Steven Hartley
Abandon hope all ye who enter a mobile market fourth?
Earlier this week the Canadian government received a C$4.25 billion (€2.66 billion) windfall from the auction of 282 wireless spectrum licences in the 2GHz range. Subject to the bidders meeting financial stipulations, services are expected to be launched in about a year. But while the Canadian government ponders what to spend the money on, the hard work has only just started for Canada's fourth national wireless operator.The AWS auction was intended to increase competition at both regional and national levels to stimulate market growth. As a result 40MHz of the 105MHz available was reserved for new market entrants and the Canadian government has announced that fifteen companies won the licences. It is the arrival on the national scene of Globalive, owner of the Yak fixed and mobile reseller, which has piqued interest, as it will be competing most directly with the 'Big Three' (Telus, Bell Mobility and Rogers), except in Quebec where it was outbid by Quebecor. It is highly likely to compete on price and leverage the untapped prepaid opportunity (only 22% of subscribers are prepaid). Yak has proven successful with flat-rate plans, and high mobile prices are a constant gripe for Canadian consumers - the recent furore over Roger's iPhone data plans is a case in point. In addition, Canadian subscriber penetration at the end of 2007 was just 61% - similar to the Philippines rather than other members of the G8. Therefore, there is also scope to attract new users.However, our recent research of fourth entrants into mobile markets shows that overturning the old order is rare. Of five high-profile fourth-player market entrants spanning ten years in Germany, Indonesia, Ireland, the UK and Vietnam, only one has gone on to capture more than 10% market share. Admittedly Globalive has the opportunity to grow its market, but, with the exception of Ireland, so did the players in our studies as penetration was not 100% when their services launched. Late market entrants also face strong, established brands, which do not need to build an entire network at the same time as trying to compete commercially. Globalive's financial backer, Weather Investments (majority shareholder in Orascom Telecom), has announced that it will be investing C$500 million over the next five to seven years in Globalive. This is in addition to the C$442 million paid for the licences. This highlights the major financial backing needed to compete on a national scale. It is also a further signal that financial muscle in the telecoms space is moving away from the traditional 'Western' powerbrokers (see our report Telco merger & acquisition strategies). However, given that Yak is a low-value brand and Globalive is likely to compete on price, Globalive will not achieve ARPUs in line with those of the incumbent players. It will grow a reasonable subscriber market share through its focus on price, but these low-value customers do not sit well with its heavy investment. Therefore, the likely result will be a moderate-sized player, but with limited financial returns. Not totally hopeless then, but in for a very rough ride.
