TORONTO — Canada's established wireless companies should ready themselves for the possibility of at least one new national competitor following the spectrum auction that kicks off next month, but the arrival of several smaller and nimbler regional players is also likely, analysts say.
In all, 27 companies have been listed by Industry Canada as qualified bidders in the auction that starts May 27. Of those, the potential new entrants are a varied bunch.
They range from Manitoba Telecom Services, which has anchored a consortium that plans a national rollout of service, to media and publishing group Quebecor Inc., which is expected to initially target its home province of Quebec or possibly partner with another entity for a national venture.
Then, there is Shaw Communications Inc., Canada's No. 2 cable and satellite TV company, which has cautioned its participation in the auction doesn't necessarily mean it will build a network at all. Those comments came despite the fact it deposited $400-million ahead of the bidding.
“Given the assumed presence of the regional (cable companies), regional new entrants are highly likely,” National Bank Financial analyst Greg MacDonald said. “However, if the MTS consortium acquires spectrum this will also create at least one new national competitor.”
BCE Inc., Telus Corp. and Rogers Communications Inc. – the current market leaders – are no doubt preparing to handle an increase in competition after the auction wraps up.
Recently, the three got a dose of good news when the auction's list of qualified bidders revealed that no U.S. carriers intend to participate, thus far, which would have further muddied the field.
But what could still prove threatening to the incumbents is a well-capitalized domestic newcomer willing to take initial losses to build a subscriber base via aggressive promotions.
“You can't just sit and let the new entrant come out and just give away BlackBerrys with no contract,” said MacDougall, MacDougall & MacTier analyst Troy Crandall.
HAVE TO RESPOND IN KIND
The incumbents will have to respond with promotions of their own, which would raise marketing costs and pressure margins. Fortunately for them, it doesn't look like the potential newcomers have enough funding at present, Crandall said.
“I don't think the new entrants have enough money behind them at this point to come out with a really, really aggressive campaign at the beginning,” he said.
It's difficult to predict the strategies of the new entrants because they each have specific advantages and hurdles they face in coming to market.
Quebecor's Videotron unit, for example, is well known in Quebec, which will let it save on marketing up front.
“Even though they're technically going to be a new carrier, everybody knows them so they've already got a pre-established brand name as well,” Crandall said. “They're not starting from scratch in that way.”
However, it's not certain how Quebecor would fare if it chose to pursue a rollout across the country.
Manitoba Telecom faces a similar branding challenge if it rolls out nationally, as its name recognition could drop outside its home territory.
However, it counts a robust business communications offering as among its strengths, which will help it compete.
And Shaw may elect to wait until roughly 2011 before rolling out a network. That is the expected date for the debut of fourth-generation wireless equipment and the company may want to hold off investing until it can spend on the newest technology.
“To me, that might be part of their strategy: buy it and hold it for the time being,” Crandall said.
Finally, both Shaw and Quebecor could use bundling strategies to help boost the popularity of their wireless offerings – just like Rogers did before them, with its cable TV and Internet offerings.
“The addition of a wireless element in the customer proposition has worked for Rogers for a long time,” said Iain Grant, managing director at SeaBoard Group, a telecom consulting firm. “Shaw and Videotron will see benefits, (BCE) and Telus will feel that pain.”