Bell prepares for battle in untapped pre-paid/discount wireless market

When Bell Canada purchased the remaining 50% of Virgin Mobile Canada it didn’t already own and locked up an agreement to use the Virgin brand for the foreseeable future, it reaffirmed that president and CEO George Cope is serious about winning in the pre-paid and broader discount wireless market. Cope has said on numerous occasions since taking the helm at Bell that the company would match offers in the pre-paid/discount market. And while Virgin was gaining subscribers – about 500,000 in just over two years since launch – its Solo brand was languishing. The purchase of Virgin seems to indicate that Bell has recognized its decreasing significance in the low-end of the market and has taken a big step to rectifying it. “I think that’s probably relatively safe to say,” Mark Tauschek, senior research analyst at Info-Tech Research Group, says of Bell’s intent on winning more market share in the pre-paid discount market. “Coughing up $142 million and saying we’re going to pay for the Virgin brand for a period of time indicates that they’re realizing that the truth is that pre-paid is relatively lucrative in terms of the margins.” And there is room to grow the pre-paid/discount market in Canada. Currently pre-paid represents 21% of the total wireless market, down from a high of 26% in 2002. Combine that with a mobile penetration in the mid 60s and there is certainly room to expand the low-end of the market, especially during an economic downturn when consumers are increasingly cost-conscious. The pre-paid/discount market in Canada has remained untapped in Canada as the three national operators have focused largely on maintaining certainty in their revenue streams through post-paid packages on three-year plans and keeping pre-paid to a minimum. More recently, they have all jumped on the smartphone bandwagon, offering significant subsidies to customers to take the full-featured handsets. Pre-paid was one-quarter of the market six years ago, driven in large part by Microcell Telecommunications (now part of Rogers Wireless). But when the company ran into financial troubles and went through bankruptcy protection, it began to bleed subscribers, causing a decline in the share of pre-paid compared to overall wireless subscribers. Will Bell’s acquisition of the rest of Virgin have a large impact on the pre-paid/discount market? Not really, according to Tauschek. He believes Bell is just positioning itself better to compete for pre-paid/discount customers against the flanker brands of its two largest rivals and the low-cost strategies of the new entrants. It’s the new entrants that will have the real impact on the market. Given that three of them – Globalive, DAVE Wireless and Public Mobile – have all stated they will offer a no-frills, no-contract, simple offering, consumers will have a much larger choice of providers from which to get service. Tauschek expects new entrants to have similar pricing for voice and text messaging as the other main discount players, noting that they can’t get much more aggressive than that. “I don’t think they can get a tonne more aggressive on the voice and texting side really without giving away the farm,” he tells Report on Wireless. Bell shuttering Solo Bell knew its Solo brand was performing poorly and essentially halted all advertising for its discount service some time ago. With all of Virgin now in its pocket – and at a price much lower than it would have cost to acquire its customers in the open market – Bell can now concentrate its discount efforts using the more popular brand. Shuttering the Solo brand is the next logical step, according to Tauschek, noting that the message about cancelling Solo came through “loud and clear” during Bell’s Q1 financial results conference call. “I can’t imagine them maintaining the Solo brand knowing that it’s a relatively weak brand anyway. And maintaining the brand costs money so I think it would be folly for them to keep that brand for any length of time,” Tauschek say. “They’ll ditch it and that’s why they brought the Virgin Mobile brand for a period of years.” Cope said as much when he hinted at doing so during the company’s first quarter financial and subscriber results conference call. “We think it maximizes our flexibility for flanker brand management going forward, with, over time, the ability to consider moving to one flanker brand versus two in the marketplace,” he said. “We think being able to put all our resources behind the one ultimately may be the best thing to do in the marketplace on the discount brand side. I will say very clearly that Virgin will be taken to The Source stores, and Solo will not go to The Source stores so that we absolutely maximize the value of this acquisition this morning.” Bell announced earlier this year that it was buying The Source retail electronics chain with plans to put its brands in the stores beginning in 2010. Rogers’ distribution agreement with The Source comes to an end in December.

Bell prepares for battle in untapped pre-paid/discount wireless market

News | May 21, 2009

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