2014 starts better than expected, but uncertainty remains over intentions of Wind’s largest shareholder

Wind Mobile has posted better-than-expected ARPU (average revenue per user) and subscriber growth in Canada for the first quarter of the year, according to the company’s leading shareholder VimpelCom. The Wind Mobile numbers were announced today as part of VimpelCom’s own quarterly figures.

“It’s been a tremendous start to the year,” Wind Mobile said in its statement on the results. “We’re very pleased to report that we’ve experienced our best quarter ever. Not only have we surpassed the 700,000 active customer mark, with a 17 per cent growth in subscribers, but our ARPU has grown 12 per cent to $31.00. We have no doubt that 2014 will be a great year for Wind.”

The company said it has started strong this year thanks to industry firsts, including being the first Canadian telecommunications company to offer US unlimited roaming. “We will continue to provide Canadians with the value, simplicity and true mobile freedom they have come to expect from Wind Mobile, while we continue our growth as Canada’s fourth national carrier.”

Wind Mobile’s $31 ARPU beat VimpelCom’s own projection of $28 and represents a 12.3 per cent year-over-year increase.

However Dvai Ghose, managing director and head of research for Canaccord Genuity, painted a more mixed picture in his analysis of the numbers. Ghose noted that while Wind’s ARPU is up, it’s still barely more than half the national incumbent average of $59, despite the fact that Wind subsidizes devices.

“This may be in part because it still does not sell the high ARPU generating iPhone as well as its low airtime pricing,” Ghose said.

Ghose did say that Wind’s net additions of 25,619 for the quarter easily beat Canaccord’s 15,000 estimate and was well ahead of the 11,281 figure for Q1/13 and 12,702 in Q1/12.

“We assume that this was driven by [Wind's] current $39 per month unlimited North American voice, text and data plan promotion,” Ghose said. “We wonder how Wind can make money at such a low price point.”

VimpelCom’s CEO Jo Lunder has said that the company might sell its stake in Wind Mobile or swap it for a share in a larger Canadian operator. Ghose said the desire to sell is no surprise. “Despite changes to foreign ownership rules, Industry Canada has not allowed VimpelCom to assume control of Wind. VimpelCom did not finance 700 MHz spectrum purchases for Wind earlier this year and has written off the asset to zero. Lunder has said in the past that VimpelCom is looking for a ‘clean exit’ from Canada.”

However Ghose was surprised that VimpelCom might consider swapping its Wind share for a stake in a larger operator. “We do not know what this means,” he said. “We assume that Bell, Telus and Rogers would not be allowed to buy Wind by regulators. Videotron, as a new entrant, may well be allowed to buy Wind, but is not larger than Wind. At the end of March, Videotron only had 521,600 wireless subscribers vs. Wind’s 702,125. The largest regional incumbent, MTS, is even smaller, with only 498,957 subscribers. Consequently, we have no idea what Lunder may be referring to.”

In the results call this morning, Lunder reiterated that VimpelCom remains interested in a smaller stake in a larger Canadian operator but cautioned that interested parties shouldn’t make too much of that statement, adding that he had nothing to announce at this time.

Ghose sees a number of reasons foreign carriers likely wouldn’t be interested in Wind. Its ARPU is well below original expectations, despite the strong results for the latest quarter. The company only has Advanced Wireless Services (AWS) spectrum – and no presence at all in the Quebec market, Canada’s second largest, where foreign acquisition would be problematic.

“While a foreign carrier could acquire Videotron’s 700 MHz spectrum outside Quebec,” Ghose says, “it only has one prime block, while a foreign new entrant carrier could have bought two prime blocks in the 700 MHz auction earlier this year.”

Finally, wireless subscriber and smart phone penetration in Canada is maturing. “Given that we assume that an incumbent would not be allowed to acquire Wind, we have no idea how VimpelCom can exit Canada gracefully,” Ghose says.

“We conclude that the national wireless incumbents remain well positioned, despite regulatory risk, and Telus is our favourite vehicle. We also view national wireless expansion as more of a risk than an opportunity for Videotron.”

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