Microcell could add 50,000 new subs in B.C. from City Fido initiative, SeaBoard says

Microcell Telecommunications Inc. is set to steal 50,000 subscribers from the incumbent tele-phone provider in British Columbia, according to a new research report from the SeaBoard Group. The report indicates that Microcell’s fortunes in Vancouver and the lower mainland will come at the expense of Telus Communications Inc. following the introduction of its City Fido wireline replacement initiative last month (RoW, Oct. 7/03). The plan, officially launched on October 9, offers unlimited anytime calling for $40/month. In determining its projections, SeaBoard believes that 15% of current telephone subscribers have little or no loyalty to Telus and Microcell should be able to capture about one-third of that user base. That, SeaBoard says, translates into 50,000 subscribers and substantial revenue. "Such a subscriber increase would mean an addition of at least $30M in annual revenue to the company from that one area (at least $30M, given that there will be some added feature revenue, some long distance revenue and even some GPRS data revenues that would be added to the $40/month base charge for Fido CityPhone). As Microcell marches local rollout across the country, the company’s potential subscriber and revenues gains would grow commensurately," reads a footnote in the SeaBoard report. The report, Canada’s Wireless Wonderland: Portable Numbers as Pistons of Progress, also notes that Microcell will face competitive responses to its offering. Bell Mobility, Telus Mobility, and Rogers Wireless Inc. have responded with campaigns of their own aimed at luring Microcell’s subscribers to their networks (RoW, Oct. 21/03). Microcell Telecommunications and Rogers WirelessStrengthsOpportunitiesStrong brand namesWireline universe belongs to competitorsAttractive calling areasDiscontented telco customersWeaknessesThreatsCoverageTelco responseAbility to scaleBell Mobility and Telus MobilityStrengthsOpportunitiesStrong brand namesPotential wireline product integrationInertiaTargeted initiatives in other marketsWeaknessesThreatsCustomer alienationNAS erosionMarket responses causes disproportional damage SeaBoard notes there is an equal opportunity for Rogers Wireless to benefit from Microcell’s foray into the landline replacement market. The research company, however, cautions Rogers to take a wait-and-see approach. It writes, "Use Fido as a ‘free’ test case and gauge/measure the reaction - let’s see if we are expanding the wireless pie here, rather than merely churning the base. Fido has done you a favour. A free market trial. Rogers has a key advantage over Fido in its network breadth - Rogers (and their mobility brethren) is most everywhere in Canada - Fido isn’t. Should Fido stimulate demand as much as we think they may, we suspect they run out of capacity - that demand will flow somewhere; get ready to catch!" Despite Rogers’ potential to capture market share from landline replacement, the company noted in its Q3 2003 conference call that it would stay the course on rational pricing. Nadir Mohamed, president and CEO of Rogers Wireless, said the wireless operator wouldn’t get into a price war with its smaller rival. "One of the underpinnings of our profitable growth strategy is pricing discipline in the market. We remain firmly committed to rational pricing and profitable growth in the Canadian wireless industry. Our response to the recent actions by Microcell reaffirms our commitment to rational pricing. As experience in Canada and the U.S. clearly indicates, attracting customers at any price is not a sustainable strategy," Mohamed said during the October 16 conference call. "We know where our focus has been. We know where the goal is. We know where success is and that’s targeting higher post-paid customers. We’re not going to shift from that," Mohamed said. "Having said that, this is a competitive business and when somebody does something that we think is irrational we’re going to defend and we’re not only going to defend our customer base, but also be aggressive." Mohamed did, however, admit that there is an opportunity to land subscribers from the wireline replacement segment. "The pockets that we’re seeing are the student or youth market," he said. "There’s lots of university kids and the youth that actually see wireless as their primary service. It’s their life phone. It fits their lifestyle. So that segment is growing. The other piece is if you looked at the wired world, certainly second line growth has been diminished and in fact there’s been some erosion. One of the drivers is people switching to wireless rather than getting a second line." But as landline replacement represents a significant opportunity for both Microcell and Rogers, Telus Mobility and Bell Mobility are in a less advantageous position due to their parent companies’ landline holdings, SeaBoard notes. If Telus Mobility and Bell Mobility were to engage in this market by matching the challenge from competitors, they could end up driving down revenue "without any offsetting upside," it says. The reports says that if Telus and Bell choose to respond, they should rely on the provision of bundles of services at good prices. "Look at Verizon’s success with the offer of free Wi-Fi in Manhattan. Verizon wireline customers have free access to wireless data hotspots mounted in a thousand hotspots in the city. This is the new customer adhesive. Innovative bundles of your strengths. We will see more integrated wireline-wireless bundles and new ideas combining products from more parts of the companies to be the only competitive response to this challenge with true traction," SeaBoard writes. Just as Telus and Bell can tout their diverse offerings in a single bundle as a way to reduce the impact of the Microcell initiative, Rogers will be able to do the same using its high-speed cable network to lure wireline subscribers to wireless. "The Rogers high-speed cable network has significant central Canada coverage and can be used as a tool to move customers to higher value products. One can imagine offering a consumer focused, web-based unified messaging product to Rogers Wireless subscribers using the Rogers high-speed network driving more people onto the company’s own service platform," SeaBoard postulates.

Microcell could add 50,000 new subs in B.C. from City Fido initiative, SeaBoard says

News | November 5, 2003

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