Canadian PCS operators rock the boat

The Canadian wireless market has taken a very different developmental road from its southern neighbor. Although Canadian PCS operators, like their U.S. counterparts, focus on low prices and simplicity, they place almost no emphasis on services. The announcement of a Canadian industry first during the Canadian Wireless Telecommunications Association's annual convention in Toronto points out just how different the two markets are: Rogers Cantel launched the country's only prepaid services in seven Canadian markets. The announcement comes long after U.S. companies started offering prepaid-a segment of the market that currently earns $1 billion in revenue.

This lag in developing services stems from how the new Canadian PCS entrants, Microcell and Clearnet Communications, have positioned their services.

"What they did was say, 'We'll develop a brand new market, go after those who haven't been able to afford wireless and drive penetration,'" commented Jim Schram, president and CEO of Lucent Canada. "So the whole idea of getting fancy with features doesn't make sense."

Because PCS entrants target customers that haven't wanted to pay for wireless service in the past, they likely would not be interested in paying for additional services.

The decision to target this new segment is based on a goal stated by both Clearnet and Microcell of increasing the overall wireless pie to 40% of the population. Although that means that neither company has a strategy of stealing existing customers from competitors, half of new Microcell customers are existing cellular users and half are new to wireless, said Kathy McLaughlin, vice president and general manager, western region for Microcell.

"When we introduced service, cellular clients saw its benefits," she said.

In addition to attracting new wireless users, Canada's low prices-some of the lowest in the world-may begin to steal business from landline.

"We view our competition as landline, and we are aggressively looking at ways to use wireless as a [wireline] replacement," McLaughlin said. Some 55% of Canadians say they would use wireless as their primary phone if the price were comparable to basic landline service, according to an Ernst and Young study that McLaughlin cited.

Canadian PCS operators can set such low pricing plans, especially compared with those in the U.S., because they were awarded national licenses with a one-time fee that was much lower than the result of the U.S. auctions.

"Obviously [Canadian regulators] started from the beginning with the desire that new competitors could be viable," Schram said. The Canadian government awarded what amounts to four national PCS licenses.

While many operators at the CWTA show suggested that it would be unlikely for six or seven competitors to survive in any given U.S. market, some Canadian markets could end up with more than four competitors. Microcell plans to resell its network, which could result in additional competitors.

Like U.S. PCS operators, the Canadians have crafted simple pricing plans to demystify wireless and attract new users. But they have leveraged this simplicity by making wireless widely available.

"They've been very aggressive about getting their products out to many places," Schram said. He cited Blockbuster video stores and Canadian Tire retail stores as outlets that sell wireless phones.

Simple, affordable bucket price plans also have evened out the ratio of incoming to outgoing calls. For Microcell, 40% of calls are incoming while 60% are outgoing, McLaughlin said-a significant difference to the typical North American 20/80 ratio.

Some Canadian industry players say the PCS entrants set prices too low and that will eventually hurt the market. "The operators got carried away with competing on price," said Andrew Swainson, general manager of cellular systems for Ericsson Canada. "They are teetering on the edge of the abyss." When PCS carriers entered the market, the incumbent cellular players lowered their prices to match, he said. The prices dropped so low that investors began to doubt the viability of the companies, and stock prices began to fall. As time passes, though, Swainson said he notices some relaxation on the price issue.

Canadian carriers also believe that their creative and aggressive marketing campaigns will increase the market. In countries including the United Kingdom, Sweden, Italy and Australia, the entrance of new PCS competition led to industry growth rates that doubled or tripled, according to a study cited by Dean Proctor, vice president of regulatory affairs for Microcell. The growth in those markets is attributed to consumer awareness that resulted from new entrants' marketing efforts, he said.

"It's generally proven that new competition grows the market," agreed George Cope, president and CEO of Clearnet.

Clearnet and Microcell have both developed recognizable and distinct images for their companies. The need to be aggressive with marketing may be partially due to the fact that the Canadian companies were awarded national licenses. Clearnet's image strives to make customers comfortable with a complicated technology by using nature as part of its marketing message. Its enhanced specialized mobile radio business is called Mike and features a recognizable character.

Microcell's well-known Fido brand stands for approachability.

"Wireless has been confusing and intimidating and information-loaded," McLaughlin said. The company hopes users will view wireless as a companion.

Aggressive marketing has paid off for both Clearnet and Microcell, which combined took 50% of new market share in a year, according to Proctor.

More than 6 million wireless devices are used by Canadians daily:

4.5 million wireless phones 1.5 million pagers 1 million mobile radios 10,000 satellite phones 10,000 mobile data units

On average, Canadians use their wireless phones approximately 175 minutes a month. This compares to 160 minutes inGermany and 130 minutes in both the United Kingdom and United States

In 1997, the average monthly bill for wireless phone service in Canada was about $43

Over the next decade, mobile wireless penetration for personal communications should rise from its current level of 14% to almost 40%, or 10 million Canadians

Source: The Canadian Wireless Telecommunications Association

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Do Canadian operators have any advantages or disadvantages compared with U.S. operators? Structurally, the Canadian industry is much more favorable than the U.S. In the U.S., companies had to pay for licenses. We didn't do that. As a result, our business cost us [$412 million] less than the same-sized PCS company in the U.S.

Also, the government in Canada gave out four licenses for PCS. So there are four players in Toronto vs. six or seven in Chicago. The government mandated that the cellular companies resell service to PCS companies. What that means is that when we launched PCS, our dual-mode phones worked everywhere cellular did.

>From a marketing standpoint, how have you positioned Clearnet to consumers? We use the term "future friendly" to describe Clearnet. It's all about getting consumers comfortable with one of the more complex technologies on the globe. We want to get the attention of customers. That's why we use nature-it's very hard to offend with nature, and it's as far from technology as possible.

We've stayed away from price battles. In fact we haven't changed our prices since we launched. If people begin to think price point, they tend to wait to buy because they always think the price will get better. Our strategy has always been to grow the wireless pie from 14% penetration to 40%. That's 9 million subscribers. Clearly those 4 million existing analog customers will eventually convert to digital. Our strategy has never been to take our competitors clients, though. That's a zero sum goal.

What will be key to increasing the wireless market in Canada as penetration grows? The first one is for people to view it as affordable-and that doesn't mean cheap. The reality is, everyone has a phone. We're just trying to convince them to use one without a wire. And the one without the wire does more, so that isn't hard. The second is simplicity. Our rate plans are called Talk and Talk-a-lot. We like to say around the office, "What else are you going to do with your phone?" It's affordable, simple, and we make it available everywhere. In fact, there are six stores within 10 minutes of my home that sell Clearnet.