Viability concerns dog Microcell

Microcell Telecommunications Inc. quietly let go 18 staff members last month as the firm tries to align costs with a telecom-unfriendly investment market, but the book is still out as to whether the firm has what it takes to survive these trying times.

Last month the Montreal-based wireless service provider and operator of the Fido network for mobile phones said it would roll Microcell i5 Inc. into its existing PCS group, thus leading to the lob losses. Microcell i5 was working on a mobile payment platform called Masq. Those efforts are ongoing, said Andre Tremblay, Microcell’s president and CEO.

“Masq is still going to happen this year. The only thing we’re reducing is the speed of deployment. The idea was to deploy it outside of the Microcell family, to go out and sell it to other mobile operators around the world. But it’s really tough to get financing for those sorts of businesses right now.”

But some say it’s not the type of business investors shy away from.

“I don’t think investors are all that turned off wireless, but perhaps more Microcell in particular,” suggested Mark Quigley, an analyst with Kanata, Ont.-based The Yankee Group in Canada. “Compare them to Rogers, Bell and Telus. Microcell is a standalone.…They don’t have a tremendous revenue base coming from other operations behind it, which makes it perhaps less attractive.”

How times have changed, Tremblay said. “For years, it was the reverse. People would invest in Microcell because it was a pure play.”

If Tremblay’s take on the situation is correct, however, the situation is not so dire. “[Financing] was a point of discussion when we started the company five years ago,” he said. “It’s not a new reality. For the last five years, Bell Mobility was backed by Bell, Rogers (Wireless) had Rogers… Just as we were able to compete in the past, I don’t see how we wouldn’t be able to in the future.”

Although Tremblay said Microcell remains committed to the Masq platform, Warren Chaisatien, an industry analyst with IDC Canada Ltd. in Toronto, said Microcell is dangerously ahead of the curve. According to IDC Canada’s research, mobile commerce (m-commerce) will not reach its potential for years to come. The firm notes that in 2001 $50 million were spent through m-commerce in Canada. By 2006 m-commerce transactions will add up to $7.8 billion.

“That’s peanuts,” Chaisatien said. By 2006 Canadians will spend $300 billion in the wireline world of e-commerce.

He also pointed out a Catch-22 facing m-commerce: end-users want merchants to get on board first, as a sign of the platform’s reliability. Meanwhile, merchants like to know that end-users want the service before investing in m-commerce.

Despite Chaisatien’s concerns, Tremblay said his own experience at a wireless industry conference in Cannes, France earlier this year suggests that the analyst is wrong.

“When we started Masq 18 months ago, we were one of two or three platforms trying to get to market. In Cannes, there were probably eight or 10 stories of mobile payment. I think the industry feels that it will happen soon, and it will on our network with Masq.”

As for Microcell’s future plans to invite other carriers to join the Masq platform, Quigley was skeptical. So far as he knows, Canada’s wireless service providers would prefer to build their own systems, rather than lend credit to a competitor like Microcell.

Tremblay, however, said there are plenty of other potential partners from which to choose. “The idea isn’t necessarily to sell to Bell, Rogers or Telus. It was to sell to some of the other 200 operators in the world.”

Although Tremblay sounded confident, Quigley wondered if Microcell’s customers feel the same way. This is the third round of layoffs from the company since last fall when 118 positions were eliminated. Earlier this year the company let go 194 employees and folded its wholesale and retail operations into the PCS group.

Customers, particularly of the enterprise variety, get nervous when they see so much moving and shaking, Quigley said. “When news like this comes out, it causes some folks to raise their eyebrows.”

Tremblay said Microcell continues to support its retail and wholesale operations. Customers won’t see a change in service levels. Besides, as bad as things might seem for the company today, Tremblay said it’s been worse before.

“The worst was last year, when there were all those articles in the news saying the company was having financial difficulties and we might not make it. That was, for a certain number of customers, a sign that if they renewed their service, perhaps they should go somewhere else.

“But the fact that we are consolidating, I think it’s a positive sign for most. We very much care about the core business and we will take steps to protect our ability to deliver the core application from us, mobile communication. We had a pretty bad situation, but we ended up raising $450 million at the end of last year.”