Why hasn’t WIND Mobile taken off?

The previous piece this article’s authors wrote on the Canadian telecom story discussed why Wind Mobile and the remaining new entrants had been struggling in 2013. At the time, Wind still looked to be on track to take advantage of two major opportunities in battling Canada’s “Big Three” (Rogers, Bell, and Telus): Favourable roaming regulations and a valuable wireless spectrum set aside for new entrants. Now, however, the fledgling provider’s value has been written down to zero by VimpelCom Ltd., Wind Mobile’s holding company.

Wind Mobile may appear left for dead with a holding company unwilling to invest, but one low-investment life-support opportunity still remains: Quad-Play partnerships with key Canadian startups.

What Could Have Been?

Wind Mobile has missed two important opportunities.

As these authors predicted, regulators are enforcing wholesale domestic roaming price caps, since the Big Three did not improve roaming agreements with entrants. This should have allowed Wind to offer unlimited domestic roaming, but Wind did not capitalize, likely due to lack of financing support. Instead, Eastlink, an Atlantic new entrant, was the only player to roll out unlimited domestic roaming.

Wind Mobile was also set to roll out a faster, better quality, and more reliable 4G LTE network in 2014. They could have done this if VimpelCom had not withheld financing for Wind’s bid for 700 Mhz wireless spectrum – frequencies required to broadcast wireless signals – on the eve of the February spectrum auction. This pull from the auction stifled Wind, keeping them even further behind in network quality and speed, sticking the provider with a slower 3G network (with some 2G roaming) until the next auction in 2015.

So what is left for the fledgling provider to do to maintain growth and stay afloat?

Quad-Play – and fast.

What Happened to “We Can Only Compete By…Quad-Play”?

When Anthony Lacavera took over as CEO of Wind Mobile in 2011, he claimed that, “Clearly we can only compete by being a Quad-Play,” adding that, “If you got into the [telecom] business to just offer wireless services, you’re in trouble. Consumers want high-speed data connections and consumers want content. Having an offering that includes those things is very important long term.” Over the past two years, however, Wind has made no indication that they are moving towards the apparently essential Quad-Play strategy.

Why Quad-Play?

With multiple-service bundling, or “Quad-Play,” discounts are offered on services bundled in a contract including home phone, broadband, television, and wireless. Currently, if a bundled Big Three customer switches to Wind for wireless, the customer may save on monthly wireless rates, but may ultimately be spending more, as they lose discounts on their remaining TV, home phone, and broadband services with the incumbent. This reduces churn of bundled subscribers from the Big Three to new entrants.

The Canadian Radio-television and Telecommunications Commision (CRTC) reported 2012 Canadian average household monthly wireless spending at $67 and total communications spending at $185, along with 10 million bundled subscriptions in Canada. This large group of bundled subscribers have been unlikely to switch over to an entrant, such as Wind. On the other hand, Quebec entrant Vidéotron and Atlantic Canada’s Eastlink have grown fastest in the few regions where they have a cable footprint and can offer “Quad-Play” bundles including television, wireless, home phone, and broadband.

Wind’s Current Quad-Play Strategy – Fixed-Line and OTT

As of February 2012, Lacavera’s strategy for a “Quad-Play” involved first bundling Wind Mobile’s wireless offering with a fixed-line internet and voice over internet protocol (VoIP) home phone, provided by Yak Communications, also owned by Wind’s parent Globalive. It was also reported that Wind was seeking “a few hundred million dollars” in capital to broaden the fixed-line reach of Yak, followed by plans to make infrastructure and acquisition investments to boost fixed-line capabilities. Given the inability to even finance the important spectrum bid, those investments are implausible.

The TV portion of the bundle was to be transmitted as an online service via Wind Mobile broadband, data sticks, mobile devices, and WiFi-enabled televisions. Wind would provide “over-the-top” (OTT) TV offerings, including international sports and entertainment programming, as well as Wind-produced Canadian content.

Wind’s current OTT Quad-Play strategy has three major set-backs: It requires the speed and quality of the 4G LTE mobile network Wind does not have, it involves costly licensing and production, and it would not provide highly-demanded U.S. content. Despite the unlikely prospect of OTT, Lacavera still requires a Quad-Play strategy, and there is an even more promising opportunity available.

The Opportunity: Internet-Protocol Television (IPTV)

Wind Mobile could provide a higher-value Quad-Play bundle much faster through third-party IPTV start-ups, combining new compression technology and partnerships with third-party internet providers.

IPTV in Canada

Telus, Bell, and now Rogers, Eastlink, and Videotron, all currently provide television services in some regions through IPTV, which is television sent through a dedicated, managed internet connection. This differs from OTT, which is delivered through open unmanaged internet, as with Netflix or Hulu. IPTV is similar to traditional live TV, while usually including video on demand (VOD) and apps, such as Facebook or Twitter. Bell Fibe and Telus OptikTV are examples of high-definition (HD) IPTV, with a combined subscribership of over 700,000 across Canada.

IPTV Benefits

First, IPTV delivers more premium, multicultural, and in-demand North American content compared to Wind’s OTT strategy. Second, it delivers both live and VOD TV, and can also support future delivery of popular content such as Netflix. Third, by avoiding the need for fast wireless data networks, IPTV reduces capacity and quality constraints and can potentially be implemented faster than OTT.

Faster execution of a Quad-Play offering would result in quicker market share and revenue gains, since bundled Big Three subscribers can turn to a lower-cost, but easily comparable offering.

IPTV Roadblocks

Three requirements complicate IPTV for Wind: content rights negotiations with Rogers and Bell, distribution license regulations, and high bandwidth requirements for HDTV.

Content rights for the channels required by the CRTC and demanded by consumers must be purchased from media companies. In Canada, the largest companies are Bell and Rogers, making negotiations challenging for Wind, being a direct wireless competitor. The CRTC regulates negotiations, but high pricing and delays can still arise.

A broadcast distribution undertaking (BDU) license is also required from the CRTC for every region that will be covered. This process can take between 8 and 18 months.

Lastly, since HD IPTV requires significant bandwidth, any third-party internet access providers (TPIAs), who resell internet from providers such as Rogers or Bell, will either need to purchase more capacity from those internet service providers or will need to implement technologies to compress HD IPTV data for less expensive transmission.

IPTV Start-Ups: vMedia, Zazeen, and Colba.Net

Avoiding these challenges, there may be a quicker and more cost-effective means of providing IPTV to Wind customers, including a valuable Quad-Play bundle that actually includes popular American and Canadian content. All of this is available without having to build out IPTV services from scratch.

Two Ontario IPTV start-ups, vMedia and Zazeen have each been able to enter the Triple-Play IPTV market while avoiding the need to directly provide TPIA broadband and VoIP services.

A prime example is vMedia Inc., which launched in early 2013. vMedia’s model is to partner with TPIAs such as Distributel, selling a vMedia-branded triple-play bundle with customized HD IPTV packages that are 25% less expensive than the Big Three, along with internet and VoIP. vMedia avoids the costs of running a TPIA, while only needing to provide the set-top box that connects devices in the home to the network.

vMedia purchased broadcast rights for most of the content found on premium cable television from Rogers and Bell, acquired BDU licenses in most major cities in Ontario, and applied for BDUs in Alberta, Quebec, and British Columbia. It, along with the other TPIAs, avoid higher costs of bandwidth for TPIAs by using an IPTV compression technology, reducing the bandwidth needed for HD IPTV. vMedia is even introducing some OTT elements with its vCloud “cloud DVR” service.

Another strategic player is Quebec TPIA, Colba.Net, which launched IPTV in 2012 after securing content rights to most premium French-Canadian and North American broadcasts, as well as BDU licenses in Quebec metropolitan areas. Colba.Net provides TPIA service itself in Quebec, but will partner with other TPIAs in regions that it does not currently serve as it expands.

These start-ups offer Wind the capability to quickly and easily offer a value Quad-Play service to compete with the Big Three. Wind’s can either tag on their mobile offering to the current start-up Triple-Play bundles, or they could outright acquire the companies for their rights and technologies.

Partner or Buy?

Although broadcast regulations state that foreign-owned entities cannot be broadcast providers, with more than 80% voting rights held by Canadians, in 2011, Globalive was ruled to be “Canadian owned and controlled.” This means there is a potential to acquire the IPTV start-ups.

Based on Videotron’s Quad-Play offering in Quebec, vMedia could capture roughly 2% of the Ontario IPTV market. Comparable IPTV and TPIA acquisitions in the United States therefore suggest that Ontario’s vMedia, or alternatively Zazeen, could be acquired for under $7 million, while Quebec’s Colba.Net could be acquired for under $10 million. At face, compared to the “hundreds of millions” required to build out a fixed-line infrastructure or the $500 million spent on wireless spectrum in 2008, $17 million is a favourable alternative – although hardly a given.

With VimpelCom’s write-down of Wind, a partnership strategy is the likely path, requiring much less investment. Wind could use the same strategy as vMedia et al, selling a Quad-Play bundle under Wind’s brand, simply adding its wireless service onto vMedia’s triple-play. Wind would offer wireless, vMedia the IPTV technology, and TPIAs the access to local cable and broadband. The advantage is that Wind could offer a marketing budget and brand currently unavailable to the current IPTV providers.

If a partnership can be finalized with BDUs for Alberta and B.C. approved by the end of 2014, Quad-Play offers could become available, priced at the same 25% discount offered by Videotron’s Quad-Play in Quebec. Wind has wireless average revenue per user (ARPU) of $31.40 and a 2% margin, and, considering Videotron’s monthly ARPU of $111.57 and 2% margin for Quad-Play, Wind’s partnership could return $18.5 million by the end of 2015. To do this, Wind would only need to attract 5% of its current subscriber growth for the service, up-selling 5% of current Wind Mobile customers.

The Ideal Quad-Play

In order to increase its wireless market share and ARPU, while decreasing churn, Wind should partner with both Colba.Net and vMedia. Wind will be able to implement an IPTV Quad-Play package in less than a year, positioning the provider much better for the 2015 spectrum auction. As Wind’s coverage area grows, it can easily expand its BDUs and rights or partner with IPTV providers licensed in each region. In the future, Wind may eventually have the flexibility to offer a popular service such as Netflix over IPTV.

Still Unsteady

Even with a Quad-Play offering, Wind remains in a difficult position without 4G LTE and reliable financing. Eastlink and Videotron now own spectrum, have opportunities outside of their home regions, and could move fast on the same opportunities. Although Public and Mobilicity are all but gone, Videotron and Eastlink still have potential, and Quad-Play services remain available in multiple regions. There is still potential for a fourth major Canadian telecom, and a Quad-Play partnership may be Wind Mobile’s only chance to stay in the hunt.