By Jamie Sturgeon | Canada.com | Dec. 21, 2010A year and a half ago, Alek Krstajic, the sharp-tongued chief executive of wireless startup Public Mobile Inc. made a blunt prediction during an annual industry gathering.
“Take a look at the three of us up here,” he said on stage during a panel discussion where he was joined by the heads of Wind Mobile and Mobilicity, two rival new entrants (pictured). “Two will not be here next year, or will be here but have different business cards.”
Events have proven him wrong so far, but that may soon change.
With a flurry of deep discounts on rate plans and phones from the new players in recent weeks in a hurried effort to add subscribers, speculation is growing that a day of reckoning fast approaches for at least one.
Sources suggest it is Public Mobile that has blinked first, seeking a partnership or merger.
“We have been approached,” a source within a rival new entrant confirmed last week, asking for anonymity. Another close to the second said Public Mobile has inquired directly with its investors.
All three startups have scratched out a toehold at the edge of the Canadian mobile market this year and in the process helped bring basic wireless pricing down across the industry.
Yet the weight of immense competitive pressure overhead from incumbents Rogers Communications Inc., BCE Inc.’s Bell Mobility and Telus Corp. means there likely will come a time when the much smaller firms must align or perish, many say.
“The number of players in the market is unsustainable, at some point consolidation will happen. The point though is when and how,” one analyst said.
In an interview this week, Mr. Krstajic is candid about his wishes: “I don’t think there is any question in my mind that it would be good for all parties concerned that the new entrants consolidate,” he said. “If you brought these three together, you’d have a really strong national footprint, distribution, call-centre efficiencies [and] stable pricing.”
Cursory talks have been held, he admits, but have not been “in depth at all.”
A potential stumbling block is Public’s spectrum. The airwaves the company uses are located in the so-called G band, a swath that larger spectrum-rich carriers have ignored and so too have the majority of handset and network makers.
“We can’t put a lot of value on that spectrum and that’s going to be a challenge and has been already in any discussions,” a source from another new entrant said.
“There’s no demand for handset manufacturers to build for it” at a time when mobile devices are being made to run on other frequencies.
It was during the last auction in mid-2008 that Mr. Krstajic, a former senior executive for Rogers and Bell, acquired the G band on the cheap allowing Public to launch in Toronto in May. While incumbents and new entrant rivals spent hundreds of millions on licences in established bands, Mr. Krstajic, supported by the OMERS pension fund as well as U.S. interests with a background in wireless investments, paid a paltry $53-million.
Mr. Krstajic says the strategy is working “brilliantly” giving it valuable savings to launch services with and help sustain it through its startup phase. More, Sprint Nextel, a big U.S. carrier, plans to use the band for advanced “4G” services, which will drive development around the frequencies, he says.
What has not been accounted for though is the painful price war happening at the low end of the market, where Public Mobile, Wind and Mobilicity are targeting their efforts in a race to grow subscriber figures — crucial to securing additional financing.
There have been at least four major price cuts from his competitors since November, Mr. Krstajic says, pointing out that Wind, the brand operated by Globalive Communications Inc., now offers unlimited voice and mobile data services for $40/month — a rate which Public Mobile initially wanted to launch simple talk-and-text plans on.
“I guarantee you that their average revenue per user is way below where they expected it to be a year ago,” he said.
It is a dangerous game threatening to result in their collective demise. It is also one being fueled by the incumbents.
In July, Rogers launched its Chatr brand, a low-cost service that overlaps the new entrants in every market they compete in. Bell followed fast by repricing its Solo brand, then Telus moved.
“Without Chatr, the new entrants wouldn’t have gone to the price levels they’ve gone to. There really is no differentiation, so what you’re left to compete on is price,” one analyst said.
Competition authorities have hit Rogers with a $10-million lawsuit for false advertising touting a superior network despite lacking sufficient evidence proving it. But it is a small cost for a move that appears to be sapping subscriber growth and hastening the unravelling of the startups (although it may still suffer as its large prepaid base migrates to lower rates).
Rogers cut Chatr prices in recent weeks to as low as $25 a month.
Analysts say some form of consolidation among Public Mobile, Wind and Mobilicity (owned by Data & Audio Visual Enterprises Wireless Inc.) however difficult, would help stem the downward slide for all.
“Consolidation would repair the market structure,” Phillip Huang at UBS said. “With fewer players price stabilizes.”
Financial Post
jasturgeon@nationalpost.com
No comments:
Post a Comment