Eastlink CEO Lee Bragg said the wireless business is going well enough that the company is expanding its network in other areas where it owns cellular spectrum licences.
It has been almost three years since Eastlink launched its cellular business, bringing a fourth player to Nova Scotia and Prince Edward Island, and although chief executive officer Lee Bragg says he's happy with the venture, he's cagey about exactly how well it's going.
"We're now selling phones and plans like crazy," said Mr. Bragg, who became the sole CEO of Halifax-based Eastlink, a private company and subsidiary of his family's Bragg Communications Inc., five years ago after sharing the position for 11 years. "But it's somewhat by design why it's not easy to figure out how well we're doing, because our competitors are somewhat larger than we are, and we don't want to attract too much attention."
"Somewhat larger" is a lighthearted understatement on Mr. Bragg's part – he also likes to joke that maybe one day he'll make a play to buy Rogers Communications Inc. now that Eastlink has run out of smaller cable assets to buy – but he clearly takes his competition seriously.
In March, for instance, Eastlink offered to buy out new customers' existing cellphone contracts with other companies, an effort to "reduce one of the barriers" the three national carriers – Rogers, Telus Corp. and BCE Inc. – "throw in front of us," Mr. Bragg said in a lengthy interview with The Globe and Mail last week.
The promotion took a page from the playbooks of U.S. carriers T-Mobile and Sprint, which have been fighting aggressively to win market share away from AT&T and Verizon. Eastlink has also offered customers the option of buying smartphones on monthly instalment plans for $0 down, a U.S. trend the large Canadian players have not adopted.
By the end of 2013, the year Eastlink launched its wireless service, it had captured 1 per cent of the market in both Nova Scotia and PEI. In both provinces, BCE had more than 50 per cent of cellular customers, followed by Telus with about a third and Rogers hovering above 10 per cent.
But Canada's telecom regulator did not include the breakdown of wireless market share by province in its most recent annual report, which tracks key figures for 2014. (A spokeswoman for the Canadian Radio-television and Telecommunications Commission said that was "due to residual disclosure in the Atlantic regions.")
Eastlink is still looking for the CRTC to set "reasonable" rates for the wholesale prices small carriers must pay when their customers roam on the Big Three's national networks (the regulator is in the midst of a cost-setting process). And Mr. Bragg said he hopes the government will give some preference to new entrant carriers in a future auction of wireless airwaves in the valuable "low-band" 600-megahertz frequency range.
For now though, he said the wireless business is going well enough that Eastlink is "growing the network out" in other areas where it owns cellular spectrum licences. In some places – such as Northern Ontario and Newfoundland – it already operates cable services, but it also plans to offer wireless services in New Brunswick, where it won't have the marketing advantage of bundling with television, Internet and home phone products.
Meanwhile, the company's traditional cable business – it has about 350,000 television subscribers in Atlantic Canada, Northern Ontario and parts of Alberta and British Columbia – is facing the same challenges as all TV providers as customers shift to watching more video content online.
"Certainly we've seen a downgrading with some customers moving away from higher-end products, trading out The Movie Network and Super Channel products for their own Netflix," Mr. Bragg says. "The good news is, I still sell the Internet, so that's okay."
And as customers use more Internet bandwidth and demand higher speeds, he says the company "should be able to make up some of those losses by charging a little bit more for Internet." Eastlink does not disclose its Internet subscriber numbers.
"Now, my intention's not to scare all my customers out there, but that's just normal economics. That just makes sense. So, it's not all doom and gloom for us."
Eastlink faced a public relations storm over Internet pricing in the summer when it imposed a usage cap on customers of its "Rural Connect" service, which it built in rural parts of southwestern Nova Scotia with $2-million in provincial funding. The project – which uses communications towers to deliver "fixed wireless" Internet service – cost far more than Eastlink expected and customers have been frustrated by slow speeds while the company says the government program was not designed to accommodate the high-bandwidth demands of today's Internet users.
"The problem is we kind of got trapped into this low rate, and then you can't afford to do anything to improve the network," Mr. Bragg says. "In a little town of 200 people, if you have one tower ... you can divide the cost amongst all those people. But in these tremendously rural areas where you have one tower for five or six people, well, it's the same amount of capital [to build the tower] so you need to charge more to pay for it."
Mr. Bragg says Eastlink has a long history of serving rural areas, but the experience has made him think twice about participating in other government funding projects to build Internet infrastructure in thinly populated and remote areas. "It's not that we're unwilling, it's the math. The math is not good. And I can't change that."
Eastlink, which employs 1,500, says it invested more than $173-million last year and just under $1-billion over the past five years, working to include more fibre-optic cable in its networks, upgrade speeds and improve customer service processes. Mr. Bragg doesn't see major acquisitions on the horizon and instead plans to look to existing business lines for growth.
"Our shareholders don't put many demands on the business, so we keep all the money in the business and that helps fund capital expenditures," he says, adding: "Our plans are to keep [the business] in the family for another hundred years."