Celebrating its 10th anniversary, Waterloo-based free text and phone service startup TextNow is still going strong, with its highest year of growth to date – despite push back from incumbent wireless carriers looking to maintain the status quo.
TextNow is a Voice over Internet Protocol (VoIP) service, meaning it uses a combination of Wi-Fi and wireless networks to power its service. Its free app for text and calling, available in Canada and the US, looks to use Wi-Fi as much as possible while limiting the use of data. The company touts itself as the “world’s first cloud-based phone carrier.”
“We have [patent] technology where we optimize cost by sending more calls to Wi-Fi.”
In the US, TextNow also offers low-cost phone plans through a mobile virtual network operator (MVNO) partnership with Sprint that allows it to use the telecommunication company’s wireless network infrastructure. This gives TextNow customers access its cloud-based phone services through its app as well as a TextNow SIM card.
Across both markets, the phone service has 14 million monthly active users and since its launch in 2009, has seen significant growth. In 2018, TextNow saw one of its biggest years of growth, with one-third of its overall app downloads occurring in the past year alone. This milestone saw app downloads jump from 100 million to 150 million.
“We have [patent] technology where we optimize cost by sending more calls to Wi-Fi than the cellular,” explained Derek Ting, founder and CEO of TextNow. He called the technology, that allows users to easily move from Wi-Fi to data, TextNow’s ‘super sauce’ that makes it affordable.
And TextNow wants to bring that affordability to Canada – but it can’t.
Despite success in the US, the startup has been shut out of Canada thanks to the oligopoly in the Canadian wireless carrier market, dominated by the Big Three – Rogers, Bell, and Telus.
The demand and interest from Canadian consumers looking for cheaper phone plans is clearly there. TextNow’s free app, that allows users to text and make calls when Wi-Fi is available, has more than 3.5 million downloads in Canada.
“The Waterloo startup is not the only one facing an uphill battle in the Canadian telecommunications market.”
The Waterloo startup is not the only one facing an uphill battle in the Canadian telecommunications market. In March, the Canadian Radio-television and Telecommunications Commission (CRTC) ruled against all Wi-Fi first MVNOs. According to MobileSyrup, the CRTC re-affirmed a previous decision that Wi-Fi does not count as a home network. This ruling essentially making it difficult for MVNO companies to operate in Canada, including TextNow and fellow Wi-Fi-first carrier Sugar Mobile, which was forced to cease its service offerings after the CRTC ruled in favour of Rogers after the teleco company complained that its roaming partner, Ice Wireless, was allowing Sugar to use its network.
The CRTC’s rulings are restricting competition in the Canadian market, and maintaining the status quo that makes Canada one of the most expensive wireless markets in the world. A Innovation, Science, and Economic Development Canada (ISED) report released last year, shows that while data plans may have dropped slightly, Canadians still pay some of the highest wireless prices in the world. When comparing typical Canadian mobile wireless service plans with equivalent plans internationally, Canada is almost always higher.
Findings from a more recent report from Tefficient, a European-based consultancy on the wireless market, supports the ISED report. It shows that Canadian carriers are generating more revenue per GB than anywhere else in the world.
“Canadian consumers pay some of the highest rates for wireless services anywhere in the developed world.”
Michael Giest, a law professor at the University of Ottawa, who often analyzes technology law issues, argued that Canada truly is a global outlier in how much consumers pay for wireless plans. “The issue is not whether Canadian consumers pay some of the highest rates for wireless services anywhere in the developed world,” Geist said in a January 22 blog post. “Rather, it is what, if anything, ISED Minister Navdeep Bains and the CRTC are prepared to do about it.”
After consecutive rulings from the CRTC, Bains has spoken out against the decision, asking the agency to reconsider. “With the MVNO decision, we were disappointed because we believe that technology is a clear way to help deal with affordability issues and provide meaningful solutions,” Bains recently told MobileSyrup. “As I mentioned, we were disappointed.”
Bains also stated in a December news release that the government is still working towards bringing down the cost of cell phone plans. “While we’re making progress, our government remains focused on promoting greater competition in the telecom sector to drive down prices for Canadians, while making sure they can also benefit from the latest technology and high-quality services,” he said.
“While we’re making progress, our government remains focused on promoting greater competition in the telecom sector.”
In the US, TextNow is able to work with major carriers and use their network infrastructure to offer its own low-cost plans. It offers a variety of plan options, starting from the Wi-Fi only free plans, to its average plan of $29 USD a month, which includes unlimited call and text in the US and Canada as well as 2 GB of data. Compare that to a Canadian carrier like Bell, where, when BetaKit reached out to a sales representative, they estimated the cost of a similar plan to be $65 CAD a month.
When asked if TextNow has any hope or plan of bringing its plans into Canada Ting said, while its something the company has talked about internally and with the incumbent carriers, it’s not on the radar right now. “We can’t sell in the Canadian market because we essentially need the blessing from the Big Three carriers,” he stated.
“The carriers in the US are very eager to work with us and to bring our innovation to the market because it brings them a lot of business, but Canadian carriers are in a completely different mindset; they’re playing defense,” Ting told IT World Canada after the initial March ruling from the CRTC. “The fact that this ruling from the CRTC basically says anti-competitive practices are okay, that’s a huge blow to any new innovation, new types of service, new market opportunities, and cheaper plans for customers. We’ll be fine because of our robust business in the US but we would love to offer the same service in our home market.”
Ting also noted to BetaKit that, the lower cost data plans (that the CRTC decided to force on carriers instead), didn’t go far enough and are not competitive in the global market.
With the rulings from the CRTC Ting said TextNow plans to focus its growth on the US market over the next year. And when it does decide to move into Canada, wants to be able to do it “with conviction”, and with full available resources. “We don’t want to do anything half-baked,” Ting noted.
Having started at a kitchen table at the University of Waterloo ten years ago, TextNow is still showing signs of growth. Despite the existing struggle in Canada, it has expanded to 120 employees, with offices in Waterloo and San Francisco. It was named one of Canada’s fastest growing companies in Canada by Canadian Business and Macleans in 2018.
“Everyone agrees with the fundamental issue of affordability and accessibility of phone service.”
Last year TextNow also received $1 million from the National Research Council of Canada Industrial Research Assistance Program (NRC IRAP) based on its revenue growth of 379% as well as the number of employment opportunities created over a five year period. The company said at the time that the funding will go towards “continued growth, including the hiring of engineers to develop a world-class media platform, delivering high-quality communications using the best available network.”
“This is a problem that connects with a lot of people,” Ting told BetaKit, “I think everyone agrees with the fundamental issue of affordability and accessibility of phone service.” He noted that “there is a personal connection with the problem that [TextNow is] solving and [people] care deeply about it.”
Image courtesy TextNow