Videotron’s wireless play raises the competition stakes, but also the risks, say analysts

Industry observers say Videotron Ltd.’s upcoming mobile wireless services could have a profound impact on Quebec’s wireless sector, but that the greatest impact could be on Videotron itself. “Videotron’s wireless bet could turn out to be the company’s riskiest yet,” said Carmi Levy, an independent technology analyst in London, Ont. A subsidiary of Quebecor Inc., Videotron plans to launch wireless services later this year, and analysts say the service could change the wireless landscape. Iain Grant, head of SeaBoard Group, pointed out that because the company is allied with numerous other Quebecor media properties—TV stations, high-speed Internet services, and phone services—Videotron has a leg up in terms of bundling abilities. “The Quebecor synergies will all flow to and through your Videotron wireless device. Think of Just for Laughs 24-7, not just for 10 summer days; TVA to your iPhone or your Android ; Archambault music; and the 22-plus magazine and newspaper stable.” Brownlee Thomas, principal analyst at Forrester Research Inc. in Montreal, said Videotron’s wireless service will cause existing mobile providers like BCE Inc., Rogers Communications Inc. and Telus Corp. to drop their prices—which could prove to be a challenge for Videotron. “The risks to Videotron are going to be Bell, Telus and Rogers—a price war,” Thomas said. She pointed out that Videotron has some experience in wireless as a reseller of Rogers’ mobile services in Quebec, but that may not be enough for Videotron to succeed. “If to ... copy what they learned from reselling Rogers, that’s not going to fly. They have to be much more innovative than that.” Levy said Videotron’s wireless services could have a ripple effect. “Competitors in the Quebec market will likely redouble their efforts to build comprehensive bundles of services. And if they can’t offer them on their own, they’ll need to partner with local or regional providers that can.” But a major impact could happen inside Videotron’s own operations, he said. “Whenever a telecom company builds out any aspect of its infrastructure—Internet, last mile, wireless, whatever—it’s placing a series of hugely expensive bets on the future of a given market. Back the wrong technological or services-based horse and you could quickly suffer losses deep enough to shutter the company. In this respect, every major new initiative for a company like Videotron is a bet-the-company move.” The service provider will take its time building out its network, analysts say. Thomas said Videotron will probably aim to have major cities and corridors connected before the end of the year, with plans to extend the network further in 2011. Thomas and Grant both pointed to Wind Mobile's experience as a cautionary tale of trying to build the business too quickly. “Wind launched services and promptly lost some senior executives,” Thomas said, adding that the company hasn’t won as many customers as planned. Wind has acknowledged “teething problems,” but maintains that it is competitive and ahead of other new entrants. “ network is important, but so too are e-commerce channels, distribution generally, the right value proposition and handset selection,” Grant said. “All those things take time to get right. has waited this long. A few more months to get things nailed-up is not a bad idea in the long run, and Videotron plans to be in the business for the long run.” In the long-term, Canada’s wireless industry could face another significant change: new foreign-ownership rules. Right now, foreign investors are limited to owning just 20 per cent of a telecom company’s voting shares, but the federal government has been considering lifting the restrictions, which some say hinder growth in Canada’s communications industry. But analysts are at odds over just how new rules would affect Videotron. Grant estimated they wouldn’t impact the company greatly. “If the opportunity arose for Quebecor to team with a global player, maybe T-Mobile or Orange ... might be of interest, but hardly pressing,” he said. “The company’s focus is domestic, its strengths are domestic, its presence is domestic.” For Thomas, liberalized foreign ownership restrictions would help everyone in the industry. The existing rules not only make it difficult for new entrants, “but it also has the effect of making it hard for the incumbents to raise capital,” she said. But Levy said new foreign ownership rules may not help Videotron or the incumbent players. “Canadian telecom incumbents stand to be the biggest losers if foreign ownership rules in the telecom sector are relaxed. That’s because when you have a near-monopoly in a given market, any change to the current state which can erode that state, is by definition a negative. “Videotron is particularly vulnerable, given its overwhelmingly dominant position in the Quebec market. If Rogers, Bell and Telus have a lot to lose on a national scale, Videotron’s proportional risk within Quebec is even more pronounced.” news@thewirereport.ca

Videotron’s wireless play raises the competition stakes, but also the risks, say analysts

News | 03/17/2010 9:25 pm EDT

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