Spectrum auction withdrawal a ‘headwind’ to surging Wind, experts say

Wind Mobile’s chief executive says the company is surging in the absence of stable new entrant competitors, though experts warn it will face a “headwind” soon without access to 700 MHz spectrum. “I was very happy to see the growth of Wind in Q4 without smaller competitors Mobilicity and Public out in the market,” Wind CEO Anthony Lacavera said in a telephone interview Tuesday. “We certainly have emerged as the fourth carrier,” he added. Wind, which is controlled by Lacavera’s Globalive Wireless Management Corp., said on Monday that it had withdrawn its application to take part in Industry Canada’s auction of 700 MHz spectrum licences, which started Tuesday. The company, which had 637,000 subscribers at the end of September after nearly four years in operation, added about 38,000 more customers in the three-month period that ended Dec. 31, sources said. In an emailed statement Monday evening, Wind said it withdrew from the auction after its majority equity owner, Amsterdam-based VimpelCom Ltd., decided not to fund its efforts to acquire 700 MHz airwaves. Lacavera — who declined Tuesday to comment further about the company’s withdrawal from the auction — said Wind has thrived since Public Mobile and Mobilicity stopped competing with it for customers in the fall. Public Mobile was purchased by incumbent carrier Telus Corp. in November, while Mobilicity (which is formally called Dave Wireless Inc.) launched bankruptcy proceedings in September and has lost roughly 17,000 of the 194,000 subscribers it had since then, according to court documents. Lacavera noted that the three new-entrant providers — which each entered the market following Industry Canada’s 2008 auction of AWS spectrum licences and launched services between December 2009 and May 2010 — competed for much of the same customer base, leaving each with a smaller market share and the financial burden of supporting their own networks. “In 2008, when the government auctioned the spectrum in such a fragmented way, I spent a good part of 2008 and 2009 trying to get Mobilicity to not build a separate network, but to build one network instead,” Lacavera said. If they had built a joint-network, he added: “We both would have been in a different position today.” With Mobilicity and Public Mobile mostly out of the picture, Lacavera predicted that Wind will continue to add subscribers at an accelerated pace in the months ahead. He said Wind will carry on with “business as usual” following its withdrawal from the auction of 700 MHz spectrum licences, which he has said the company needs to support the latest and most popular consumer devices. Greg MacDonald, an analyst with Macquarie Capital, said in a phone interview Tuesday that Wind will benefit from the reduced new-entrant competition, at least for a period of time. He said the new entrants competed with each other over the last two years by offering similar low-cost packages that promised unlimited services, as opposed to competing against incumbent providers BCE Inc., Rogers Communications Inc. and Telus Corp. for more lucrative subscribers. Where Wind will face problems going forward, MacDonald added, is trying to compete against the incumbents to attract the high-end majority of consumers who want access to next-generation LTE wireless services and the most popular mobile devices, such as Apple Inc.'s iPhone. He said that most of the newest LTE devices will be designed to work on the 700 MHz band, and Wind — which has 20 MHz of AWS spectrum in southern Ontario and 10 MHz in each Alberta and British Columbia — will not have access to those devices going forward if it doesn’t have 700 MHz spectrum. MacDonald said he “wouldn’t be surprised” to see Wind adding between 30,000 and 40,000 subscribers a quarter in the near future, “but this is going to hit a headwind at some point relatively soon due to a lack of 700 spectrum,” he said. “Not having the iPhone matters,” he added. Jean-Francois Mezei, a telecom consultant with Montreal’s Vaxination Informatique, agreed that a lack of 700 MHz spectrum will harm Wind’s ability to compete in the wireless market going forward. Mezei said that Wind and other new-entrant carriers have benefited in recent years from large American provider T-Mobile USA Inc.’s continued use of similar network technologies on the AWS band, which helped ensure that device manufactures continued to make popular smartphones that were compatible with the new entrants’ networks. T-Mobile, he added, is now preparing to launch LTE services on 700 MHz spectrum, and it’s likely that the device manufacturers will follow. “That is the biggest problem that faces Wind,” Mezei said in a telephone interview. Michael Geist, the Canada research chair in Internet and e-commerce law at the University of Ottawa, said in a blog post Tuesday that Wind’s withdrawal from the 700 MHz auction threatens the “marginal competitive gains” that have been realized in Canada’s wireless industry over the last few years, as well as the federal government’s policy objective of having a fourth wireless player to compete against the incumbents in each region of the country. He said it might be time for the government to consider new methods to bolster competition in the industry through regulation. The government’s December decision to cap the domestic roaming rates carriers can charge each other to let their competitors’ subscribers roam on their networks “is a starting point,” Geist added, though he said more needs to be done. “Having made wireless competition a key policy priority … Industry Minister James Moore has little choice but to pursue a different strategy,” Geist wrote. Not all analysts and experts are convinced that the market can’t still develop a stable fourth competitor without additional regulation. In a research note released late Monday evening, RBC Dominion Securities analyst Drew McReynolds said Wind’s withdrawal from the auction could provide an “easier path forward” for regional wireless providers that want to expand into additional markets. He noted that Wind’s withdrawal will make 700 MHz spectrum more affordable to regional players such as Manitoba Telecom Services Inc., which operates in Manitoba, and Quebecor Inc.’s Videotron Ltd. subsidiary, which operates in Quebec and Ottawa. In a note released Friday — before Wind’s withdrawal from the auction — Scotiabank analyst Jeff Fan said Quebecor has signed a non-disclosure agreement with Mobilicity and could be interested in attaining spectrum outside of Quebec. Quebecor declined to comment. — With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

Spectrum auction withdrawal a ‘headwind’ to surging Wind, experts say

News | January 14, 2014

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