Cut contribution charges, cry carriers

Wireless carriers say the federal government should provide further incentives for high-tech innovation if Canada’s mobile sector is ever to reach profitability, although one industry analyst says the situation is more complicated than service providers let on.

Representatives of two Canadian service providers in November put forth a less-is-more scenario, calling upon the feds to decrease certain fees carriers pay in order to lessen the tax burden and to loosen foreign investment restrictions. These measures would go a long way to aid the wireless access market in its bid for profitability, the carrier representatives said during Expo Comm Canada’s Communications 2002, a technology conference held in Toronto earlier this month.

“As an industry, we have not returned positive numbers to our shareholders,” said Nadir Mohamed, president and CEO of Rogers AT&T Wireless. “That cannot continue.”

George Cope, president and CEO of Telus Mobility, said the federal government could aid carriers by reducing some of the expenses that service providers pay. For example, Cope pointed out that wireless carriers lost $1.3 billion to taxes last year, representing 27 per cent of the industry’s revenues.

“I would argue that’s too high,” he said.

Cope and Mohamed called for fewer restrictions on foreign ownership, suggesting that carriers would win greater access to capital if outside investors could own a greater percentage of Canadian companies than they are currently allowed. (The rules today say foreign investors can own no more than approximately 30 per cent of a Canadian service provider.)

Bob Simmonds, executive vice-president, regulatory affairs with Telus Mobility, said the contribution charges carriers have to pay – to subsidize local wireline service where costs outstrip regulated prices – are too high. However, he added that the government this year reduced this obligation from 4.5 per cent of carriers’ revenues to 1.5 per cent.

“We have to recover that from subscribers,” Simmonds said, pointing out that carrier costs ultimately fall on users’ shoulders.

“We’re already paying for spectrum and all these other fees,” Simmonds continued. “No one is adding up the total impact on the industry.”

Cope noted that revenue per unit (RPU) – the amount of money carriers draw from each subscriber – has been declining for the better part of a decade. But will reduced government-mandated obligations give wireless service providers the leverage they need to reach profitability?

Ian Angus, an analyst with Angus TeleManagement Group Inc. in Ajax, Ont., seemed skeptical, pointing out that wireless carriers entered into “price war after price war” in their battle for dominant market share.

Angus said what plagues wireless carriers isn’t so much government oversight. Instead, competition is the culprit. Canada has four service providers gunning for customers. In this intense milieu, he figures carriers would take any government discounts and “just lower their prices again,” thereby enforcing the price war.

“This is the direct result of a highly competitive market,” Angus said, scoffing at the idea that the government is to blame for carriers’ woes.

Although Mohamed and Cope agreed on the government’s role in facilitating a profit-friendly business environment, the execs held different opinions about the tech infrastructure required.

Rogers AT&T Wireless remains committed to general packet radio service-enhanced global system for mobile communications (GSM/GPRS) infrastructure, Mohamed said. Although the technology cannot lay claim to the hallowed “3G” moniker denoting super-fast data transfers, the technology, known as 2.5G, serves Rogers’ customers well, he said, adding that the carrier will not move to 3G until it can prove a solid business case for doing so.

Cope said Rogers’ decision makes him feel “very comfortable,” especially since Telus Mobility started offering 3G service earlier this year.