Editorial: Virgin Mobile going “mainstream”

Virgin Mobile Canada's decision to introduce post-paid wireless service contracts next year, while on the surface may seem like the company is selling out its "alternative" approach to the mobile market, should only be seen as a logical step in the evolution of the company. The mobile virtual network operator (MVNO) has attracted more than 500,000 subscribers since it launched in early 2005 and is likely to top the 600,000 mark by the end of this year. Its target segment - 12 to 24 year olds - is getting older and a greater proportion is joining the workforce, so it only stands to reason that Virgin Canada would want to evolve along with its subscriber base. In addition, the higher churn rate associated with pre-paid could be somewhat offset by lower customer turn over on the post-paid side. Will the company become a force in the business segment, offering BlackBerries some day? Perhaps. The BlackBerry is no longer just a mobile email device for business professionals, it is gaining traction in the consumer market. The Pearl should serve as evidence that it is making headway in this segment. Richard Branson, founder of the Virgin Group of companies, and Andrew Black, president and CEO, of Virgin Canada, have already indicated that the MVNO's post-paid pricing contracts will be simple for consumers to understand - something for which current providers have been criticized in the past. Will there be a system access fee (SAF) - the controversial charge, ranging from $6.95 to 8.95 on post-paid plans? That remains to be seen. But it's unlikely the company will abandon its legacy of simple plans with a lot of features such as voicemail and caller ID included for a flat rate. Could anyone have predicted this outcome three years ago when Richard Branson was smashing cars with a monster truck at the company's launch in Toronto? No, but no one would have predicted at that time that Bell Canada, owner of Bell Mobility, would be taken private. And herein lies part of the reason, at least in this writer's opinion, why Virgin Canada might have had no choice but to get into the post-paid game. Bell Mobility introduced a pre-paid SAF of $3.95 a year ago and that might now have to be picked up by Virgin Canada as part of its costs to use Bell Mobility's wireless network. It's also equally plausible that Bell has simply decided to increase the amount it charges Virgin Canada to use its network, despite being a 50% owner in the MVNO. So while Virgin Canada has resisted passing the SAF onto its subscribers, the company likely saw declining margins because it had to pay the fee, and possibly higher network rent charges, through revenue generated by usage. The company's decision to launch post-paid contracts could also be rooted in the growing importance of the pre-paid segment to the other national wireless players over the past several quarters - pre-paid net additions have generally been higher for Virgin Canada's rivals. Not that long ago, Rogers Wireless was reporting negative growth in pre-paid. For the third quarter ended September 30, the company added 48,000 new pre-paid subscribers. Telus Mobility has also seen its share of quarterly pre-paid net additions growing, topping 36,000 in Q3. Faced with a shrinking market for pre-paid, lower margins on its service due to increasing network charges and an aging customer base, Virgin Canada decided to jump into the post-paid contract arena. It is a wise decision, but one can only hope the company doesn't lose its edge in the market.

Editorial: Virgin Mobile going “mainstream”

News | November 13, 2007

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