MVNOs won't work in Canada
TORONTO – Shaw Communications’ Paul McAleese co-founded and ran a successful MVNO in the United States for a dozen years before coming back to Canada to head up Freedom Mobile.
While he’s still a satisfied investor in i-wireless, which runs the mobile offering of the Kroger chain of grocery stores, he said comparing that company and the U.S. wireless market in general to Canada’s is a mug’s game. First, the American market is just so much bigger, where MVNOs can carve out a living with low margins there thanks to American market scale in a way mandated MVNO operators could never do in Canada.
As for the Kroger MVNO itself, it really isn’t about turning a big wireless profit but is instead a key selling feature for the chain’s loyalty program where for every $100 spent on groceries, members receive a dollar off their Kroger phone plan.
Besides, i-wireless does not and can not move the wireless market in the States, even though it’s available through 2,000-plus stores. With about a million subscribers, or “one quarter of one percent” of the U.S. market, it has no effect on retail wireless prices, McAleese told Canadian Telecom Summit delegates during his Tuesday morning appearance. “We simply didn’t have the pricing power to be able to do that.”
That power is something Freedom Mobile is still in the early stages of tapping into in Canada, thanks to its $50 Big Gig plan (which has forced the Big Three to adjust and respond, to which McAleese said “you’re welcome!”) which leads its growing size and influence in the Canadian market – something that has come about because Freedom has invested in spectrum and networks. Any MVNO, mandated or not, will never be able to move prices in the way the federal government or the CRTC might hope with their push to force room for resellers.
“We wholeheartedly disagree,” said McAleese during his fireside chat with CTS organizer Mark Goldberg about that Ottawa-driven MVNO push. “The economist in me tells me it’s going to require pricing power to change the markeplace… (and) MVNOs, if you simplify and strip it down, are simply another mouth to feed.”
When asked if Freedom would think of being an MVNO itself in regions where it has no spectrum or network assets, McAleese said it was possible, but unlikely. Quebec, a region where Freedom has no presence, “has a fantastic fourth carrier in Vidéotron that does a wonderful job and continues to soak up a good amount of the new growth,” he said.
“I don’t see us being able to contribute much to that market, buying wholesale and competing against people who do a great job already.”
The regional players (Eastlink, Vidéotron, Freedom, SaskTel and Xplornet) who have their own facilities to draw upon, have caused prices to drop and collectively earned millions new customers, still need more time to grow – not to be faced with trying to fend off interlopers who have no network or spectrum.
“Data overages are toxic revenue and they’re going to go away in this country the way they have gone away in most other countries.” – Paul McAleese, Shaw Communications
It’s Big Gig promotion is only 18 months old, meaning Freedom hasn’t “had an enormous amount of time to bed that in yet,” he added. Would the Big Three have voluntarily dropped their prices if Freedom had not stepped into the market with lower prices? No way, said McAleese, noting Freedom is now chipping away at another hated pricing feature in the Canadian wireless market.
“Data overages are toxic revenue and they’re going to go away in this country the way they have gone away in most other countries,” he said, noting the Big Three charge up to $100 per GB in overage fees, a level which is not matched south of the border. “I can’t think of another product category where something costs 10 times more in Niagara Falls Ontario than it costs in Niagara Falls, New York, and yet that’s exactly what we have.”
So let the regional players do their work of chipping away at the Big Three and don’t get in our way now, was his plea to Ottawa on mandated MVNOs.
“I fail to understand how injecting another party into the centre of this, that requires their own margins and their own return on investment… and their own significant additional costs, makes things cheaper for Canadians,” he said.
“The math just doesn’t hold.”
Math which might work, and help, he continued, is network sharing, as well as the potential for Canadian wireless companies to spin off tower operations to third party companies, which is standard operating procedure in the United States and Europe. In the U.S., two independent companies, Crown Castle and American Towers operate nearly 100,000 towers for Verizon, AT&T, T-Mobile, Sprint and so on.
McAleese says replicating that in Canada certainly could make sense as it would lower costs for operators and help reduce the environmental impacts seen by three or four transmissions sites being built everywhere to service wireless consumers.
“If Rogers and we both need to build a new cell site in north Brampton, there’s precious little point in trying to build two of them.” – McAleese
“I don’t know if were going to see the same thing in the Canadian market,” he said. However, he pointed to the Toronto Transit Commission’s underground wireless network built by BAI Canada as a possible model to emulate. Currently only Freedom has a contract with BAI as the Big Three have so far refused to sign on and use BAI’s network, meaning only Freedom customers can be connected underground. The TTC, understandably, doesn’t want four sets of facilties built in its tunnels.
“It’s a great model,” he said. “We would be supporitve of that on an above-the-ground basis as well.”
Network sharing, specifically between Freedom and Rogers, is something else McAleese said he is pursuing, to little avail so far. If Bell and Telus can make their network sharing arrangement work, as they have for years, Rogers and Freedom should be able to come together.
McAleese speculated perhaps Rogers feels it came to a network sharing agreement with Vidéotron too quickly, giving it a leg up in Quebec in a way which negatively impacted Rogers in that market, leaving it leery to do the same with Shaw. “The moment the Rogers leadership can look in the mirror and say ‘these guys are here to stay, there’s no point in building over top of each other’,” is when the companies will get together on a sharing deal.
“We have a considerable collection of fibre and backhaul assets in the west. They mirror that in the east, we don’t compete on cable… there’s great logic for it,” he said. “If Rogers and we both need to build a new cell site in north Brampton, there’s precious little point in trying to build two of them.”
