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Derek Ting of TextNow. (TextNow)
Derek Ting of TextNow. (TextNow)

Canadian cellphone startup has success stateside, but shut out at home Add to ...

Like many Canadians, Derek Ting and Jon Lerner were frustrated by their high cellphone bills. As computer engineering students at the University of Waterloo, however, they had the skills to do something about it.

The duo cobbled together an app that duplicated the text messaging function found on smartphones, allowing them to send and receive short messages via their phones’ data connections, thereby bypassing their carriers’ texting charges. At the time, 2009, those fees were substantial.

The app, which they released publicly as TextNow, quickly went viral. Millions of users downloaded and installed it, providing the friends with a base for a larger operation that would ultimately become TextNow Inc., one of Canada’s more ambitious – but least known – startup success stories.

The Waterloo, Ont.-based company has since grown to 10 million monthly users, 100 staff and an office in San Francisco, with an eye to becoming bigger still.

“Our goal is to rethink telecom from the ground up and to figure out how to make it more innovative,” Mr. Ting said. “We want to be available not just to millions of customers but billions.”

The company’s break came in 2013, when Mr. Ting decided to move away from offering just free text messaging and into full-fledged, paid wireless service.

After securing a wholesale deal in the United States with Sprint Corp., TextNow became what’s known as a mobile virtual network operator (MVNO), a company that rents wireless network capacity to provide service to its own customers.

At the time, Sprint was the third-largest cellphone carrier in the United States. Its market share of about 15 per cent was far below that of leaders AT&T and Verizon, which each had about a third of the country’s subscribers. So Sprint was motivated to sign up customers of any kind – retail or wholesale.

The deal helped TextNow land investment from a Silicon Valley venture capitalist, which allowed it to hire more staff and add new features.

Besides basic connectivity, the company also lets customers use their phone numbers on computers and tablets and store voice messages in the cloud.

TextNow does not disclose how many monthly users are on its paid service, which starts at $13.99 (U.S.) a month, but Mr. Ting says the company is experiencing big growth. It made Deloitte’s Fast 500 growth index in November, posting 277-per-cent revenue growth between 2012 and 2016.

Despite that, the company doesn’t offer its paid service in Canada because of what Mr. Ting says is a significantly different market dynamic. A few MVNOs exist, including brands such as President’s Choice and 7-Eleven, but their comparative pricing isn’t much different than that of Bell, Rogers and Telus. The Big Three have 90 per cent of the market, each with almost an equal share, so they don’t offer MVNOs’ attractive wholesale rates, Mr. Ting said.

“U.S. carriers are much more motivated to play offence against each other, but here they’re just playing defence,” he said.

Other Canadian companies that have tried to negotiate similar wholesale arrangements agree.

“There’s nothing happening at all [with MVNOs] in Canada,” said Elliot Noss, chief executive of Toronto-based Tucows Inc., which operates the Ting wireless brand in the United States.

Spokespeople for Bell and Telus did not return requests for comment. Rogers says it is focused on continued facilities-based investment. “We provide domestic roaming to other carriers and work with resellers that don’t own a network where it makes business sense,” says spokeswoman Sarah Schmidt.

Emir Aboulhosn, founder and chief executive of Otono Networks, has had similar MVNO experiences through his Zip SIM and Roam Mobility brands, both of which take advantage of low wholesale rates from T-Mobile, the current No. 3 provider in the United States.

Roam Mobility does offer service within Canada to visiting travellers but at comparatively higher rates than it does in the U.S.

Despite that difference, Mr. Aboulhosn is sympathetic to the Canadian carriers’ position; with equal market shares, he understands the need to be more defensive.

“They’re only going to work with you when the risk of cannibalization is next to zero,” he said. “If someone comes in on their network and undercuts them, what’s the net benefit to them?”

Concerned with Canada’s high wireless prices, the federal government is stepping into the fray. Minister of Innovation, Science and Economic Development Navdeep Bains recently ordered the Canadian Radio-television and Telecommunications Commission (CRTC) to reconsider its thinking on wireless wholesale.

The CRTC has so far rejected the idea of mandating MVNOs. This year it clamped down on Sugar Mobile, an operator that was trying to introduce a TextNow-like service in Canada through an existing roaming agreement with Rogers.

Mr. Ting says government or regulatory intervention is the only way to open the Canadian wireless market to small telecom companies such as TextNow.

“We’re hopeful that our government will step up to the plate and do something about it,” he said. “It’s time for them to do something bold.”

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