TORONTO – “Why can’t we be friends?” Wind Mobile CEO Alek Krstajic asked delegates to the Canadian Telecom Summit in a luncheon keynote on Tuesday.
The 1975 song by War actually played him off the stage at the end of his speech, but the theme hung in the air: Why can’t the industry accept what’s coming from Ottawa and just compete for the affections of Canadians on a level playing field that the Conservative government helped build?
Krstajic has been through the wars. Many of them, really. He spent years working for Rogers Cable before moving to Bell Canada and then ran Public Mobile through it’s startup and eventual sale to Telus. Then earlier this year, he was hired as CEO of Wind Mobile. He said during his time as chief marketing officer at Bell (circa 2004) he urged the company to “disrupt itself” by offering lower rate plans with unlimited options and no contracts.
Failing to do so, he remembers from those days “would eventualy bring the regulators in to rectify the situation and it would be expensive” for Canadian wireless operators. Eventually, he said, he had to leave Bell to make it happen and he led Public Mobile into the 2008 AWS auction, which brought a handful of potential competitors out of the woodwork, but left the market too fragmented and confused.
“The intent was bang-on, but the process created a very fragmented group of competitors,” Krstajic said, who weren’t strong enough to compete effectively against the incumbents. They needed to consolidate, which never happened. “In short, it was competition, but it wasn’t sustainable competition,” Krstajic said of the post-AWS auction market. “I couldn’t bring about the consolidation required back then.”
“It just tanked the entire opportunity.” – Alek Krstajic, Wind Mobile
While his research showed $40 was the sweet spot for a fair consumer price and sustainable competition for the business, all was sent awry when Mobilicity came to market at $25/month a price point, “far below where there was any positive contribution” to the marketplace, he said. “It just tanked the entire opportunity.”
Then the incumbents decided to “kick us when we were down” with offerings like Rogers’ chatr, he said. “I think some at the incumbents just thought things could go back to the way they were if they just put us out of business,” explained Krstajic. However, “government was and remains committed to sustainable competition and will do what’s required to help it flourish.”
Why did the incumbents kick so hard (and then in 2013 take on the federal government with an ornery ad and PR campaign)? They’re addicted to “the drug” of 49% EBITDA margins, added the Wind CEO. Because of that number, “the big three could and would not cut their prices without the pressure of new competitors.”
The lowest point for the Canadian wireless industry came just about two years ago when rumours flew that Verizon might enter Canada by purchasing one or more of the wireless newcomers and entering the spectrum auction. That didn’t come to pass, but the resultant public relations donnybrook made everyone look foolish.
“They forgot something I learned working for Ted Rogers more than a decade ago,” said Krstajic who recalled that the negative option cable billing fiasco of the 1990s could have been explained away by the cable companies as something the Regulator had forced them to do in order to promote new Canadian specialty channels. However, Ted said no and the company took some serious lumps. “We had every right to fight back and say ‘no, no, the Regulator forced us to do this.’ But Ted said ‘never bite the hand that feeds you’ and I think we all need to understand there’s a real wisdom in that,” said Krstajic. “Our industry rides on assets given to us by the Regulator and if we forget this, it is at our own peril.
“The government fought back and were right in what they did. They can never let the tail wag the dog.” – Krstajic
“The incumbents attacked Ottawa with ads (in 2013) and the government fought back and were right in what they did. They can never let the tail wag the dog.” It’s simply up to the government and regulator to set laws and policies – and for the companies to figure out how best to make their businesses run on those conditions.
All that said, Krstajic noted he agreed 100% to something Bell CEO George Cope said during the PR storm of 2013: “The federal government has recently taken an activist role in regulating Canada’s wireless industry. That includes giving various benefits to small wireless competitors. With Ottawa’s help, the new companies have become part of the vigorously competitive Canadian marketplace. These airwaves are a public resource, and access to them is critical to providing Canadians with world-leading wireless services. We welcome any competitor, but they should compete on a level playing field,” the Wind CEO quoted Cope as saying.
“I firmly believe in every word of that… “It was great to see such support for regulatory change that was designed to nurture and sustain true competition in the Canadian wireless services market,” said Krstajic.
“I think the big three incumbents really do want to serve their customers well. Yes, they all launch the iPhone on the same day and with the same price point and there are all kinds of pricing changes that happen in a fairly choreographed manner, but they really are smart people and they really do want to do great things. But at the end of the day they have to feed this beast (the EBITDA margin) and so it’s very difficult for them to drop prices to compete with the new entrant.”
All Krstajic says he wants to do is the best for his customers, too, and to offer them “a better deal than all the rest of you in this room… but it will not and can not be done in an unsustainable way or in an extremely disruptive way” because we’ve been down that destructive road before.
Cue the music.
Photo by Michal Tomaszewski / Pinpoint National
