Jamie Sturgeon | Financial Post | Sept. 6, 2010
TORONTO -- When Vidéotron Ltée chief executive Robert Dépatie confidently beamed this past spring that his Quebecor Inc. telecom division was “on the verge of launching Quebec’s most competitive and complete wireless service,” many believed a splashy launch was imminent.
June gave way to July, then August. It is now September, and Quebecor is ready for take-off, saying in a company release today service will be turned on Thursday.
Start your engines.
As the first of two well-entrenched cable incumbents to bring on wireless services this year and next, Montreal-based Vidéotron’s long-awaited entrance into Quebec’s wireless market represents a significant shift for the industry.
Analysts are taking Mr. Dépatie’s words seriously, and so is the competition. “Long-term, Vidéotron has great potential to make a lot of money out of wireless in Quebec,” Maher Yaghi at Desjardins Securities says.
He and others expect the firm to begin immediately stealing market share from wireless incumbents Toronto-based Rogers Communications Inc., BCE Inc.’s Bell Mobility, also of Montreal, and Vancouver-based Telus Corp. through a strategy built around bundling affordable mobile services into household cable, Internet and phone products Vidéotron already sells to its 1.8 million customers.
The company will offer 30-40% discounts to the incumbent wireless operators’ voice and data pricing in Quebec if customers take wireless as part of a bundle, Dvai Ghose, analyst at Canaccord Genuity said in a note Tuesday.
"[The] aggressive wireless price points ... will force Bell, Rogers and Telus to respond," he said.
Most stock analysts following Quebecor like Vidéotron's chances. Of 13 covering the firm, 10 rate it a “buy” or “sector outperform,” according to Bloomberg. Three, including Mr. Yaghi and analysts at TD Newcrest and Credit Suisse, rank the shares as a “hold.”
Vidéotron cut its teeth in wireless in 2006 when it partnered with Rogers in a resale deal that slapped its branding on phones that ran over the incumbent’s network.
But since paying Industry Canada more than half a billion dollars to secure its own wireless licences in 2008 and constructing a 3G+ network across its wireline territory, the most important growth engine for Vidéotron is now ready for prime time.
Mr. Yaghi conservatively suggests Vidéotron will win 45,000 customers before the end of the year, and will have attracted 165,000 through 2011. Combined with its existing 87,000 wireless clients — equal to about 2% of the Quebec market — Vidéotron will boast a subscriber base of a quarter of a million customers 15 months from now.
With nearly 40% of Quebec’s 4.3 million wireless customers toting a Bell device, it is no surprise the cross-town giant has been aggressively courting Quebeckers with discounts on Internet and TV alongside home-phone. It is part of Bell’s strategy to win the entire “broadband home” away from Vidéotron. Instead of the pesky cableco stealing its wireless business, Bell will take Vidéotron’s Internet and cable accounts, and if it can, reclaim home-phone customers, too.
"You'll see much more product and marketing development towards owning the entire household over the coming period," Kevin Crull, chief of Bell's residential services said in an interview last week.
Irrespective of whoever wins this tug of war, industry-wide disruption is expected.
Pricing has been guarded like a state secret. But there are good odds that Vidéotron will introduce some form of unlimited calling. There are ads floating around Quebec now suggesting customers will no longer have to fret over how many minutes remain on their plan.
If true, it could hold huge ramifications not just for major rival Bell, but the sector. So far, incumbents have steadfastly resisted introducing any unlimited options in their main brands, which consist of hugely profitable users paying high prices for buckets of minutes and data, usually shackled to a contract.
It is a cash cow Vidéotron now threatens to undermine in its bid to win share in Quebec. “If Vidéotron comes out and offers unlimited local calling, that could be a game-changer,” said one analyst who asked not to be named.
“Bell can’t stand still and not offer it,” he said. “And if they do it in Montreal they’ll have a hard time not doing it in Ontario.”
An unlimited offering from Bell in Ontario may provoke a swift response from Rogers, threatening to dent wireless earnings at both firms. With almost 50% share in Ontario, it is Rogers' most important wireless market.
Telus, the No.3 carrier in the country, is the incumbent with the least amount of exposure in Quebec (or Ontario for that matter), meaning it does not face the level of immediate pressure Rogers or Bell do. But with Calgary's Shaw Communications Inc. preparing to integrate wireless services with its household bundles next year, a similar scenario awaits in Western Canada, as well.
