Analysts divided on market opportunities for new entrants

There haven't any formal announcements yet on what the winners from Canada's Advanced Wireless Services (AWS) auction will bring to market, but industry analysts say they have a good idea where the low hanging fruit lies. They can't agree, however, on what markets new players should pursue.A recent report from UBS Securities Canada analyst Jeffrey Fan suggests that the new players won't go head-to-head with the incumbent wireless carriers Bell Mobility, Rogers Communications and Telus Mobility for their lucrative high-end post-paid subscribers. In a research note to clients upgrading Rogers' stock to a buy, he says revelations about new entrants' business plans mean their impact on the media and communications conglomerate won't be as great as previously anticipated."We believe the new entrants will target primarily prepaid and lower-end subscribers," Fan writes. "In addition, the vast majority of Rogers' higher end subscribers are committed to long-term contracts (2-3 years). As a result, we believe the new entrants' impact on Rogers is less than what some investors currently fear."Jon Arnold, principal of J Arnold & Associates, is, on the other hand, hopeful the new entrant winners will develop and deploy services that go beyond what is currently available today or are at least as comparable. "The main idea here is that they're starting with a clean slate and can build the kind of networks to support market needs for the next 10 years," he recently wrote on his blog.In an interview with Report on Wireless this week, Arnold says new entrants are in a position of strength because it's cheaper to build networks now than it was in the past. "The question is what are they going to do and a lot of that also depends on who's got the deep pockets," he says.Arnold notes though that the new entrant spectrum auction winners do have an opportunity to build next-generation networks that are optimized for these types of data services because "that's where the money is going to be." He says it would be a mistake if they opted to deploy networks and services that only targeted the telephony aspect of mobile or the low-end of the market.Initial comments from some of the winners suggest that they are going to build networks with advanced and innovative services. Bragg Communications' co-CEO Lee Bragg recently stated that "EastLink will be looking to launch next generation services that will allow customers to integrate their mobile phone with their home entertainment services. This will ensure our customers have access to the best and most advanced technology options available."On the other hand, John Bitove, the head of Data & Audio-Visual Enterprises Wireless (DAVE), has said the company will target Canadians who don't have a cell phone, noting that price has an impact on lifestyle decisions.Does that mean DAVE Wireless will come out with a pre-paid or low-priced wireless alternative? It's too early to tell, but there is an untapped market of Canadians that currently don't use a cell phone.And that market is substantial according to recent figures from market research firm TNS. Data show that 30% of Canadians don't use a cell phone and the majority of them have no intention of buying one in the next 12 months.Arnold questions the economic viability of a telephony-only mobile service. "If that's all they need, believe me, no new player is ever going to possibly recoup their investment. That's what the prepaid services are for," he tells RoW.While analysts are divided on what types of services Canadian consumers are likely to see in the 12 to 18 months, questions remain around whether the new entrants looking to offer innovative and content-rich applications and services have enough spectrum to do that. Report on Wireless will have more on this issue in the coming days.

Analysts divided on market opportunities for new entrants

News | July 24, 2008

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