Handset subsidies, free minute offerings still viable marketing tool for Microcell

Microcell Telecommunications Inc says it's done the math and found that it can continue to offer inexpensive handsets and free-minute offerings, despite recent statements suggesting the company would shift its focus away from costly promotions (RoW, Aug. 7/01). Executives at Microcell's PCS subsidiary acknowledge there are ongoing concerns about the costs associated with such incentives, but after a closer look at the numbers, concluded that GSM's lower cost structure makes such promotions an effective way to boost its subscriber base - at least for the foreseeable future. Alain Rhéaume, president and CEO at Microcell PCS, says falling handset costs are another factor that is providing the company with one of the lowest cost of acquisitions (COA) in the industry. The overall cost of acquiring a customer includes handset subsidies, marketing costs, promotional materials, distribution overhead and selling commissions. "In that context, we can keep our level of subsidies lower than the competition and still be able to compete in the market the way we've done in the past," Rhéaume told Report on Wireless. Second-quarter figures show that Microcell's COA was $385 compared to $364 in the first quarter of the year. The Q2 figure is in line with what Bell Mobility and Rogers Wireless Communications Inc reported as their COA of $385 and $387 respectively, but is well below the $478-level of Telus Mobility. A CIBC World Markets report indicates that due to varying definitions of COA among the four major carriers, it is difficult to judge the COA costs on face value. Maintaining the balance between profitability and growth When Microcell introduced its PCS service in 1996, it offered two types of handsets - one for $250 and another costing about $400. Competitive pressures, however, forced Microcell to match others' $50 handset pricing. During the ensuing battle for market share, all of the carriers decreased per minute charges and introduced high handset subsidies as a way to attract subscribers. "Since then, it was always the case of evaluating the competition and to balance our act between growth and profitability," explains Rhéaume. "It's been very clear that we would not compromise our profitability by going after a couple of points of market share." Rhéaume says the same type of balanced approach will remain in place when Microcell introduces its next-generation of handsets and other wireless devices in the near future. "We intend to be quite conservative in our pricing, and our intention is to really acknowledge the value of those products when we price them," he says. "But if the market reacts like it did in 1997 and goes with pricing a lot lower for the same type of device, we will not be able to hold that position." More disciplined pricing needed However, the industry has a chance to adapt to a more conservative pricing model once next-generation devices hit the market, according to Rhéaume. "The data services and devices introduction is a new opportunity for the industry to introduce a more disciplined approach in terms of pricing the equipment and the service," he states. And he believes the industry will support such a move. "If you look at the positioning of the other three carriers in the market, I think everyone would like to get rid of the very high subsidy that has been the fact of this industry for the past couple of years," explains Rhéaume. "I suspect that (the other carriers) would try to take the battle on the service quality (side) and the differentiators in terms of applications that each one can provide to the market instead of going with simply and only on pricing" (RoW, June 7/99).

Handset subsidies, free minute offerings still viable marketing tool for Microcell

News | September 4, 2001

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