Pre-paid wireless beginning to take on greater significance in Canadian market

Attracting pre-paid wireless subscribers has become an important aspect of the country’s three national wireless operators’ business, according to their third quarter financial and subscriber results. This shouldn’t come as much of a surprise given the impact that Virgin Mobile Canada is having on the pre-paid market, gaining traction in this largely untapped sector. It is unclear how many subscribers the upstart mobile virtual network operator (MVNO) has – the company won’t report net additions or total subscriber numbers because it is privately held. But Virgin Canada is, not surprisingly, forcing the other operators to re-think the importance of pre-paid. Andrew Black, president of Virgin Canada, reiterated at a recent conference in Toronto that Canada’s 50% wireless penetration rate is expected to grow to about 70% to 75% over the next several years. He said that represents about eight million more people coming into the wireless market and many of whom are likely to land on pre-paid plans. While the national carriers didn’t talk too much about pre-paid during the Q3 conference calls, their subscriber results clearly show the growing attention they are paying to this segment (see charts on page 1 and page 5). This was once a market almost exclusively reserved for Microcell Telecommunications, the one-time rebel operator that was eventually swallowed by Rogers Wireless Inc. When it was acquired by Rogers in November 2004, the company counted about 50% of its subscribers as pre-paid. For Rogers Wireless 8.5% of net additions in Q3 were on the pre-paid side. In pure numbers, the company had 18,100 net pre-paid additions, compared to 213,000 post-paid additions. This percentage was slightly lower than that recorded in the third quarter of 2004. Rogers Wireless did report a huge increase in total pre-paid subscribers over the past year after the Microcell acquisition, jumping from 733,400 customers to more than 1.3 million. The percentage of pre-paid subscribers compared to the company’s overall subscriber base now stands at 22.4% at the end of Q3 2005 compared to 18.2% in Q3 2004. The bigger increases are coming from Bell Mobility and Telus Mobility, however. Bell’s numbers are increasing quite quickly because its pre-paid figures include subscriber additions from Virgin Canada – Bell Canada is a 50% owner of the MVNO. For the third quarter, 59% of total net additions were pre-paid customers, 73,000 compared to 50,000 post-paid subscribers. This compares to the 12.8% ratio in 2004’s third quarter where only 14,000 net additions signed up for the pre-paid option. Year-to-date, Bell Mobility counted 47% of net additions on pre-paid. For its total subscriber base, the company has 25.7% of its customers on pre-paid plans, compared to 23.6% at the end of last year’s third quarter. A look at the company’s last nine quarterly subscriber results reveals that pre-paid is taking on a greater importance, increasing nearly 2% from Q1 2004 to the end of Q3 2005. Robert Odendall, president of Bell Mobility and Bell Distribution Inc., noted during the company’s Q3 conference call that pre-paid did skew the overall net additions to a degree as a result of a greater emphasis on pre-paid subscriber retention. He added that pre-paid churn was "peculiarly low" at 1.6%. "With all of the challenges that we have coming out of the fourth quarter and the first quarter, we hadn’t been particularly active in our change activities around pre-paid, and with everything having stabilized and well under control, it was incumbent on us to turn our attention to prepaid," he said, referring the billing fiasco that affects subscriber results. Telus Mobility had an equally noticeable change in its subscriber net addition mix with 32% coming from pre-paid subscribers – 33,400 compared to 104,600 on post-paid rate plans. This is up significantly from the third quarter of 2004 when the company added 20,800 pre-paid customers and 115,400 post-paid subscribers, resulting in a pre-paid/post-paid ratio of slightly more than 18%. Year-to-date, the figures are also increasing. For the first nine months of 2005, Telus Mobility had customer mix of 23.2% on pre-paid, compared to approximately 14.9% for the same nine-month period in 2004. For the past nine quarters beginning with Q1 2004, the company has remained consistent in its pre-paid/post-paid net subscriber addition mix. It has hovered around the 17.5% mark, but a slight uptick in Q3 2005 to 17.8% count could be a sign of greater emphasis on pre-paid from the country’s smallest wireless carrier. Darren Entwistle, president and CEO of TELUS Corp., made no mention of pre-paid during the company’s Q3 analyst conference call, instead talking about trying to increase penetration in the enterprise segment. He noted that lack of wireless number portability has been a roadblock for the company to better address the corporate market in Central Canada. "We believe with number portability coming to fruition at some juncture in 2007 – we’re still waiting to get that worked through the CRTC – this will provide an opportunity for us to better penetrate the corporate market...I think we have a strong proposition that we can deliver into to complement the wireline conversations that we’re having with them in key urban in Ontario and Quebec," he said.

Pre-paid wireless beginning to take on greater significance in Canadian market

News | November 16, 2005

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