AN ANALYSIS OF THE MOBILE WIRELESS SERVICES INDUSTRY IN CANADA by Alexandra ...

75 Pages·2009·3.75 MB·English

AN ANALYSIS OF THE MOBILE WIRELESS SERVICES
INDUSTRY IN CANADA
by

Alexandra Chu
Bachelor of Arts, University of British Columbia 2007

PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF
THE REQUIREMENTS FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

In the
Faculty
of
Business Administration

© Alexandra Chu 2009
SIMON FRASER UNIVERSITY
Summer 2009

All rights reserved. However, in accordance with the Copyright Act of Canada, this work
may be reproduced, without authorization, under the conditions for Fair Dealing.
Therefore, limited reproduction of this work for the purposes of private study, research,
criticism, review and news reporting is likely to be in accordance with the law,
particularly if cited appropriately.
Approval
Name:
 Alexandra
Chu

Degree:
 Master
of
Business
Administration

Title
of
Project:
 An
Analysis
of
the
Mobile
Wireless
Services

Industry
in
Canada

Supervisory
Committee:


 
_____________________________________________________


 Dr.
Andrew
von
Nordenflycht

Senior
Supervisor

Assistant
Professor


 
Faculty
of
Business
Administration


 
_____________________________________________________


 Dr.
Sudheer
Gupta

Second
Reader

Assistant
Professor


 Faculty
of
Business
Administration

Date
Approved:
 
_____________________________________________________


ii
Abstract
This essay examines the mobile wireless services industry Canada. The industry
is on the precipice of what could be a major change in the dynamics of competition.
Industry Canada recently facilitated the market entry of new service providers in order to
increase competition for the benefit of consumers. This has the potential to affect the
success and future growth prospects of the industry’s leading three companies Rogers
Communications Inc., Bell Canada Enterprises and Telus Corporation.
The paper provides an overview of the industry’s structure, sources of growth,
and key challenges. Performance of the leading companies is compared over the past
five years. Conclusions are drawn about which company may be best positioned to gain
increased market penetration and higher average revenues per user. The paper also
highlights sources of advantage that incumbent firms can leverage to maintain their
market share in the face of increasing competition and technological change.

iii
Acknowledgements
I wish to thank the faculty of the Segal School of Business for sharing their
knowledge and experience over the past year. I also wish acknowledge my fellow
classmates who have been a source of support and inspiration.
In particular, I would like to thank Andrew von Nordenflycht, Ph.D., for his
guidance during the process of writing this paper. Thank you as well to my second
reader, Sudheer Gupta, Ph.D.

iv
Table of Contents
Approval.....................................................................................................................................ii

Abstract.....................................................................................................................................iii

Acknowledgements................................................................................................................iv

1.
Introduction..........................................................................................................................1

2.
Industry
Overview..............................................................................................................3

2.2
Market
Value................................................................................................................................3

2.2.1
Revenue
Streams..................................................................................................................................5

2.2.2
Revenue
collection
(pre‐paid
vs.
post‐paid).............................................................................6

2.3
Market
Volume
(Subscribers)................................................................................................7

2.4
Government
Regulation...........................................................................................................9

2.5
Customer
Segments................................................................................................................10

2.6
Major
Competitors..................................................................................................................13

2.7
Technology
Platforms............................................................................................................14

3.

Porter’s
Five
Forces........................................................................................................18

3.1
Introduction..............................................................................................................................18

3.2
Rivalry.........................................................................................................................................18

3.3
Threat
of
Entry.........................................................................................................................20

3.4
Power
of
Suppliers..................................................................................................................21

3.5
Power
of
Buyers.......................................................................................................................23

3.6
Threat
of
Substitutes..............................................................................................................23

3.7
Industry
Structure
Conclusion............................................................................................26

4.

Competition…………………………..………………………………………………………………….28

4.1
Leading
companies
­
overview...........................................................................................28

4.2
Comparative
evaluation
on
key
industry
metrics........................................................31

4.2.1
Blended
Average
Revenue
Per
User..........................................................................................31

4.2.2
Subscriber
Growth............................................................................................................................33

4.2.3
Cost
of
Acquisition............................................................................................................................34

4.2.4
Churn
Rates..........................................................................................................................................36

4.2.5
Operating
Profit
Margin
as
a
Percent
of
Total
Revenue...................................................38

4.3
Marketing
Strategies..............................................................................................................39

4.4
Technology
Platforms............................................................................................................42

4.5
Preparation
for
new
competition......................................................................................45

4.6
Conclusions...............................................................................................................................46

5.
Future
Outlook..................................................................................................................50

5.1
Key
challenges..........................................................................................................................50

5.1.1
Increasing
the
mobile
penetration
rate...................................................................................50

5.1.2
Managing
network
capacity..........................................................................................................51

5.1.3
Deploying
and
Monetizing
Value‐Added
Services..............................................................52

5.1.4
Mobile
Commerce.............................................................................................................................53

5.2
Recommendations..................................................................................................................54

5.2.1
Leveraging
Strengths.......................................................................................................................54

5.2.3
Flexibility
in
business
models......................................................................................................56

6.
Conclusion..........................................................................................................................57

v
Appendices.............................................................................................................................59

Appendix
A:
Key
Operating
Metrics:
2004­2008
Data.......................................................59

Appendix
B:
Comparison
of
$25
rate
plans
offered
by
the
big
three............................62

Bibliography...........................................................................................................................63


vi
Table of Figures

Figure 1 Industry Revenue...............................................................................................................................4
Figure 2 Post-Paid vs. Pre-Paid Services.......................................................................................................6
Figure 3 Subscriber Growth............................................................................................................................7
Figure 4 Cell phone penetration by age group.............................................................................................11
Figure 5 Market Share...................................................................................................................................14
Figure 6 Business division and core products and services for leading companies.....................................29
Figure 7 Key financial data for BCE, Telus and Rogers, 2008.....................................................................30
Figure 8 Company Snapshots: Wireless Divisions........................................................................................31
Figure 9 Blended ARPU Comparison...........................................................................................................33
Figure 10 Net Subscriber Additions Comparison.........................................................................................33
Figure 11 Cost per gross subscriber acquisition..........................................................................................36
Figure 12 Subscriber Churn Rates................................................................................................................38
Figure 13 Operating Profit Margin as a Percent of Total Revenue..............................................................39
vii
1. Introduction

Wireless phones are among the fastest growing consumer products in history
(Canadian Wireless Telecommunications Association, 2009). The worldwide mobile
communications industry acquired as many users in 20 years as the fixed line
telecommunications industry reached in 120 years (Gruber, 2005). In Canada, wireless
coverage is now available to 98% of Canadians and two thirds of households have access
to a wireless phone (Canadian Wireless Telecommunications Association, 2009).
This essay examines the Canadian mobile wireless services industry. Mobile
wireless services are provided by three main carriers: Bell Canada Enterprises (BCE),
Telus Corporation and Rogers Communications Inc. These companies sell handsets
(cellular phones and smartphones) and voice and data services to over 21 million
Canadians.
Canada’s industry is considered among the most profitable in the world. It is
characterized by strong growth in subscriber numbers, consistent increases in revenue
and competitive marketing and branding. A key development for the industry occurred in
2007 when Industry Canada concluded that it was in the best interest of consumers to
encourage new competition in the marketplace (Industry Canada, 2007). As a result, the
government facilitated the process of entry for new companies. The government reserved
a certain portion of wireless spectrum (an essential resource for offering wireless
services) for new carriers during the 2008 spectrum auctions and enacted several
regulations to ease their market entry. With a number of new operators expected to enter
the market in late 2009 or 2010, the incumbent players’ healthy margins and strong
1
growth prospects may be challenged. However, the big three incumbents, whose
combined market share is 95%, have already taken measures to prepare themselves for
increased competition.
This industry analysis will provide information on the current status of the major
players in the industry, examine how they have sought to differentiate themselves, and
determine the sources of advantage that they can draw upon to sustain their market share
in an increasingly competitive environment. This paper will also explore issues affecting
growth prospects and assess which companies may be in the best position to gain
increased market penetration and higher revenues average per user.
2
2. Industry Overview

2.1 Industry Definition
This paper analyzes the mobile wireless services industry in Canada. Mobile
wireless carriers or operators are companies that enable business and consumers to use
their cellular phones (referred to as handsets). Operators provide subscribers access to a
network to make voice calls, so it is often said that operators sell airtime. Additionally,
operators supply data services that support mobile access to the internet, email, digital
picture and video transmission, mobile video, music downloading, video calling and two-
way short messaging service (SMS). These advanced data services are an increasingly
important source of revenue for the industry. Carriers also sell handsets to their
subscribers, including smartphones, which are cellular phones that often have PC-like
functions and additional features such as an MP3 player or a camera.
Technically, mobile telecommunications is a subset of wireless communications
which refers to communication services that allow the users to move around without
losing their connection (Kazam Technologies Inc., 2007). However, the terms wireless
and mobile are often used interchangeably to describe the telecommunications services
provided by mobile wireless carriers; therefore, the terms will be used synonymously in
this paper. The terms carrier, operator and service provider are also used synonymously
in this paper to describe a company that provides mobile wireless services to customers.
2.2 Market Value

The Canadian wireless services market has performed strongly over the last five
years, reaching approximately $14.1 billion in revenues in 2007 and boasting a
3