Canada’s mobile phone market rebounded somewhat at the end of 1997 from lagging subscriber additions that plagued carriers throughout the year, but the results showed a slow expansion of the wireless market even with personal communications services entrants.
“I think the increase in subscriber additions is a good sign, but [the additions] are still lower than we would have all hoped,” said George Karidis, analyst with the Yankee Group in Canada.
Robert McFarlane, chief financial officer of Clearnet Communications Inc., a Code Division Multiple Access PCS operator, believes the fourth quarter was “a tremendous success for the new entrants because they obtained a sizable market share from the get go … But the market expanded by a marginal amount over the year before.”
Analysts and carriers were hoping the fourth quarter would propel the mobile phone market out of its 1997 third-quarter slump, which saw flat demand for wireless service and falling stock prices. Analysts concluded that customers were holding off on purchases until all digital carriers entered Canada’s major cities. Clearnet and BCE Mobile Communications Inc. entered major Canadian markets in mid-October. BCE Mobile is the Mobility Canada member that operates in Ontario and Quebec, where about one-third of Canada’s population is located. Mobility Canada is a consortium of provincial telephone companies’ wireless divisions, which together form nationwide coverage.
Investors have been cautious, waiting to see how the country’s carriers will fair with increased competition. Public carriers have not seen their stocks rebound much from December. Though Clearnet’s stock has moved up a few dollars, Microcell Telecommunications Inc., Rogers Cantel Mobile Communications and BCE Mobile continue to see their stock fall, although slower than what they experienced in 1997.
“Stocks haven’t done well,” said Karidis. “The investor community hasn’t decided on what their bets will be. They are waiting to see if the first two quarters of 1998 will look good.”
McFarlane said he was surprised the mobile phone market did not grow more than it did in the fourth quarter in light of heavy advertising and low prices. “There are some reasons why that’s possible,” he said. “Clearnet was at near-infinite demand. Our sales were constrained by the number of (dual-band) handsets. We suffered a handset shortage throughout the period … We could have sold tens of thousands more handsets.”
BCE Mobile, which has a strong presence in the market, offered the same dual-band handsets and suffered the same shortage problem. It operates a cellular network and introduced CDMA PCS service called PCS Plus. McFarlane believes there was a deferral of purchases during the fourth quarter because of the handset shortages.
The increased competition from new entrants during the fourth quarter hit national operator Cantel the hardest. After adding only 29,200 customers during the third quarter, the incumbent Time Division Multiple Access and analog cellular operator added 63,100 customers during the traditional fourth-quarter push compared with 119,900 added during fourth-quarter 1996.
Cantel’s subscriber results “represent customers’ apparent dissatisfaction with its (digital) service,” said Eamon Hoey, analyst with Hoey Associates in Toronto. “Stories in papers across Canada talk about how consumers are dissatisfied with the service. In addition, a significant number of senior management have left Cantel, creating uncertainty … The signs point to more trouble ahead.”
Stanley Kabula unexpectedly and abruptly resigned as Cantel’s president and chief executive officer in early January. He was replaced by former Sprint Spectrum L.P. executive Charles Hoffman. At the same time, the company announced it planned to take a write-down for the fourth quarter because of market competition. Earlier this month, Cantel announced restructuring and asset writedowns of $231.4 million. Cantel is laying off between 600 and 800 workers, say analysts, as part of its focus on improving operating performance and reducing costs.
“The results in the fourth quarter reflect the necessity of making significant changes at Rogers Cantel,” said Cantel’s Chairman Edward Rogers. “With intense competition and relatively weak overall market growth, subscriber additions were unacceptably low. This, combined with expenses in the quarter, resulted in operating income decreasing 2.2 percent vs. the prior year’s fourth quarter.”
BCE Mobile’s subscriber additions were impacted by the competition as well. It added 80,000 PCS and cellular customers during the fourth quarter compared with 111,000 during fourth-quarter 1996. The company added only 36,000 cellular customers during third-quarter 1997.
“The new PCS providers have definitely penetrated the market as a result of heavy advertising,” said Hoey. “They appear to have consumers’ ears in the sense of quality, price and value proposition.”
PCS operator Microcell Telecommunications Inc. showed significant improvement from third quarter, almost tripling its existing subscriber base during the fourth quarter. It struggled during most of 1997, having acquired only about 22,000 subscribers after a year of service, because of its small footprint in Canada’s major cities and its inability to offer roaming, say analysts. During the fourth quarter, the company slashed handset prices and acquired 43,169 customers to end the year with a total of 65,667 customers. Subscriber additions should pick up even more when the company introduces a dual-band GSM handset this year.
Clearnet, which also operates an enhanced specialized mobile radio network, ended the year with 50,676 customers. Both Microcell and Clearnet expect to announce their fourth-quarter financial results later this month.
Canada’s carriers show no signs of easing up on the competition. Clearnet, which has the ability to offer nationwide service through dual-band handsets, is offering plans like 100 minutes for $20 (about US$13) a month. BCE Mobile, which also can offer nationwide service, is offering PCS for $25 per month for 100 minutes, while Microcell is offering plans like 400 minutes for $40.
“Given what rates are today, it’s hard to raise prices to get more revenue,” said Karidis.
Revenue per subscriber decreased in the fourth quarter for Cantel and BCE Mobile. Cantel’s dropped by 10.4 percent while BCE Mobile’s fell by 9 percent.
