TORONTO – Wind Mobile chairman and CEO Tony Lacavera was on the attack again today during a luncheon keynote at CTS in Toronto, going after what he says are continuing anti-competitive behaviours of the big three wireless companies and suggesting further policy changes to the federal government.
However, Lacavera lifted the veil off of a range of Wind Canada financial metrics, too, today. So many in fact, it made us believe he is casting as wide a net as possible for more investors, or even preparing the company for a public offering.
Wind, as Lacavera’s speech also pointed out, is trapped. Despite rules which said the 2008 wireless newcomers could sell their spectrum licenses to incumbents after five years, the federal government has been very public in saying it won’t allow that to happen. So, Wind can’t be acquired by Rogers, Telus, or Bell. However, when its European owner, Vimpelcom, tried to gain control of the company last year, the federal government wouldn’t let that happen either, for reasons which were never explained by federal cabinet.
Of course since then, Vimpelcom has all but abandoned the Canadian company, writing its book value down to zero and refusing to finance any investment in the recent 700 MHz spectrum auction. So, how is it to grow? Lacavera acknowledged the company needs more spectrum in order to launch LTE as its competitors have already done and while it would love to acquire Mobilicity, it has been wrapped up in the courts for many months, attempting repeatedly to sell to Telus instead.
“The sources of the spectrum are clear: Videotron and Shaw both have unused LTE spectrum in Wind’s operating markets. Mobilicity has deployed its spectrum, but failed to reach critical mass and is now tied up in what has become a lengthy CCAA process,” said Lacavera. “There are future potential sources of spectrum in the upcoming 2500Mhz auction next April, AWS-3, and 600 Mhz. The challenge we at Wind face is securing any one of these sources of spectrum at terms and value levels that the business of Wind can support, and within the timeframe that the spectrum is needed to meet LTE demand.
“Investors have suffered enormous losses. The regulatory environment was very difficult for new entrants in 2008, with ridiculous roaming costs, a failed tower-sharing regime, and fragmented spectrum across new entrants." Tony Lacavera – Wind
“Investors have suffered enormous losses. The regulatory environment was very difficult for new entrants in 2008, with ridiculous roaming costs, a failed tower-sharing regime, and fragmented spectrum across new entrants, such that no one new entrant including Wind in Ontario, BC, and Alberta has sufficient spectrum, and all this combined with unfettered anti-competitive behavior from incumbents,” he continued. “While this history of new entrants certainly makes financing the 4th carrier more difficult in the short term, resolving the spectrum question will go a very long way toward a successful financing.”
Now, Lacavera did not say in his speech he was going to attempt a pubilc offering of Wind Canada, but with many Bay Street analysts and various other interested parties in the audience, he went very deep – and very recent on the subscriber, cash and cost numbers from Wind.
“Wind is on a solid operational footing, with operations approaching EBITDA break-even and a strong double digit growth trajectory in both service revenue and subscribers. We are seeing record gross and net additions in the first half of 2014,” he said
“Wind has over 735k subscribers, with 55% or 420k postpaid and 45% or about 315k prepaid subscribers and on a new customer net additions basis we are adding approximately 65% postpaid and 35% prepaid. Wind had 91,000 gross additions and 26,000 net subscriber additions in Q1. We are seeing continued strong momentum in Q2, with record sales in both April and May. In May alone we had gross additions of 43,000 with net additions of over 21,000, with 14,000 net postpaid and approximately 7,000 prepaid subscribers.
"Of course significant additional investment is required in the Wind network for spectrum and our LTE rollout over the next several years.
“Wind is operating at approximately EBITDA break-even on run-rate sales of approximately $350m top line with approximately $275m of annual run-rate service revenues. The Cost of Acquisition of new customers driven by new sales activity is entirely the driver of any remaining EBITDA losses in our business plan. While calendar year 2014 will be a slightly negative EBITDA year, 2015 and beyond will see sustained positive EBITDA. Of course significant additional investment is required in the Wind network for spectrum and our LTE rollout over the next several years,” he added.
“Churn rates have declined 32% year over year. Post-paid churn is now in line with big three churn levels at 1.3%, and prepaid churn continues to decline and has dipped below 5% and continues to trend lower. Year to date sales in 2014 have increased 28% over the same period in 2013. In fact, May 2014 sales reached the levels of the back-to-school and holiday seasons from 2013.
“In May 2014, overall ARPU had increased by 12% compared to the same period in 2013, with current post-paid ARPU at over $38, and Prepaid at $23.
“More interestingly, as Wind continues build more value into our already market leading value proposition, most recently including our Unlimited USA add on, we are seeing new customer additions in May 2014 at an average Monthly Recurring Charge of 34% higher than May 2013 – up from a blended MRC of $28 in May 2013 to a blended MRC of $37 in May 2014. Importantly, this result has been achieved with an 18% reduction in our average handset subsidy from a year ago. Cost of Acquisition on a blended basis is approximately $275. This trend speaks very well to Wind long-term ARPU as our network continues to improve and our value proposition continues to strengthen,” said Lacavera.
Those are a lot of numbers, the kind of numbers companies often show off when they do a tour of Bay and Wall Streets, talking to analysts and brokers, gauging interest in IPOs.
We’re talking to Lacavera this afternoon. We’ll be sure to ask him.
