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The wireless Wind of change is a-blowin’

21 Jan

lacaveraAffable and tireless – two words that best describe Anthony Lacavera, outgoing chairman and chief executive of Wind Mobile.

In numerous conversations with Lacavera – Tony, to most who know him – I found him to be an immensely likable fellow; he’s young, driven, always positive and something of a health nut. On the occasions I had lunch with him, he always shamed me by ordering a really nice salad while I pigged out on a burger or some other sort of artery-clogging red meat.

Over the past few years, through challenge after challenge in getting Wind off the ground – whether it was edicts from the Canadian Radio-television and Telecommunications Commission or lawsuits from fellow new wireless entrants – he never failed to amaze with his always-positive attitude. Despite his business and the hopes of many Canadian wireless subscribers often hanging by a thread, he never lost his ability to crack a joke or a grin.

Similarly, he never seemed to let the drama faze him – he never looked or sound tired. All of the ups and downs were simply part of building a challenger to Bell, Rogers and Telus. If it ever got him down or made him doubt himself, he never showed it. He was either an excellent poker player in our conversations, or he truly believed in what he was doing and that he would win out in the end.

I realize I’m running the risk of having this sound like a eulogy, but in a way, it is. While Tony is healthy and well (as far as I know), his days as the head of Wind are effectively over with an announcement Friday that he’s stepping down as president and CEO. He’s also transferring his shares in the wireless company to Egypt-based Orascom, Wind’s main financier.

That should surprise no one. Ever since Lacavera’s Toronto-based company Globalive Communications used Orascom’s money to win wireless licenses in the 2008 spectrum auction, the question has been when – not if – the Egyptian company would eventually take control. It took some time; foreign ownership restrictions prohibited it outright at the beginning, but with the federal government finally loosening those rules last summer, Orascom wasted no time. In October, the company boosted its voting shares to 65 per cent. With the latest move, its control is now effectively more than 99 per cent.

Many Canadian wireless subscribers owe Lacavera a debt of gratitude. Along with fellow new entrants Mobilicity and Public Mobile, Wind helped bring cellphone bills down somewhat and forced existing players to change some of their most egregious abuses – remember system access fees? Whether they were customers of Wind or not, many Canadians have benefited directly or indirectly from the arrival of the new players.

Lacavera says he’s now going to focus on forming a venture capital company that will help other technology startups get off the ground. As with sky-high wireless prices, this too is an area where Canada needs attention. With luck, Lacavera’s affability and tirelessness will improve the situation too.

So wherefore with Wind now? There are a few possibilities.

According to an unnamed source in a Globe and Mail article, Orascom’s Amsterdam-based owner VimpelCom is mulling a sale to one of the big three incumbents, with Rogers being the likeliest candidate.

To say that’s a highly unlikely outcome would be an understatement.

Wind and other new entrants are essentially government creations; they exist but for the grace of special set-aside rules that were applied to the 2008 spectrum auction in response to the market’s price gouging at the time.

Things have improved somewhat since the new entrants came on the scene, but Canadians’ discontent with the Big Three is still close to the boiling point, as evidenced by the earful the CRTC recently received when it opened to floor to comments on a new wireless code of conduct. Thousands of Canadians don’t write letters to the regulator when they’re happy.

That distaste would almost certainly explode into a giant political nightmare for the Harper government if Wind were sold to an existing incumbent. All that effort, all those dollars, all those headaches – it would all be for naught with a return to the status quo of a few years ago. Deep down inside, I almost hope it happens because it’s going to make for some great stuff to write about.

But it won’t happen. Dollars to donuts the source behind this speculation is a Bay Street equity analyst, many of whom work for banks that do business with the Big Three and who have been predicting nothing but doom and gloom for the new wireless carriers since even before their inception. Floating a rumour that an incumbent is about to buy the biggest thorn in its side is usually just an effort to spike share prices. That’s why these analysts hide behind anonymity when giving their “information” to reporters.

Vimpelcom/Orascom may indeed want to keep Wind. There’s no doubt the company has underperformed so far – Lacavera had aimed for a million customers within its first three years, yet managed to secure only 600,000. Average revenue per user – the industry’s all important measure of success – is around $30 for all the new entrants, or nearly half that of the Big Three. That’s of course good news for their subscribers, but bad news for shareholders and owners.

Wind’s problem so far, however, has been mainly technological. The 2008 Advanced Wireless Services spectrum auction landed it licenses in the upper range of frequencies, which don’t penetrate walls very well. It’s hard to sell customers reliable service on such relatively poor spectrum – it’s harder still to ask them to shell out $500 for a phone upfront in that regard. It’s also probably why Wind resisted offering contracts; the only thing worse than a customer spending big money on a phone only to find lackluster connectivity is doing so only to be locked in to it.

Subscribers knew this – word of mouth travels fast. Manufacturers also knew it, which is why some decided against making AWS versions of their devices, the most notable being Apple. Not having the iPhone has also been a major disadvantage for the new carriers.

This is about to change. The spectrum auction coming up soon will sell off frequencies in the 700 megahertz range, which is considered prime wireless real estate since it has excellent range and wall-penetrating ability. The iPhone 5 and many other LTE phones use this frequency, meaning that winners of licenses will likely have access to the best devices.

If anything, now is the time for Wind to really get moving. With the potential mitigation of its technological disadvantage, the company finally has the opportunity to become a real competitor to the Big Three. Of course, it’s going to require more spectrum investment – hundreds of millions of dollars, likely – from Vimpelcom/Orascom to get there. With the owners’ other mobile assets in such “attractive” markets as Algeria, Pakistan and North Korea, you’d think they might be treating Canada as something of a crown jewel, rather than talking about selling out to Rogers.

If the company does decide it doesn’t have the stomach for another round of battle, it does have other options that are considerably more feasible than selling to the Big Three. One would be a sale to Mobilicity, the other would be finding another foreign buyer. Selling to a fellow new entrant (backed by big foreign investment dollars) or an international mobile company such as Vodafone or possibly even AT&T would be a much easier pill for Canadian wireless subscribers – and politicians – to swallow.

Of course, if Vimpelcom does indeed try to sell Wind to an incumbent, the Harper government will be forced to accept a fact that many countries have already learned: when it comes to the investment-heavy business of telecommunications, market forces alone do not deliver good services and affordable prices. The reality that the Conservatives may be about to awaken to – that heavy regulation rather than light-handed free marketeering is also needed – is akin to their worst nightmare.

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2 Comments

Posted by on January 21, 2013 in mobile, rogers, wind

 

2 responses to “The wireless Wind of change is a-blowin’

  1. Marc Venot

    January 21, 2013 at 3:54 am

    Canada’s population is so concentrated on a few hubs the government should allow the smaller players to cover only those, with a financial system of equalization at the federal level to balance somehow.

     
  2. Infostack

    January 22, 2013 at 7:58 am

    The vertically integrated service provider model is flawed both from an incumbent and new entrant perspective given rapidly obsoleting supply and rapidly changing demand. This article highlights and underscores those issues for new entrants. The flaw is not entirely apparent.when analyzing the incumbents, other than poor/high pricing, ineffective market segmentation, and performance that is 3-10x slower than existing and alternative technologies support. The carriers were pulled into the smartphone surge by the development of and demand for application ecosystems. They had little if any influence or control over this aspect of supply and demand. For a new entrant (or group of entrants to succeed from a regulatory and policy perspective) the approach has to be horizontal and open in nature. They need to attack the carriers where they are weakest not only from a cost, coverage, capacity or clarity perspective (supply), but from a user interface, usability across contexts, ubiquity of access and universality of appeal (demand). Lastly, capital markets love risk reduction over growth; therefore they prefer oligopoly even though the latter are unsustainable in the intermediate to long-term.

     
 
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