Bragg’s entry into wireless means bundled competition for incumbents

New wireless entrant Bragg Communications Inc. will face challenging competition from incumbents BCE Inc., Rogers Communications Inc., and Telus Corp. as it competes toe-to-toe for bundled customers in Atlantic Canada, analysts say. The company, operating as Eastlink, is close to launching third-generation HSPA and fourth-generation LTE wireless technologies as it builds them out at the same time. Jill Laing, a spokeswoman for Eastlink, said in an email answer to questions from The Wire Report that the company plans to have 350 cellular sites running for its new Maritime network, to be launched “sometime early in the new year,” in Nova Scotia and Prince Edward Island. “I think it will be very tough because you have three strong incumbents in those markets,” said Dvai Ghose, a telecom analyst with Canaccord Genuity, noting that Eastlink’s entry into the wireless market has been anticipated for a long time and will not be easy. Lee Bragg, Bragg’s president and CEO, said Nov. 20 that the company was “close” to a network launch. “We’ve got about 150 wireless sites up in Nova Scotia and P.E.I.,” he said. “We’re close, but the timing of it, there’s no first to market advantage for us, so we’re not in a big panic. We really want to make sure we do this right.” During Industry Canada’s Advanced Wireless Services (AWS) auction in 2008, Eastlink spent about $25 million for 19 spectrum licences in the 2 GHz, AWS spectrum band, serving Ontario, Atlantic Canada and Alberta. Ghose said the Atlantic Canada market is dominated by Bell and Telus, which have a network-sharing agreement, as well as Rogers. He said Rogers has been “very strong” in Canada’s Atlantic provinces in the past, but in the past two to three years, Telus has gained market share using its network-sharing agreement with Bell. “I would argue that generally, in the less populated markets, i.e. outside Ontario, Quebec, B.C., Alberta and especially in the large cities, the incumbent telcos have historically had the better network,” Ghose said. “So both Bell and Telus have a competitive advantage.” Amit Kaminer, a research analyst with the Seaboard Group, said in an emailed statement that BCE division Bell Mobility will be Eastlink’s main competition as “it has both a large footprint/coverage in that area and bundle play.” According to 2011 data published in the CRTC’s Communications Monitoring Report, Bell and its brands and companies have a 53 per cent wireless subscriber market share in Nova Scotia. Telus has 28 per cent and Rogers 19 per cent, the report said. Ghose said BCE subsidiary Bell Aliant, in which BCE has about a 40 per cent ownership stake, sells Bell Mobility phones and subscriptions as part of service bundles. He said Bell Aliant collects a commission “as if they were a dealer rather than an operator.” Ghose said roaming charges, which would apply when Eastlink's customers travel beyond the providers' service areas, could be factor. “Eastlink is building, but will have to resell in areas that they don’t build,” he said. “So it’s going to be an interesting dynamic.” Eastlink has about 550,000 subscribers and cable TV and Internet operations in nine Canadian provinces, including Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Quebec, Ontario, Alberta, Manitoba and British Columbia. The company said in 2011 that it hoped to launch wireless services in Nova Scotia and P.E.I. by the end of 2012. Ghose noted that the entry of cablecos into the mobile wireless market has not been as easy as anticipated. “Shaw has given up on the strategy altogether,” he said. “Even in the case of Videotron , their subscriber numbers have been consistently weaker than we’ve expected.” Ghose said that one of the reasons for Videotron’s (owned by Quebecor Media Inc.) weaker performance is that it does not have access to Apple Inc.’s iPhone, a device which is not compatible with the AWS band in Canada unless it uses fourth-generation LTE technologies, which are not yet widespread. Analysts told The Wire Report in September Canada’s new entrant carriers operating on AWS are not likely to carry the iPhone before 2014. He said that, in the United States, Verizon Communications Inc.'s version of the iPhone works on AWS spectrum using LTE, and if Eastlink builds a full LTE network, it could offer the same iPhone 5, but not using HSPA. “I assume that Eastlink is also going to come out of the gate without the iPhone, which is a significant thing,” Ghose said. “It’ll be interesting to see how Eastlink does, especially given its limited scale in Atlantic Canada.” Laing did not say whether Eastlink will offer the iPhone. “No details to share on the device front,” she said. “But we are confident that our customers will be very pleased with our compelling offers at launch, including devices and great savings in a bundle.” Roberta Fox, chair and chief innovation officer at consulting firm Fox Group, said in a phone interview that Eastlink can bundle cable TV, Internet and cellular services, and will be a “true competitor” for the incumbents. Fox said it will be tough for Eastlink in the consumer space and that it may do better in an underserved small and medium-sized business market, where it can offer more than a wireless service. “When you have the ability to do bundles and particularly, to do bundles for business markets, that changes the game,” Fox said. “I think it’ll be interesting to see what plans they come out with for the SMB space.” Fox said not having the iPhone would not be “a big deal” because it can sell Google Inc. Android devices. “Yeah, the iPhone is important, but it doesn’t have 100 per cent market share,” she said. Kaminer said that the iPhone used to be “the only show in town” and that Apple’s competitors have been closing the gap. “The iPhone is still a customer magnet but not as strong as it used to be in the past,” he said. He said any market entry is a difficult one, and that a late entry is more challenging. Eastlink’s wireless competitors have been locking in customers for a while, he said. “It will not be easy, but that doesn’t mean Eastlink won't do well,” he said. “It is a well run company with talented management that knows its market and understands its customers.” dgrenier@thewirereport.ca

Bragg’s entry into wireless means bundled competition for incumbents

News | 11/27/2012 9:16 pm EST

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