Tough Canadian market for Orange without spectrum: analyst

The way Orange SA is said to be considering entering the Canadian market—if indeed it does come at all—could limit the success the French telecom has in the Canadian wireless market. Troy Crandall, a media and telecom analyst with MacDougall, MacDougall & MacTier, said Orange does seem interested in Canada, given the consultations it has had with different branches of the federal government. He noted that it’s generally believed Orange would prefer to jump in the market as a mobile virtual network operator (MVNO), meaning it would lease space on other carriers’ networks. “What they might find, though, is that the whole MVNO model hasn’t really been that great here in Canada,” he said in a phone interview. Crandall said most of the wireless spectrum in Canada is held by the “big three” carriers—Rogers Communications Inc., BCE Inc. and Telus Corp.—and when it comes to negotiations with other players looking to use space on their networks, they have most of the leverage. “Historically, any time that there’s been an MVNO deal, most of the gains ended up being contributed or going towards whoever the carrier was, not necessarily the one doing the MVNO opportunity,” Crandall said. Past MVNO deals involving Eastlink (owned by Bragg Communications Inc.) and Videotron (owned by Quebecor Inc.), both of which leased network space from Rogers, show how such arrangements tend not to work out well for the company doing the leasing, Crandall said. Tom Wright, a spokesman for Orange, told The Wire Report by email that “it is a little premature to talk of the imminent launch of Orange in Canada,” and he declined to comment on meetings with the Canadian government. He added that “given the migratory flow of tourists and professionals between France and Canada, the Canadian market could be of interest to our subsidiary Orange Horizons.” Orange Horizons was launched by its parent firm in January of this year to explore opportunities where the firm is not already active as a mass-market service provider, Wright said. He said the aim of this subsidiary is “to provide a new source of revenue for the group without the need for significant investment. Such projects could include the launch of online or physical stores selling telecoms-related equipment or airtime; the introduction of flexible travel solutions; or the launch of a virtual mobile operator (MVNO) activity.” CRTC spokeswoman Patricia Valladao confirmed that her department had met with officials from Orange and said the meeting occurred “quite recently.” “They were really doing some exploratory talks, and if they were to come to Canada, how would the regulatory system work,” she said in a phone interview. “It was really a first-touch base kind of visit.” Caitlin Workman, a spokeswoman with Foreign Affairs, Trade and Development Canada, said officials from Orange have met with Canadian trade commissioners in Paris. “I can tell you that Canada's Trade Commissioner Service (TCS) routinely meets with a wide variety of businesses, especially those who express interest in bringing prosperity-generating and job-creating investment to Canada,” she said in an email. Workman declined to provide further details of meetings with Orange, citing “reasons of commercial confidentiality.” She said Orange has more than 400 employees in Montreal, which shows “it is already taking advantage of Canada's world-leading investment advantages. Wright said existing Orange operations in Canada are devoted to business services. If it were to expand its Canadian operations, another disadvantage Orange would face here, Crandall said, is the lack of awareness of its brand. “Unless you’ve lived in Europe or you’re a big fan of European soccer, than I think for most, generally, they don’t know who Orange is,” he said, making a reference to Orange’s brand being advertised on soccer jerseys in European leagues. “Meanwhile, you’ve got MVNOs here that are well recognized such as Petro-Canada , you’ve got 7-Eleven ,” he said. Orange’s impact on the market’s dynamics would likely be limited, because the company would have to rely on an incumbent for space on the network. “From a pricing standpoint, if they want to actually have a profit or at least break even, they really couldn’t have a cost structure that is below the big three because they essentially are renting from the big three and the big three set the price,” Crandall said. He said Orange could come up with a unique feature, such as rolling over unused minutes to subsequent months, though if such an offer became popular, Orange would not be the only one providing it for long. “You know the big three would start doing it, too,” he said. Crandall acknowledged that, if Orange were interested in the Canadian market, it could have gotten involved in the upcoming auction for 700 MHz spectrum or attempted to buy a company that already holds spectrum here, which he hasn't heard any discussion about. If Orange is not sure about its prospects in Canada, Crandall said coming in under an MVNO model is a relatively low-risk way of entering this market. “It’s like a car lease, to a certain extent, say a one-year car lease,” he said. “If after a year you’re not happy with it, you give it back to the car dealer and walk away. Same thing with this. If you’re coming in and buying spectrum, you’re pretty committed.” The last foreign company to make waves with a potential Canadian market entry was Verizon Communications Inc., until it gave indications to the contrary in September. Speculation included that the U.S. giant might enter the Canadian market by buying a new entrant such as Wind Mobile or Mobilicity (operated by Dave Wireless Inc.). Verizon remains in contact with Canadian officials, having registered last month to lobby the Prime Minister’s Office and Industry Canada about foreign-ownership rules and spectrum allocation. The Wire Report confirmed with Verizon last week that it held talks with Canadian government officials this month. — With reporting by Derek Abma at dabma@thewirereport.caand editing by Anja Karadeglija at akarad@thewirereport.ca

Tough Canadian market for Orange without spectrum: analyst

News | November 27, 2013

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