Videotron is joining its national competitors with the launch of a discount wireless brand aimed at the lower end of the cellphone market where analysts say there is still plenty of room to grow.
The Quebecor Inc.-owned telecom provider began a “beta” or test launch of a brand dubbed Fizz this week, saying the service will work on the Videotron network and will also be available in Quebec and the Ottawa region.
Videotron launched its wireless business in 2010; it has since grown to 1.08 million customers, or about 16 per cent of the Quebec mobile market. As it expanded, it added the iPhone to its handset lineup, began offering faster, data-friendly LTE (fourth-generation or long-term evolution) service and started bundling premium features such as its video service Illico together with its mobile product.
Now the company is creating a discount brand with a separate name to target a different segment of the market, following a strategy long used by Rogers Communications Inc., Telus Corp. and BCE Inc.
“Fizz is a new, entirely different mobile player that offers members a 100 per cent digital experience,” Élodie Girardin-Lajoie, vice-president of corporate affairs at Videotron, said in an e-mail on Thursday. She added that customer service will all be online and that the brand is aimed at “BYOD," or bring-your-own-device, subscribers.
Videotron is seeking customers to test its new service but has not yet revealed pricing for Fizz and declined to make an executive available for an interview Thursday. Ms. Girardin-Lajoie said the company will have more to say when Fizz officially launches “later this year."
Videotron’s move comes after the Big Three have all made a push to win more of the prepaid market, in which customers do not have to sign long-term contracts or pass a credit check and can buy cheaper monthly credits, typically for plans with basic voice calling and texting features. Prepaid options often appeal to new immigrants to Canada, students and seniors.
“If you look at wireless penetration in Canada, the remaining 15 per cent or so is going to come primarily from the prepaid market,” Barclays Capital analyst Phillip Huang said in an interview, referencing the fact that the number of cellphone subscriptions in Canada hovers at around 85 for every 100 residents.
“This is a segment that has always been under-served and you’re starting to see that the Big Three are moving into it in a more emphatic way this year.”
BCE launched Lucky Mobile late last year while Rogers and Telus have become more aggressive with their own prepaid brands, Chatr and Public Mobile, respectively. (The trio also each operate mid-range brands, Virgin Mobile for BCE, Fido for Rogers and Koodo for Telus.)
“The trend among incumbents has been to focus on gaining share in prepaid so that they can convert a portion to postpaid over time,” Desjardins Securities analyst Maher Yaghi wrote in a report Thursday. “Fizz opens the door for Videotron to be able to grab share in this business and in due time benefit by taking those subs and up-selling them into the postpaid [contract] market.”
Videotron executives hinted during an earnings call in August that the company had a plan to address the prepaid market. In a research report earlier this month, Scotia Capital’s Jeff Fan noted that launching a prepaid option would give the company the ability to address more competition coming from the Big Three’s discount offerings without lowering prices at its main brand. Growth in average monthly billings per user has been slowing at Canadian carriers, including at Videotron, which reported an increase of just 0.7 per cent to $53.70 a month in the second quarter, compared with an increase of 5.6 per cent the same time last year.
Barclays Capital’s Mr. Huang said he expects Shaw Communications Inc.'s Freedom Mobile, which operates in Ontario, British Columbia and Alberta, could eventually consider adopting either a premium or discount brand strategy as well, but that it first has more room to grow in terms of market share, particularly in the west.