Pre-paid market to play significant part in new net additions in future

The pre-paid wireless market is shaping up as a key battleground in the coming months and years for new net subscriber additions as emerging players try to establish themselves as the brand of choice for the youth market. With the emergence of MuchMusic on the scene, and a scheduled first quarter 2005 launch of Virgin Mobile Canada, the two new players will likely go head-to-head on several fronts in trying to lure the country’s young people to their respective brands. Two telecom analysts agree that there is upside in the pre-paid market segment as an untapped source of revenue. With Canada at only about 50% penetration, there is still tremendous greenfield opportunity, says Mark Quigley, the Yankee Group’s Canadian Market Strategies research director. Says Quigley: "The primary market for pre-paid in Canada seems to be people that want to control their spending. It hasn’t been pushed towards people, for example, that are credit challenged, whereas in the U.S. that has been a definite thrust behind it. I certainly think that probably is a marketplace that, if more attention was paid to it, they may see more success from it." Brian Sharwood, principal at the SeaBoard Group, says young Canadians will be the primary target of pre-paid offerings. "There will be sort of a renewed interest in the youth market. I think they’ll be things like different data applications for kids, pictures, text messaging contests, different ways of using the phone to keep the market segmented," he explains. Despite the appearance of an untapped pre-paid market, winning it isn’t without its challenges, says Quigley, adding that it can be a double-edged sword. "You get those subscribers on board and you can’t guarantee that they are going to stay that active for that long or that they are going to spend that much on a monthly basis. The challenge in the pre-paid business is that you don’t spend a lot of time with your customers because you don’t send them bills, so it’s not without its challenges," he explains. MuchMusic surprised many industry observers with the launch of its MuchPhone pre-paid offering in conjunction with Rogers Wireless Inc. this month (RoW, Nov. 4/04). Sharwood says Rob Bruce, Rogers Wireless’ executive VP, chief marketing office and president of wireless data services, is a "smart marketing fellow" and is keenly aware of the power of the Virgin brand, having experienced it firsthand in the cola business. Roma Khanna, VP of CHUM Television Interactive, tells Report on Wireless that the company was looking for ways to better connect to its existing youth audience, more and more of whom are carrying cell phones. "We’ve been spending a lot of time thinking about content for the cell phone, community-based things that we can do with the cell phone, interactivity with our television shows with wireless. We have short codes and voting and text-to-screen and all that great stuff. So for us it became a natural extension. It’s not about putting our brand on a physical device, it’s about what doors that device opens. It becomes a key to all sorts of interesting and exciting content that connects you closer and closer to MuchMusic and I think it’s the kind of key into MuchMusic our audience understands and wants," Khanna explains. The real battle in the pre-paid segment won’t begin until the first quarter of next year when Virgin Mobile launches service. It will be interesting to see how both companies, with considerable marketing experience, brand awareness and ties to the youth segment, fare. The two analysts are divided as to which company has the upper hand but say that MuchMusic may have a slight advantage in the short term. "It certainly puts Virgin at a disadvantage," Quigley says of Virgin’s decision to not launch until early next year, adding that not all is lost for the upstart operator because of its previous experience. "You know missing the Christmas season if you’re focused on the youth and young adult market is obviously not desirable. I guess there will be Christmas next year. The other thing when compared to MuchMusic, Virgin has done this three or four times already and very successfully. They know what they’re doing, so the fact that MuchMusic may have a bit of a head start I don’t think is necessarily going to mean a lot. Virgin has certainly proven themselves to be a very formidable competitor south of the border." Sharwood agrees that the marketing prowess of Virgin Mobile shouldn’t be underestimated. "Virgin is going to be using a whole number of tactics, including (more than just) pushing out the Virgin brand. There’s a reason why we’ve got Rebel Billionaire going on in North America right now. It’s not random. It’s not like ‘this was a cool thing to do.’ Richard Branson has a plan and the plan is to be the cool brand in North America and to attack the North American market. His Rebel Billionaire is one piece of that. Opening up record stores and becoming a brand presence is part of and there will be a lot of other products," he says. (The Rebel Billionaire: Branson’s Quest for the Best is a reality television program, in which Branson puts a group of 16 Americans through a series of extreme activities. Contestants are made to relive some of Branson’s adventures and if they make decisions that impress him, they continue to participate in the adventures. If not, they are eliminated from the competition. The winner takes home US$1 million.) Executives from Virgin Mobile Canada tell Report on Wireless in a conference call that it is still too early to talk about how the company plans to proceed when it launches next year and how MuchMusic’s entry might affect the pre-paid market’s dynamics. Nathan Rosenberg, chief marketing officer for Virgin Canada, explains that the company is staying focused on getting its offering right for its target market. Says Virgin Canada’s president and CEO Andrew Black: "We’re spending our time just focusing on all the things we need to do to launch a business and we are keeping our heads down." Khanna recognizes the strength of Virgin Canada, but says there is room to grow the pre-paid market and MuchMusic will certainly play a role. "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," she says. Being first in the market with a youth-oriented brand gives MuchMusic first mover advantage, Khanna adds. "We were the first with ringtones across carriers. We were first to put text-to-screen. We were first to integrate wireless on a regular basis with our television programming, and we’re going to be first with other stuff in the next couple of months."

Pre-paid market to play significant part in new net additions in future

News | 11/19/2004 5:00 am EST

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