With the debut of three new wireless startups in five months plus new brands coming from two of the biggest incumbent carriers, is a cellular price war coming?
If one starts, officials at Toronto-based Wind Mobile said Thursday it won’t be the one to pull the trigger.
“We are not going into a price war,” Aldo Mareuse, chief financial officer of Orascom Telecom Holdings SAE told analysts Thursday on the release of financial results. “There is no clear intention to reduce our prices any time soon.”
Egyptian-based Orascom, which has wireless companies in nine countries, holds 65 per cent of Wind’s equity and 32 per cent of its voting shares. It confirmed earlier reports the startup had 100,000 subscribers after about seven months of operation.
Wind offers no-contract plans for $15, $35 and $45 a month in Toronto, Ottawa, Vancouver, Calgary and Edmonton. In May it was joined by startups Mobilicity in Toronto and Public Mobile in Toronto and Montreal.
In a separate interview, Wind Mobile CEO Ken Campbell also cast doubt on a price war here, in part because it typically results in the price of plans falling permanently. Wind hasn’t changed its plan pricing since it launched in December, 2009, he stressed.
“But,” he added, “we’ll definitely find mechanisms to stimulate the market” through promotions and temporary discounts.
One of those has been a $150 credit for subscribers who switch to Wind from an incumbent carrier, a 50 per cent off data plans add-ons for a year and a now-ended half price off plans deal for the first year.
Those moves have industry and financial analysts wondering how many of those 100,000 subscribers have come from discounts and whether Wind can survive without them.
Asked directly how long the carrier can continue with promotions, Campbell replied: Campbell wouldn’t detail how many subscribers from other carriers have been lured by the $150 credit, other than to say it has been “quite attractive.” Wind first offered it as a short-term promo early in the year, then brought it back. Some weeks, he added, cross-overs have made up over half of the new Wind subscribers.
But he also said that a “sizable portion” of the carrier’s customers have never had a cellphone.
Campbell also dismissed the impact of Rogers Communications Inc.’s new discount Chatr brand and the forthcoming campaign of by BCE Inc.’s Solo brand to stress unlimited talk and text packages. Both moves are seen as targeting the new wireless companies. “I don’t see those having a massive impact on the market,” Campbell said. “Customers will still seek out new networks with a high value proposition at a good price.”
Because Wind is a privately-held company it doesn’t have to issue any performance figures. But the Orascom financial results and the conference call yielded some nuggets.
For example, Orascom had hoped Wind to hit the 100,000 subscriber mark by June 30. Instead it had 93,000 customers. That didn’t bother Orascom CEO Khaled Bichara, who told financial analysts that Wind is making good progress.
Wind hopes to have 1.5 million subscribers after three years of operations.
The financials also hint at how expensive Wind has been to run so far. Orascom said its share of Wind’s operating losses for the first six months of the year total US$66 million.
Campbell wouldn’t comment on the figure, but said Wind’s business plan isn’t built around one year. It will take “several years” before Wind generates free cash, he added.
Mareuse said Orascom has already pumped some US$650 million into Wind, including $442 million for its wireless spectrum. Orascom has committed US$750 million to its Canadian partner, although Mareuse said it might put in more.
“We’re looking for Wind Canada to do some financing,” he said, adding that if Ottawa liberalizes its foreign investment rules “it would be a good thing for us.”
Campbell said Wind isn’t looking for more investors, but “other means of financing” including going to public markets when the time is right for debt financing.
Wind will need money in part to finance expansion, although to some degree that will be offset by loans from equipment makers. At the moment it is expanding the networks in the five cities it already operates in.
However, in the 2008 spectrum auction it also bought licences covering New Brunswick, Prince Edward Island, Yukon and Northwest Territories, plus the cities of Saskatoon, Regina and Moose Jaw in Saskatchewan. Wind has until 2014 to open service in these areas or the licences will go back to Industry Canada.
Campbell said there are plans to meet that deadline, but service will be extended first to the most populous areas. While it may have to spend its own money, he said Wind will “also explore partnership opportunities and other ways we can get to them,” including working through local partners and sharing infrastructure.
Halifax-based Bragg Communications Inc., which owns cable operator Eastlink Communications Inc., also bought spectrum in 2008 throughout the Maritimes and parts of Ontario. Bragg is expected to launch its new wireless network in 2011.