Cellphone upstart merger predicted by Wind Mobile

Constant discounts in the mobile phone industry by new wireless companies can't last and will lead to industry consolidation, predicts the CEO of Wind Mobile.

"Certainly, the promotional activity that's happening now is not sustainable," said Anthony Lacavera, whose company just celebrated two years in the market.

Mobilicity and Public Mobile launched in the spring of 2010 and Videotron later that fall, bringing more competition to the established and deep-pocketed players Rogers, Bell and Telus.

"The reality is that everyone needs to be turning a profit to stay in business," he said in an interview from Toronto.

As a result, Lacavera is predicting that the new entrants will have to consolidate in 2012 as they get financially squeezed, but he says Wind Mobile won't be on the losing end.

"There's going to be new entrant shakeout in 2012. We obviously want to lead that," said Lacavera, who serves as chairman and CEO of Wind Mobile.

But Public Mobile made a similar prediction earlier this year, saying at least one of the two other new playersWind or Mobilicity would run out of money by the end of this year and Public Mobile would be willing to scoop up one of them. So far, that hasn't happened.

Telecom analyst Brahm Eiley has noted that competition is so fierce among all the competitors that discounted prices now run year-round in the wireless industry.

Wind Mobile, Mobilicity and Public Mobile are all discounting to some degree, said Eiley, co-founder of the Convergence Consulting Group in Toronto.

"For all three of them, we think it's a challenge to be profitable at the end of the day," he said.

Eiley said by the end of this year Wind Mobile, Mobilicity, Public Mobile and Videotron will have about five per cent of the Canadian market, or about 1.3 million subscribers.

Rogers, Bell and Telus have more than 23 million customers between them.

The next auction of radio waves by the federal government, expected next year or in 2013, for network expansion will show which of the new players has money to stay in the marketplace, Eiley said.

"That will tell us who's going to be around and who's not going to be around."

Lacavera and the other new players want the federal government to set aside 700 megahertz radio spectrum specifically for them so that they won't be out bid by Rogers, Bell and Telus.

The 700 megahertz spectrum will be used for faster wireless networks that are geared to handle lots of data, such as streaming video. The spectrum is also ideal for rural coverage and in dense urban areas.

Wind Mobile is aiming to become Canada's fourth national wireless carrier but doesn't have a presence in Quebec.

The company has faced regulatory and legal hurdles with the CRTC deeming it wasn't Canadian owned and controlled even before its launch on Dec. 16, 2009. Last June, the Federal Court of Appeal backed a cabinet decision that allowed Wind to launch its service over the objections of the CRTC.

Wind has about 400,000 subscribers and Lacavera said he was hoping for half a million subscribers after two years. Lacavera said Wind Mobile will continue to rollout its network next year, heading east to Halifax and west to Winnipeg, Regina and Victoria as well as Ottawa and Windsor, Ont.

"So next year is going to see us launch in a lot of new markets where there's a lot less competition."