Wireless competition increases in the West as Bell expands retail

BCE Inc.'s strategy to increase its retail presence in Western Canada may not go very far to improve the company’s market share there, where Bell has sought to make gains for several years, analysts say. In a conference call with investors last month, George Cope, BCE’s president and CEO, said the company will expand its stores in the West in 2012. “We want to continue, quite frankly, executing on the strategy we’ve been pursuing the last three years, particularly a focus for us in Western Canada, where there is a stronger ARPU market,” Cope said. “We had a very positive year there in 2011 and we will probably open up to an additional 100 new points of retail presence between Bell and The Source in 2012, focused specifically in the West,” he said. The West is an important market for wireless carriers because it offers higher average revenue per user (ARPU) than Central or Eastern Canada. According to CRTC data for 2010, ARPU in British Columbia was $60.45. In Alberta, it was $69.58. ARPU was as $58.72 in Ontario, $49.98 in Quebec, and $54.72 in Nova Scotia, the CRTC data shows (2011 numbers are not yet available). Bell has also expanded stores into Saskatchewan, where provincial Crown corporation SaskTel is the incumbent telco. “Bell has come into Saskatchewan in a big way starting in the fall,” Ron Styles, CEO of SaskTel, told the Financial Post in a story published last week. “We’re seeing stores now throughout the province.” Maher Yaghi, a telecom analyst with Desjardins Securities who took part in that conference call, said the increased retail presence is intended to promote the company’s image in the West. Bell has historically had a much stronger retail presence in its core Central Canada and Eastern Canada markets, he said. “I think the plan is to have more retail presence, meaning kiosks and shops, in order to be more present in the minds of customers,” Yaghi said in an interview Friday. “When a customer decides he or she wants a wireless phone, he can more easily reach a Bell store than he would have previously.” According to a Feb. 9 research note by Canaccord Genuity analyst Dvai Ghose, BCE has tried to improve its national wireless earnings through a gain in market share in the West for several years and “the results to date have been a little underwhelming.” Ghose included a chart showing that Bell's market share in Western Canada has increased “modestly” from 2007 to 2010. In 2009, Bell’s market share was 16 per cent in British Columbia and 21 per cent in Alberta, according to CRTC data. Those numbers increased to 17 per cent in British Columbia and 22 per cent in Alberta in 2010. (The 2011 data are not yet available). “While greater exposure to Western Canada remains a key objective for Bell, in reality this has been easier said than done,” the Canaccord note said. According to the CRTC data, available on its website, Telus Communications Co. had a 40 per cent wireless market share in British Columbia and 50 per cent in Alberta in 2010. Rogers Communications Inc. had 42 per cent and 27 per cent market share in those western provinces, respectively. The new entrants, in 2010, had 1 per cent in each of the provinces, the CRTC data show. In an interview with The Wire Report, Ghose said increasing a company’s visibility in a market does not necessarily lead to an increase in profits. He said Bell bought The Source, an electronics equipment retail chain, three years ago this month. The stores sell Bell Mobility smartphones but the purchase of the chain has not had a material impact on the company's western market share, he said. “One of the justifications for buying The Source was that they were disproportionately out West anyway,” Ghose said. “That doesn’t really seem to have helped Bell against Telus so much.” Two analysts who spoke to The Wire Report on a background basis said Bell is making the right move to increase its retail presence in the West and that the impact of the expansion could be moderate in terms of market share. In an emailed statement to The Wire Report Tuesday, Carmi Levy, an independent telecom and technology analyst, said an expansion in the West is the “most logical direction for Bell” as it faces “fast-growing pressure” in Ontario and Quebec. He said a comparative lack of competition in the western provinces has helped keep wireless prices higher than in other parts of the country and allowed carriers to spend less on marketing. “Western Canada is such a greenfield opportunity for a player like Bell, as it isn’t as oversubscribed as other regions, and it offers higher—and growing—average revenue per user performance than virtually anywhere else in the country,” Levy wrote. He said Bell typically targets markets “where it doesn’t have to slug it out for every last consumer dollar” and that those markets “are increasingly, and clearly, on the left side of the map.” Bell, Telus, and Rogers are also competing for market share with new entrants Wind Mobile and Mobilicity. Levy wrote that Rogers has attempted to increase its visibility in the West after a successful bid in 2010 for the naming rights to the former GM Place arena, which is the home of the Vancouver Canucks hockey team. The arena is now named Rogers Place. The BC Place stadium, home to local professional soccer team the Vancouver Whitecaps FC, may be accepting bids for new naming rights after the province announced this month that it dropped a $35-million proposal from Telus for 20-year naming rights to the stadium. Ghose said such promotional tactics do not necessarily lead to greater market share for a company. He said Rogers is losing market share in British Columbia despite having the naming rights to the Canucks arena. “That doesn’t seem to have helped them at all,” Ghose said. Western incumbent Telus is also building Telus Garden, a highly visible corporate landmark in Vancouver that will include a 22-storey office tower and 46-storey residential tower. The $750 million downtown Vancouver structure is expected to be completed in 2014 and will create 500 additional positions, Telus says. Ghose said Rogers and Telus have tried to gain market share from Manitoba incumbent MTS Allstream Inc. through “some pretty damn aggressive pricing” offers. After five years of competition, MTS’ market share has remained “extremely high,” he said. “Just because you want market share, that doesn’t necessarily mean anything,” Ghose said. Yaghi said the impact of Bell’s western expansion will depend on how its competitors respond. “They can decide to either go straight on with increased marketing in Western Canada or they can actually go East,” Yaghi said of Bell's western competitors, which include Telus, Rogers and new entrants. “They can compete more heavily in the East to win market share in the East, while Bell is trying to win market share in the West,” he said. dgrenier@thewirereport.ca

Wireless competition increases in the West as Bell expands retail

News | March 14, 2012

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