst Grant points out that BCT.Telus, a recent merger of Western Canada’s two biggest phone companies, BC Telecom Inc. of Burnaby, British Columbia, and Telus Corp. of Edmonton, Alberta, has national aspirations. The carrier has not detailed its plans but will likely forge strategic partnerships to deliver coast-to-coast wireless capabilities.
But the recent unraveling of the Stentor alliance of telephone companies (the provincial Bell entities)-and the intense east-west rivalry that has been unleashed-calls into question the future of Mobility Canada.
As it stands, the 15 Mobility Canada companies are licensed to provide cellular and PCS in their respective regions using the CDMA digital standard. For now, they cooperate with each other to give their services national reach. In the first quarter, Bell Mobility-the only publicly traded pure wireless company within Mobility Canada-attracted 177,000 new subscribers but registered a net loss of CAN$4.3 million (US$2.9 million).
Mobility Canada may have more customers, but Rogers Cantel has the distinction of having the largest nationwide cellular and PCS network. Cantel gained 147,700 new customers in the first quarter to attain 1.8 million subscribers. But revenue growth was flat, with a net loss of CAN$22.4 million (US$15.3 million) for the quarter.
Cantel co-brands its product with AT&T and has a U.S. roaming arrangement with its partner, using common TDMA technology. In Canada, Cantel is marketing “Digital One Rates” similar to AT&T’s. It’s expected Cantel will offer bundled packages with AT&T Canada in long-distance services.
“It’s no secret that AT&T would like to acquire Rogers Cantel wireless,” said Eamon Hoey, senior partner of Hoey Associates Telecommunications Consulting Services Inc. of Toronto. Foreign-ownership restrictions limit such a move, but it’s conceivable Cantel will exploit an even closer strategic relationship with its U.S.-based partner.
By comparison, two-year old Microcell and Clearnet are small fries to Mobility Canada and Rogers Cantel. But the interlopers are growing fast.
Microcell has deployed a network using GSM technology that currently covers about 50 percent of its licensed population. It is advertising in a big way to fashion a strong brand name (called Fido). During the first quarter of 1999, Microcell added more than 62,000 new subscribers and incurred a deficit of CAN$98 million US$66.9 million).
“Microcell is showing that it’s keeping to its business plan to be profitable sometime next year,” said Grant. “You have to keep in mind that Microcell and Clearnet are expected to lose money for a number of years while they build up their infrastructures.”
Clearnet has an even more ambitious game plan. It’s building two networks. The company launched a PCS network for consumers and named the service “Clearnet PCS.” It also set up a digital trunked radio system called MIKE for commercial use. With its Motorola iDEN network, Clearnet can provide dispatch capabilities, similar to using a walkie-talkie along its 745-mile telecom corridor from Montreal to Windsor. The carrier has recruited two strategic partners: Motorola, which manufactures the technology, and Nextel, which uses the same iDEN technology in the United States.
During the first quarter of this year, Clearnet added 38,457 subscribers but had a loss of CAN$126.6 million (US$86.4 million).
Clearnet is the only national wireless phone company using a digital phone standard (CDMA) that’s compatible with the provincial companies’ networks. If Industry Canada gets rid of its four-year-old spectrum cap, the acquisition of Clearnet’s PCS network would allow Bell Mobility and BCT.Telus to achieve national coverage in their efforts to compete against each other.
