Freedom Mobile Inc. is using the holiday shopping season to target one of the biggest consumer irritants in the wireless industry: the dreaded data overage fee.
The regional carrier, which is owned by Shaw Communications Inc. and operates in Ontario, British Columbia and Alberta, is set to announce a short-term offer on Monday that will give customers an extra 100 gigabytes of data that they can dip into at any point during a two-year contract if they go over their monthly cap.
“Overage fees” have been a significant source of revenue for the three national carriers Rogers Communications Inc., Telus Corp. and BCE Inc., which charge $100 a GB if customers use more than their monthly limit (overage prices can vary between sub-brands such as Fido, Koodo and Virgin Mobile, but that was the price listed on the websites for each of the trio’s main brands on Friday).
In 2016, overage fees accounted for 6 per cent of total retail revenues for mobile carriers who shared information on such fees with the Canadian Radio-television and Telecommunications Commission. The CRTC requires carriers to notify customers when they reach $50 in monthly overage charges and the account holder must authorize continued data use.
But larger data buckets – spurred in part by new prices Freedom Mobile introduced at this time last year, which the Big Three scrambled to match in short-term deals – have cut into the revenue the incumbents make from overage fees. Even after that frenzy ended, more limited pricing battles became common into 2018 and often included promotions with extra monthly data.
Xplornet Communications Inc. launched wireless service in Manitoba last week and offered users the ability to rollover unused data to the next month. It takes about 1 GB of data to stream one hour of movies or TV shows on Netflix at standard definition and 3 GB to stream using high definition.
It’s all led to a slowdown in wireless price growth for the incumbents, one that Telus chief executive Darren Entwistle called the “new normal” as he griped about the trend on a quarterly earnings call in August, saying, “the competitive intensity is not just healthy but bordering on the irrational.” He warned that “these larger data buckets and promotions risk prematurely consuming the major capital investments that the industry is making in spectrum and network capacity and coverage.”
Paul McAleese, Shaw’s president of wireless, said in an interview that Freedom Mobile “doesn’t have that problem because we never charged for overages.” When users reach their monthly data cap, Freedom instead slows down their download and upload speeds until the following billing cycle begins, a practice known as throttling.
He said charging rates for extra data that far exceed the amount charged for data included in a monthly plan is a “punitive pricing structure that’s kind of counterintuitive. I struggle to find another retail category where they charge you more for the next one than the last one.”
“Data is the thing people use their phone for, to the point where it’s replacing voice and text,” he said, pointing to applications such as Apple’s iMessage and FaceTime, which allow people to communicate using data rather than the cellular voice network or texts. “It’s the only thing people care about when they’re shopping for a plan.”
In a recent research report, Desjardins Securities analyst Maher Yaghi said that while the wireless industry is still adding new subscribers at a fast pace, average billing per user (ABPU) reported by the Big Three is not growing as fast as it has in the past, suggesting competition in the market has increased.
“We do not expect a rapid turnaround in ABPU growth in the short term, as we believe the industry is impacted by attractive offers made by [Freedom Mobile], which has shown no sign of slowing down,” he said.
Freedom Mobile is able to offer larger data buckets and generous monthly extras in part because it has far fewer subscribers than its rivals and more room on its network. Freedom has 1.4 million customers, while Rogers has 10.8 million, BCE has 9.5 million and Telus has 9.2 million.
Yet, even Mr. McAleese said he is not prepared to offer unlimited monthly data plans, which are now common in the United States. “We have not seen the demand from consumers for unlimited yet,” he said.
Freedom has been spending on wireless spectrum, the airwaves that carry cellular signals, and investing in network improvements. Last month, it announced plans to expand its coverage area to several more cities in Alberta and B.C., hoping to reach an additional 1.3 million potential clients.
Mr. McAleese joined the company in April, 2017, and says Freedom Mobile’s service has significantly improved since then. “It’s just a completely different network experience. It’s showing in the numbers.”
In the three months ended Aug. 31, Freedom added 85,000 new wireless customers and said its average monthly revenue for each subscriber increased by 9 per cent to $41. It also reached agreements to sell its products and service in Walmart and Loblaws Mobile Shop locations. “Our retail footprint nearly doubled over the course of the last six months," Mr. McAleese said.
There has been speculation that the company would at some point launch a wireless brand under the Shaw name and bundle it with its cable TV and internet services in Alberta and B.C. However, Mr. McAleese said moving to a Shaw wireless brand is “not something that’s urgent for me right now,” pointing to the momentum it has under the Freedom brand, plus the fact that 70 per cent of its wireless customers are in Ontario, where it does not sell cable TV or internet.