The Challenges of the MVNO Business Model in Canada

by Istvan Fekete on January 12, 2015

The recent regulation of wholesale roaming rates brought a welcome fix to what we often referred to as a highly uncompetitive mobile landscape, but it failed to address some of the issues: The incumbent wireless players, for example, have no obligation to lease network access to competitors that don’t have a network of their own, reports the Globe and Mail.

You may recall that during the CRTC’s public hearing on the topic of wholesale roaming prices, Cogeco Cable argued that Canada lacks a “proliferation of independent MVNOs”. Simply put, the MVNO business model means a branded reseller buying a service from an established carrier, and marketing and billing under its own brand, typically at a discounted price.

“Because MVNOs do not operate their own networks, they are, to a certain extent, at the mercy of the operators who own the mobile infrastructure, with whom they must contract for service,” Justice Myers wrote, adding: “As anyone who owns a mobile phone in Canada will know, the number of operators is limited.”

These businesses do not own a wireless network of their own. A recent divorce case between Mark Reid, cofounder of MNVO Cityfone Telecommunications Inc., and his wife, Denise (not involved in the company), involving Rogers, Telus’ vice president of corporate development Stephen Lewis, and Wind Mobile’s Anthony Lacavera reveals the fate of these businesses in Canada, as there is a lack of rules mandating wholesale access.

Shortly after Cityfone inked a deal with Rogers, the company was valued at $2.9 million. However, as mentioned before, the MVNO business model means you are totally dependent on the incumbent player, which obviously locked the reseller into a five-year exclusive agreement. This, of course, narrowed Cityfone’s possibilities for a possible buyer as well, alongside the need of approval from Rogers for any marketing campaign they wanted to launch.

Fast forward to 2010: Telus showed interest in acquiring Cityfone, but since Rogers reserved the right to first refusal, it ultimately acquired the company for $26 million.

While this can be presented as a success story, the sad part is Cityfone’s failure to reach its marketing goals: It projected 100,000 customers by 2010, but it hardly counted 42,000 at the time of the purchase. But this shouldn’t surprise anyone with knowledge of the Canadian wireless landscape: Just look at Public Mobile and recall Wind Mobile’s initial goals.

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Written by: Istvan Fekete. Follow by: RSS, Twitter, Facebook, or YouTube.

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