Launch of next-gen services could stave off slowdown in wireless market

Flatlining wireless subscriber growth numbers are giving Canada’s wireless companies good reason to anticipate next-gen services even as most lower their future projections for the take-up of current technology, say industry observers. As new net subscriber additions generally fell short of expectations in the most recent quarter, some analysts suggest advanced wireless data services could be the answer to re-invigorate the industry. Darren Robinson, associate analyst at CIBC World Markets, says the Canadian wireless industry may have hit a saturation point when it comes to current services and the types of handsets being offered. "When full-fledged data services begin to be offered sometime later this year, that may be what spurs some subscriber growth," he suggests. Jeremy Depow, a research analyst at the Yankee Group in Canada, agrees with that assessment. "There’s a lot of expectations for newer services and (advanced) data (applications)," he says. "‘Let’s wait until that stuff comes out’, that’s always in the backs of people’s minds." Second quarter financial results released in the last few weeks by Canada’s four national wireless operators indicate that overall new net additions for both corporate clients and consumers fell short of predictions. Recognizing the possible emergence of slower growth, most of the carriers told the analyst community that they were lowering subscriber projections. Bell Mobility was the only carrier to maintain existing forecasts, Robinson says. But lowering projections is only one part of the carriers’ new push to strengthen their bottom line. Bell, Rogers Wireless Communications Inc and Microcell Telecommunications Inc have all taken a page out of Telus Mobility’s playbook and have begun to back away from handset subsidies and free minute offers as a way of bolstering their subscriber bases. They also appear to be moving away from the pre-paid market. "Definitely, there was a period when Canadian carriers were really pushing the pre-paid option … but it’s not something they’re marketing as heavily (now)," Depow told Report on Wireless. "They’ve learned that that’s not the best way to go, so they laid back on that a little bit."While pre-paid has helped drive overall subscriber numbers, Depow notes that it’s difficult for wireless companies to survive for the long term with average monthly revenue per subscriber hovering around the $20-mark. "It can be very expensive for carriers to uphold that, so diversifying that mix and having a lot more post-paid is very important," he says. Robinson agrees that all the carriers are becoming more disciplined in the market. But he fears that once data services begin to roll out and competition for subscriber attention heats up again, the handset subsidies and free minute offerings will reappear. Disappointing numbers At Telus, which bought Clearnet Communications last October (RoW, Sept. 5/00), net additions fell 25 per cent in the second quarter compared to 2001Q1. Microcell fared better, reporting a slight increase of less than a thousand new additions compared to Q1. While both Bell and Rogers had healthier results than their counterparts, Rogers was the only one to surpass expected subscriber additions for the second quarter. Although Depow expected subscriber additions for Microcell and Telus to be higher, he isn’t surprised by the slowdown. He points out that companies and individual consumers are a bit more cautious with their spending this year than they were a year ago. "The growth rates are lower, but when you take everything into account – current economic situation – and compare it to other industries, it’s fairly in line," says Depow, adding that it’s unclear whether the slower growth will continue throughout the year. Robinson adds that Microcell fell victim to some aggressive competition from Bell, explaining its lower than anticipated new wireless subscribers. By some predictions, Microcell was expected to pull in about 75,000 new additions in the second quarter. But the country’s smallest PCS licensee made little progress over Q1, acquiring 63,297 new subscribers in the second quarter, which is just slightly more than the 62,767 new subscribers it added in Q1. However, Microcell took a step in the right direction in improving its post-paid subscriber base, a positive sign for analysts. Despite the heavy competition from Bell, Robinson says he was positively surprised at the pre-paid/post-paid mix. Microcell had a strong quarter in attracting post-paid customers, which accounted for more than 70 per cent of new additions. Attracting more profitable subscribers has been a priority for Microcell over the past several months and it seems to be paying off, as Q2 marked only the second time that post-paid additions outpaced pre-paid. Telus remains bullish that it will hit or at least come close to hitting its previously stated target of landing between 475,000 and 500,000 new wireless subscribers by the end of the year. But reaching that target won’t be easy since Telus only managed to sign up 75,000 subscribers in the second quarter compared to more than 107,000 in Q1. Historically, the first quarter is the weakest growth period for wireless companies. While the industry generally experienced slower subscriber growth in the last quarter, both Robinson and Depow note that a single quarter of poor results doesn’t constitute a trend and that it’s still too early to tell if and how long the slowdown will last.

Launch of next-gen services could stave off slowdown in wireless market

News | 08/07/2001 4:00 am EDT

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