Chatr’s ‘fewer dropped calls’ campaign pushed discounts at new entrants: Affidavits

TORONTO—Incumbent Rogers Communications Inc.'s 2010 advertising campaign for discount service Chatr Wireless led two new entrant carriers to lower their prices and offer special discounts, court documents obtained by The Wire Report show. In affidavits submitted to the Ontario Superior Court of Justice last fall, the head of Public Mobile Inc. and the former head of Wind Mobile wrote that, in response to Chatr’s 2010 ad campaign, their companies extended promotions to entice new customers. “Wind Mobile has pursued fairly aggressive promotional campaigns to acquire customers since it launched and it had hoped to offer less rich promotions by the end of 2010,” Ken Campbell, the former CEO of Wind and parent company, Globalive Wireless Management Corp., wrote in an affidavit dated Sept. 2. “As a result of Chatr’s advertising campaign, this was not possible,” he wrote. The documents were filed as part of legal proceedings the Competition Bureau launched with the Ontario Superior Court to fine Rogers $10 million for engaging in “misleading advertising” about its discount Chatr service. In the Chatr ad campaign, started in early August 2010, the discount carrier (a Rogers subsidiary) said it had “fewer dropped calls than new wireless carriers.” Chatr's ads, not all of which used the “fewer dropped calls” line, ran on multiple media, including television, radio, websites and billboards. One of Rogers' arguments in court is that the penalty, as well as the Competition Bureau’s rules governing when companies can advertise claims about product performance, are unconstitutional. Campbell’s affidavit said ad campaigns like Chatr's “can have a significantly detrimental effect on a new brand like Wind Mobile, because they can undermine the development of a core subscriber base.” He wrote that “Consumers care about network reliability, and are concerned about noticeable difference in dropped call rates … even if the actual difference in dropped call rates is small.” In a separate affidavit, Marius Armeanca, Wind’s chief technology officer, said the company’s network dropped less than one per cent of Wind customers’ calls throughout the majority of its operating territories during its first full year in business. “Wind Mobile’s data for all cities, save Vancouver, shows dropped call rates of less than 1%, consistent with the company’s goal,” he wrote, adding that the company’s dropped call rates in Vancouver have also since fallen below one per cent of all calls. “I believe this rate is considered by the industry to be an exceptionally good rate and reflects an excellent quality of service in terms of call retainability,” Armeanca wrote. Among the court documents is data showing dropped call rates from 2010 and varying rates across wireless networks and cities across the country. According to data filed with the court, Wind had lower dropped call rates than Rogers in the Ottawa area during the three-month period from July 28 to Oct. 26, 2010. Neither company’s Toronto-area networks performed better than the other's during the same period. During the period, Wind and Rogers recorded lower dropped call rates in Toronto than Public Mobile, while Public Mobile’s rate never climbed above one per cent. In Calgary, Edmonton and Vancouver, the data show that Rogers recorded lower dropped call rates than Wind during the three-month period measured. Public Mobile did not enter those Western Canadian markets before the end of 2010. The dropped call data show that Quebecor Media Inc. subsidiary Videotron recorded lower dropped call rates than either Rogers or Public Mobile in the Montreal area from Sept. 16 to Oct. 28, 2010. In an affidavit filed with the court Sept. 6, 2011, Alek Krstajic, Public Mobile’s president and CEO, said the Chatr “fewer dropped calls” ad campaign “put a chill on demand from Public Mobile’s potential customer base.” He wrote the Chatr campaign “was implemented at a crucial time for Public Mobile” in June 2010—shortly after Public Mobile first launched in Toronto and Montreal. “When a new wireless carrier begins to operate in the marketplace, the early stages of a carrier’s operation are particularly critical in order to establish a brand identity for its product and develop a customer base,” Krstajic wrote. He said Public Mobile hired market research group Hotspex to conduct a study in Montreal and Toronto to determine consumer brand associations with the new entrants and what consumers deem most important when choosing a mobile carrier. During the course of the study, Chatr “aggressively advertised its ‘fewer dropped calls’ advertising campaign in Toronto, but not in Montreal,” Krstajic wrote. He said of the 400 people surveyed, 19 per cent of Toronto respondents and 8 per cent in Montreal said “few dropped calls” was an important factor when choosing a carrier. “These results are particularly informative, as Public Mobile experienced more dropped calls in Montreal than in Toronto in the early stages of operation,” Krstajic said “One would have therefore expected that, if anything, consumers in Montreal might have been more sensitive to dropped call rates as an important attribute in choosing a mobile phone company.” Wind and Public Mobile said that they extended promotions offering lower prices to new customers as a result of the Chatr campaign, including customer credits, handset rebate programs, and discounted service rates. “This has in turn resulted in lower revenues for Public Mobile, particularly during its critical start-up phase and during the back-to-school and December holiday seasons,” Krstajic wrote, noting the ad campaign continued during those periods. In an affidavit filed Feb. 13, Bob Berner, Rogers’ executive vice-president and chief technology officer, said the company conducted “drive tests” to measure its own and new entrants' dropped call rates before launching the “fewer dropped calls” ad campaign. In the tests, the company attached devices from Rogers and each of the new entrants to vehicles that drove along pre-designated routes in each of the major markets where Rogers intended to run the ad campaign. Along the drive routes, special testing software analysed calls to landlines to measure network attributes such as availability, accessibility, retainability, and audio quality, the affidavit said. Based on drive tests conducted in the cities from June 16 to Oct. 14, 2010, Rogers said it determined its own (and Chatr’s) dropped call rates were about 0.35 per cent. Berner wrote that Rogers measured the aggregated dropped call rates for Wind at about 1.22 per cent, Public Mobile at 4.49 per cent, Videotron at 1.12 per cent, and Mobilicity at 0.71 per cent. “To put these numbers into their proper perspective, during the period in question customers of the New Carriers could expect anywhere between two to 15 times as many dropped calls as a customer of Chatr,” Berner wrote. Wind and Public Mobile questioned the value of the drive tests in affidavits submitted last fall. “There are a number of limitations to drive tests that may cause the dropped call rates measured by drive tests to differ from actual dropped call rates,” Brian O’Shaughnessy, Public Mobile’s chief technology officer and vice-president of network and technology, wrote in an affidavit filed Sept. 6. Drive tests capture a “snapshot” of a call at a particular time and location and “give no indication whether a similar call would have been dropped two minutes earlier or two minutes later,” O’Shaughnessy wrote. The tests can distort overall dropped call rates by over-emphasizing calls dropped at the edge of the network’s coverage or by failing to account for calls made indoors, he wrote. Berner wrote that drive testing is “widely recognized throughout the world as the most accurate means available to wireless providers to measure the actual experience of customers when using a wireless network.” In an emailed statement Friday, Rogers’ spokeswoman Leigh-Ann Popek said the company is challenging whether the ad campaign caused harm to either Wind or Public Mobile. “Leaving aside the fact that the advertisements were true, Rogers disputes that the fewer dropped call advertisements harmed Wind Mobile and Public Mobile,” Popek said. “The harms that Wind Mobile and Public Mobile complain of in their affidavits are indicative of aggressive price competition.” Ontario Superior Court Justice Frank Marrocco is hearing the case in Toronto. The Wire Report viewed public documents filed for the case in Toronto on Feb. 17. nkyonka@thewirereport.ca

Chatr’s ‘fewer dropped calls’ campaign pushed discounts at new entrants: Affidavits

News | February 24, 2012

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