Analysts and carriers in Canada are in disagreement over the possibility that wireless service providers will have to take an initial financial hit when they roll out so-called 2.5-generation packet data services throughout this year.
“They’ve gone through years of subsidizing handset sales, and now it’s starting to even out so that companies are no longer subsidizing anywhere near as much as they did,” said Jeff Leiper, a wireless industry analyst with Decima Research in Kanata, Ont. “But when you introduce the wireless application protocol (WAP) and the 2.5G phones, again the companies are going to have to start taking on a bit more of a subsidization role in order to get those handsets in the hands of customers.”
Experts say Canada’s four wireless carriers will be eager for customers to start using 2.5G phones because of the more lucrative services offered along with the devices. Data services generally provide better price margins than traditional voice services.
All four of Rogers AT&T Wireless, Microcell PCS (which markets the Fido-brand phone), Bell Mobility and Telus Mobility have announced they have started developing technology for 2.5G and the future 3G wireless services. While current handsets can transmit data at about 14.4Kbps, the packet data 2.5G technology offers anywhere from 56Kbps to 144Kbps. Third-generation wireless, which is about two to three years away from deployment, is said to offer data rates as high as 2Mbps.
Service providers are salivating at the possible business opportunities – including mobile commerce and location management – in what is now primarily a consumer market.
“We’re going to start seeing more things like those, ‘New-every-two’ type deals,” suggested Jeremy Depow, a telecommunications analyst with The Yankee Group in Canada in Brockville, Ont., “where you get a phone and then sign up on a contract and then two years (later) you get a brand new phone. (It’s) just to keep customers having the best technology so they are available for the new services.”
However, some carriers argue subsidization levels will be nowhere near what the service providers experienced when they initially rolled out personal communications services (PCS)-equipped phones in the mid-’90s.
“The first CDMA (code division multiple access, the wireless standard used by Bell Canada) terminals for us, we were paying $750 for a dual-mode (offering both analogue and digital voice) CDMA handset,” recalled Bruce Rodin, director of technology and development, products and services, for Bell Mobility in Mississauga, Ont. “When we first looked at 1xRTT (what Bell dubs its 2.5G technology) and its capabilities, we said, ‘Oh no, what are we in for?’ But when we actually see the pricing it’s not even close to that.”
Rodin was unable to identify exactly at what price points manufacturers will offer 2.5G phones. And Nokia, the world’s largest wireless phone maker in terms of market share, said it did not have any firm figures yet either.
David Neale, the vice-president of new product development for Toronto-based Rogers, is not worried.
“Based on the discussions we’re having with vendors, the top of the line handsets that I’m looking at for the new network are priced at about the same as the top of the line handsets in the current network,” Neale explained.
He is also confident that Rogers will be able to take advantage of its current shift to the Global System for Mobile (GSM) communications wireless standard, the world’s most prevalent standard. Carriers in Europe are already gearing up for 3G, he said.
“So many of them are deploying 2.5G, we do gain access to production runs that are already very large,” Neale said.
Rodin added that even if carriers have to take a hit by subsidizing handset sales, it will likely recoup those costs with increased network efficiencies.
He explained that accommodating data services such as Internet browsing on the packet data 2.5G network uses far less network resources than are being used on the company’s current network.
“In terms of…loading, it’s probably 1/100th of the network resource consumption.”
And unlike the current free data services service providers dangle to customers, Rodin said most enhanced data services in the future will likely cost money.
“Certainly, we’re in this to make money…so part of the equation is we’ll do (subsidization of enhanced phones) if we have the services that can cover the incremental cost of that handset,” he said.