Virgin Mobile’s investment in Canada under review by Canadian Heritage

Canadian Heritage has sought and been granted the right to review Virgin Mobile’s investment in Canada to create a joint venture with Bell Canada. Virgin Mobile Canada, which announced its arrival to Canada earlier this year (RoW, April 7/04), was expected to begin offering service within the near future with some expecting it to launch this fall at the height of the Christmas buying season. That may now, however, be in jeopardy as Heritage lays out plans to review the creation of the company, which could take as much as 45 days. Heritage minister Liza Frulla sought the review by asking the Privy Council Office to issue an order to do so. On October 26, the Privy Council ruled that "… considering it in the public interest, on the recommendation of the Minister of Canadian Heritage, pursuant to section 15 of the Investment Canada Act, hereby orders that the investment by Virgin Mobile Canada to establish a new Canadian business carried on by Virgin Mobile Canada at Toronto, Ontario, be reviewed." An official with Canadian Heritage explains that a review is usually requested to make sure the investment meets Canadian ownership and control rules as well as a number of other requirements. Carla Curran, Heritage’s director of cultural sector investment review, says that a number of aspects of the investment will likely come under review, elements characterized as net benefit factors. "The minister looks at the impact of the investment on competition, the extent to which Canadians will participate in the business, on R&D in Canada, on product development, on the compatibility of the investment with national and provincial industrial, economic, and cultural policies and so on," she explains. "Often what happens is companies are asked to develop commitments based on their plans to demonstrate net benefit." According to guidelines set out in the Investment Canada Act, Heritage had 21 days following the initial investment filing to seek a review and it has 45 days to approve or deny the investment. If the application is problematic, a 30-day extension can be unilaterally invoked by the minister, but additional extensions have to be agreed to by both parties. The investment review, considered by many to be an exercise to rubber stamp applications, does, however, come at an inopportune time for the company. If Heritage takes the full 45 days to review the investment, Virgin Mobile Canada won’t be able to launch services until the second week of December. That doesn’t leave the upstart operator a lot of time to ramp up holiday season marketing. Some industry analysts believe that it will be key for Virgin Mobile Canada to launch during the holiday rush if it hopes to garner any significant share of the youth market. Mark Quigley, research director of Canadian market strategies for the Yankee Group, said during a recent audio conference that if Virgin hopes to have any impact on the Canadian market it needs to launch during the Christmas buying season. "It’s certainly going to be essential for Virgin Mobile in the Canadian marketplace if they are going to hit the ground running. Hopefully for the company’s sake they are able to hit that fourth quarter in time. If you’re selling toward a youth market place that certainly represents a very compelling time of the year to be launching your service and I think it’s going to be a difficult road for them over the short- to medium-term if they are not able to hit that Christmas season," stated Quigley. But as Virgin Mobile Canada finds itself having to wait for Heritage approval before it can begin marketing its services, two other private label wireless services have launched in the country. Primus Tele-communications Canada Inc. unveiled its wireless strategy late last month and CHUM Ltd.’s MuchMusic has partnered with Rogers Wireless Inc. for its own youth-oriented service, dubbed the MuchPhone. Primus Canada hopes to capitalize on a strong position in both the landline long distance market, where it has approximately 1 million subscribers, and the wireless access long distance service, where it has 90,000 subscribers. Ted Chislett, Primus Canada’s president, told RoW in July when the decision to enter the mobile wireless arena was first announced (RoW, July 27/04), that it would allow the company to introduce service bundles combining its TalkBroadband, long distance and wireless services. "I think there is an interesting bundling opportunity with wireless so that people can use the TalkBroadband service as a primary line and be assured that they’ve got a wireless backup if there’s a power failure," Chislett explained at the time. While the Primus Canada wireless service will be focused primarily on residential users, the MuchPhone branded service will take dead aim at the youth market, the same demographic that Virgin Mobile Canada is aiming for. Roma Khanna, VP of CHUM Television Interactive, says one of the company’s advantages is its existing strong ties to the youth demographic. "The thing about MuchMusic is we have such a strong connection with this particular market already. We don’t have to find them. They are already here. And one of the things we try to do is keep them excited about their relationship with us and make sure that our relationship evolves as their lifestyle evolves and the communications devices they use evolve. So it’s an important and natural evolution for us to be in this space…Virgin’s a great brand and I believe there is room for this pre-paid market to grow in Canada and I’m sure they’ll do well," she explains. The pre-paid market in Europe, Khanna says, didn’t begin to take until wireless penetration reached the 50% mark. With Canada currently at about 45%, she believes the timing is right for MuchMusic on this service. Andrew Black, president and CEO of Virgin Mobile Canada, didn’t return phone calls requesting comment on both the investment review, its competition, and the possibility of a delayed launch.Report on Wireless will continue to follow the evolving pre-paid wireless and the private label wireless services markets in Canada. More on these developing issues will be in upcoming issues.

Virgin Mobile’s investment in Canada under review by Canadian Heritage

News | November 4, 2004

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