Three to four more private label-branded wireless services coming to Canada: analysts say

The recent launch of President’s Choice Mobile from Loblaw Cos. Ltd. marks the entry of the grocery chain into the Canadian private label wireless services market, and some analysts say this is the beginning of what will be a continuing trend, but consumers shouldn’t expect an explosion of options in this sector. With wireless penetration standing about 50% in Canada, Brian Sharwood, an analyst at the Seaboard Group, says there tremendous upside going forward. "That means there is the potential for 100% market growth: 13.5 million Canadians need a cell phone." The vast potential of the Canadian wireless market, however, could be misleading. It’s less likely that carriers will be willing to rent out their networks to competitors while so much of the market remains untapped. So far, Bell Mobility has been the only willing wholesaler, supplying the network for PC Mobile and Virgin Mobile Canada. Rogers Wireless Inc. and CHUM Ltd. have partnered on a wireless service, but the arrangement isn’t a reseller agreement. Regardless, Canadian retailers will no doubt be trying to reap the benefits of offering their own store-brand wireless service. "It makes sense for companies with strong brands to leverage those brands with the addition of wireless products," says Iain Grant, also of the Seaboard Group. "Obvious ones would be Canadian Tire, Holt Renfrew, Indigo, 7-Eleven, The Bay, Sears and The Gap." Marina Amoroso, the United States wireless/mobile analyst at the Yankee Group, adds, "Retailers with a national presence will be among the first to offer private label wireless. I wouldn’t be surprised if we saw three to four more mobile virtual network operators (MVNOs), not necessarily retailers, in Canada in the next 12 months." Sharwood also estimates that at least three more private label wireless offerings will be introduced in the next year, highlighting Wal-Mart as an obvious choice. To him, Loblaws’ President’s Choice service makes sense for part of the market. "The PC phone seems directed at the 45-60 crowd, those who shop at Loblaws," he suggests. "It makes it easy for them to get help with their phone in the store and is less intimidating. It carries a certain comfort level with it. But it doesn’t seem that there are a lot of special options that could come with the phone. I don’t think there is any content to offer." Aside from their distribution capabilities, retail chains could find it difficult to attract wireless customers, especially those who are already under contract with another provider. "7-Eleven sells wireless purely to increase their profit margins and they treat it like any other product," says Amoroso. "It might as well be ketchup or mustard; this approach won’t work in the long run because it doesn’t offer consumers a compelling reason to switch their phone plan." Offering a compelling experience will be key to capturing market share once the wireless sector becomes saturated. Beyond retailers, brand names will become wireless resellers. In what Amoroso calls "a content-infotainment play," ESPN is going to offer a wireless service in the United States directed at sports fanatics. Subscribers will be able to get sports updates over their phone and even watch highlights if their phone has video capabilities. Content options for cell phones could be endless; consumers may be able to choose a phone service offered by their favourite sports team or their favourite soap opera. "If you consider that a New York Yankees fan will easily spend $40 for a ticket to a baseball game, he would have no problem paying an extra $10 a month to have his very own Yankees phone. Branded phones increase the options for profits," says Sharwood. Grant sees affinity groups getting into the private label wireless game. "Retailers aren’t the only vector. Why not a Carleton University Alumnae wireless product, with a portion of the proceeds going to a new library? How about a breast cancer/multiple sclerosis/United Way phone? Use your March of Dimes phone when you are feeling charitable, and your Aeroplan Visa phone when you want to seem practical and wrack up airmiles as you talk. Anyone who needs money could get involved in this. Schools that made a profit by reselling long distance can now do it with wireless," he says. Services like these could be required to drive penetration levels in Canada closer to those in the U.S., where they are about 70%, or even Scandinavia, where they are over 100%. We’re already seeing one form of multiple device subscription with wireless users having both a cell phone and a Blackberry. Having multiple personal phones could be an extension of that. "You develop a product that appeals to as many people as possible," says Sharwood, "then when the market becomes saturated, you start finding niche areas. As a product evolves it naturally becomes more specialized. When cars first came out the options were four wheels and a motor." But just because we are seeing this specialization in the U.S., it doesn’t mean it’s about to hit Canada. Comments Amoroso: "MVNO’s will never take off as much in Canada because the market is only 10% of that in the U.S. Niche markets that exist in the States might be too small in Canada." She adds movement on this front should begin soon though. "Canada is traditionally at least two and a half to three years behind the U.S. on services like these, and I don’t see it being any different with this market." The first major wave of wireless resellers in the United States happened in 2002, which would suggest it’s time for the Canadian market to follow. However, Amoroso says any major growth in private label wireless or MVNOs is still about 18 months away. "Carriers want initial growth for themselves and don’t want to give customers away until the market is saturated." Branded phones are less likely to take off in this country for another reason as well. "Canada doesn’t have brands like in the United States," says Sharwood. "We talked about brands that would offer a mobile service in Canada and couldn’t come up with a lot. Some could possibly be imported from the U.S." The MuchMusic phone is an example of a branded phone that is already available in Canada. The relationship between Rogers and CHUM raises the point that marketing will be very important to continue reaching new areas of the market. "Targeting the market becomes very important in this situation, as does not cannibalizing the host carrier base," notes Amoroso. If carriers are holding out to capture more of the market before renting out their networks, they may find the associated marketing costs a hindrance. The most profitable solution could be making arrangements with resellers, and letting them do the marketing. "Bell obviously thinks there’s money to be made in expanding the market to resellers," says Sharwood. "Bell hasn’t proven to be the best marketer, so they can let others do the marketing and still get a portion of the profits. They’ve learned a lesson from wholesale long distance." Grant says that if penetration in Canada is going to get those higher levels being experienced elsewhere in the world, then the wireless marketing and resale play is a way to get there. "Doing the same sort of things won’t get us increased market penetration. We need more inspired marketing to make the jump, and it seems like private label, re-branded services may be a good way to get new wireless developments," he says.

Three to four more private label-branded wireless services coming to Canada: analysts say

News | 09/08/2005 4:00 am EDT

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