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The end draws near for Wind Mobile

WIND Mobile cell phones are displayed at a retail store before the official launch of WIND Mobile, a new cellular service for the Canadian market, in Toronto, December 16, 2009. REUTERS/Mark Blinch

Don’t hold your breath for the future of Wind Mobile. Despite posting consistent subscription growth to solidify its hold on the #4 position in Canada’s wireless market, the carrier’s owners have all but given up hope for its future.

VimpelCom Ltd., the Amsterdam-based telecom conglomerate that in January raised eyebrows by its last-minute refusal to fund any Wind Mobile bids in the just-concluded 700 MHz spectrum auction, raised industry antennae yet again last week after writing down its investment in the Canadian carrier by US$768 million. VimpelCom is the primary backer of Globalive Wireless Management Corp., which operates in Canada under the Wind Mobile brand.

VimpelCom’s latest writedown, which it attributes “to the challenges the Company is facing in the country, which resulted in the strategic decision to withdraw from the 700 MHz spectrum auction and the reassessment of the prospects for continuing operations in the country,” is its second in as many years – in 2013 it wrote down its Canadian assets by $328 million – and brings the value of Wind Mobile’s assets down to $0.

A methodical withdrawal

Wind Mobile CEO Anthony Lacavera put on a brave face, telling CBC News the decision by their financial backers would not change Wind Mobile’s immediate focus.

“First and foremost it has no impact on our ongoing operations,” he said. “It is an accounting decision that our investors made for their own reporting or their own disclosures.”

It isn’t a surprising response given he still has 676,209 wireless subscribers to support. It’s a seemingly impressive number, an industry-leading increase of 14 per cent over the same period last year. But Wind’s average revenue per user, or ARPU, is $29.80 for data and voice services. While that’s up 6 per cent year-over-year, it significantly trails Telus ($61.86), Rogers ($58.59) and Bell ($57.92) and highlights the dangers of targeting low-margin customers to drive market share.

VimpelCom’s bigger problems

Wind Mobile paid $448 million for spectrum during Industry Canada’s 2008 AWS auction, and Lacavera estimates its fixed and subscriber assets are worth another $500 million. Still, VimpelCom’s refusal to fund the auction in January, coupled with the latest writedown, signal its intent to ultimately withdraw from the Canadian market. Last June, VimpelCom subsidiary Orascom Telecom Holding bailed out on a planned deal that would have seen it increase its ownership stake in Globalive from 65 per cent to nearly 100 per cent.

VimpelCom’s writedown also signals deeper global troubles. Unrest in Ukraine, where VimpelCom has 26 million wireless subscribers and 43 per cent market share, prompted a US$2.1 billion writedown and drove a $2.7 billion loss in its most recent quarter. Facing a long road ahead to grow margin and eat into the big 3’s market share, VimpelCom has simply run out of interest in establishing a long-term presence in a Canadian market it has already criticized as being unfriendly to foreign investors.

For its part, Industry Canada has already tweaked the foreign investment rules for the next spectrum auction, for 2.5 GHz frequencies, in April 2015. VimpelCom’s global challenges give Industry Canada enough wiggle room to claim its current plan is sufficient. Whatever happens to Wind Mobile, Industry Canada can simply blame market forces beyond its control.

A new #4

The emergence of Videotron as a potential national-scale competitor further clouds Wind Mobile’s future prospects. The Quebec-based operator snagged 700 MHz spectrum in its home territory as well as parts of southern Ontario, Alberta and British Columbia. With competitors moving ahead with next-generation services on the newly available spectrum, Wind Mobile will be stuck with an older, limited-coverage network and owners who won’t provide additional funding to remain competitive.

As the risk of customer churn grows amid growing uncertainty, expect ARPU to suffer as the carrier fights for survival at the low-margin end of the market. Wind Mobile may not officially be on the block, but an outright sale is rapidly becoming its only remaining option.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own.