“We assume that the independent new entrants have no choice but to consolidate”, analyst says

Our new entrants, which are a couple years old now, are chugging along. They have consistently come to market encouraging customers to sign up on their no commitment, low cost monthly rate plans. The past couple weeks were very revealing when it comes to how many people have signed up. First, the biggest out of the group is WIND Mobile, who according to their Q3 2011 numbers, has 358,000 subscribers. Mobilicity has “attracted” 250,000 subs, but analysts believe the current subscriber base is more around 160,000. Public Mobile, who only operates in 2 core cities has above the 150,000 subs. On the other hand, all the Big 3 carriers, Rogers, Bell and TELUS have continued their growth. Rogers has 9,288,000 wireless customers, Bell has 7,369,596, and TELUS has 7.2 million.

Both new entrants and incumbents offer a wide range of handsets with various operating platforms. All carriers offer the latest BlackBerry smartphones, plus some of the latest Android handsets. Lacking in the new entrants lineup, but way beyond their fault, is the iPhone.

Now that there’s a couple years of new entrant history under the belt, the analyst winds are changing. In a report to their clients this morning Dvai Ghose and Sanford Lee of Canaccord Genuity states that the combined market share of the new players is “only 3% share at the end of Q3/11”, but on a brighter note “they accounted for an estimated 22% of industry net additions in the quarter”.

The report noted that “The independent new entrant model appears to be failing” and they “aimed to differentiate through low priced unlimited voice and data and no contracts in return for unsubsidized devices. While consumers dislike complex and expensive incumbent price plans and contracts, they have also shown an unwillingness to buy unsubsidized devices, and so independent new entrants have had to start subsidizing.”

Probably the most shocking statement in the report is near the bottom: “We assume that the independent new entrants have no choice but to consolidate”. This has been rumoured in the past by many, but nothing can happen until 2014 (except for Public Mobile). Wind Mobile CEO Tony Lacavera has always stated that there is only room for one more national player in Canada and the rest will be bought up.

Ghose and Lee said the new players have experienced “various challenges” that mainly range from distribution, “weaker than expected subscriber growth” and “a business model that seems to be failing due to consumers’ unwillingness to buy unsubsidized devices”. In addition, what could lead to a consolidation is the upcoming 700MHz auction. To compete long term, regardless of how the auction gets structured – if there is a set-aside or not – the new players might consolidate.

“Given their various challenges, we expect significant new entrant consolidation in the run up and aftermath to the 700 MHz auction, even if Industry Canada opts for a new entrant set aside. The real question is who will drive consolidation.”