Canada can support all four of its wireless service providers, according to a report on the matter. This, despite some people’s belief that the mobile market is over-saturated, and that at least one wireless carrier is doomed.
Commissioned by Microcell Telecommunications Inc., a wireless service provider, The case for four mobile telecom operators in Canada by Montreal-based Lemay-Yates Associates Inc. (LYA) suggests there is room for the Canadian mobile market to grow, and that growth depends on strong competition among many players.
Microcell is the smallest candidate in the race for mobile market share between four wireless carriers, including Bell Mobility and its regional affiliates, Rogers AT&T Wireless and Telus Mobility. Some have argued the market cannot support so many firms, and Microcell, the relative small-fry, would be the most likely victim of any industry shakeout.
“Compare them to Rogers, Bell and Telus. Microcell is a standalone,” said Mark Quigley, a telecom analyst with Ottawa-based research firm The Yankee Group Canada, during an interview last spring. He was pointing out that Rogers, Bell and Telus have serious ties to wireline endeavours: Rogers Communications Inc., Bell Canada and Telus Corp., respectively. Microcell, by comparison, doesn’t “have a tremendous revenue base coming from other operations.”
LYA, however, says Microcell is buoyed by a healthy wireless market. Indeed, “all indications are that four mobile carriers in Canada can continue to thrive and be profitable in the foreseeable future within the current paradigm,” reads the firm’s report.
LYA suggests the Canadian wireless market is ripe for growth, with new applications such as text messaging becoming more and more popular. New applications attract users, which, in turn, spells a boon for carriers’ bottom lines.
As well, LYA points to the U.S. as a template for Canadian success. South of the border, service providers experience increasing average revenue per user (ARPU) and a higher minutes of use (MOU) per month per subscriber than Canadian carriers do – in an environment more competitive than the one here.
“More than 20 per cent of the U.S. population is now served by seven mobile service providers or more,” the report says, suggesting that if the U.S. can support seven carriers and witness improved ARPU and MOE, Canada can do the same, given a similarly competitive landscape.
LYA also says the mobile market is a growing and profitable concern in Canada. Accounting for network assets at cost, the analysts figure wireless service providers witness an internal rate of return (IRR) of 16 to 17 per cent.
Since Microcell “will benefit from…fresh-start accounting and asset restatement…the projected IRR increases to 35 per cent,” reads the report.
Montreal-based Microcell, which operates the Fido branded wireless service, has had its share of trouble. In the fall of 2001 the firm let go 118 staffers. In 2002 it chopped another 194 from the payroll. Last August Microcell said, “There is significant uncertainty regarding the company’s ability to continue,” given its inability secure a $264-million line of credit.
But the service provider was able to turn things around earlier this year. Microcell in January reached an agreement with lenders to eliminate $1.7 billion in debt and reduce its annual interest payments by $200 million, giving it something of a clean financial slate to work with.
For more information about LYA’s report, visit the firm online at www.lya.com.