A year ago today, Ottawa engineered a $4.2-billion change in the Canadian wireless business.
That’s what the government pulled in from the auction of AWS and PCS spectrum, an unexpected bonanza achieved by tailoring the rules to guarantee the entry of new wireless companies to compete with incumbent giants Bell Canada Enterprises Inc., Rogers Communications Inc. and Telus Corp.
The government, of course, got its money early. We don’t know yet whether the new licence holders will deliver on their promises of better choices for wireless users.
What is known is that four of them –-Globalive Wireless Management Corp., Data and Audio Visual Enterprises Wireless Inc. (which will go to market with a snappier name), Videotron Ltd. and Public Mobile Inc. — are building out and testing their networks after vowing to open for business either in the fourth quarter or early next year. For competitive reasons their business plans, prices and launch dates are vague.
Globalive and Videotron will have networks based on the latest HSPA technology, which offers data download speeds of up to 7.2Mbps under ideal conditions. DAVE is going one better and will use the fastest HSPA Plus technology, offering speeds of up to 21Mbps. Public Mobile, which is going after first-time cellphone owners, is using the slower CDMA technology.
Two major new spectrum holders, Calgary’s Shaw Communications and Halifax’s Bragg Communications, have decided not to go into business yet. They may have decided that with a stumbling economy the time isn’t right. Or, they may be waiting for one of the others to stumble and pick up the pieces.
The incumbents aren’t standing still. Bell and Telus, whose networks have been based until now on CDMA technology with data speeds of around 3Mpbs, have teamed up to build an overlay network using the faster HSPA technology. That will allow them access to the latest HSPA handsets sold by arch-rival Rogers, as well as a relatively easy path to the all-IP fourth-generation technology called LTE. It is believed that at least the Vancouver area of the network will be running in time for the Vancouver Winter Olympics in February. ON VIDEOWatch Public Mobile’s demo in our video library
For its part, Rogers its honing its network to meet these challengers as well. One possibility is that it will shortly increase its network speed to 14.4 Mbps or jump to HSPA Plus.
There is one other development that may affect the progress of wireless technology here, and it is happening south of the border, where an operator is taking a bold leap into the future. Verizon, which has a CDMA-based network, has decided to build a new network of its own and go straight to LTE, which promises data speeds of at least 100 Mpbs. Commercial deployment is expected in the second half of 2010. Its success will be carefully monitored by Canadian operators, who will use it as a guide for their move to LTE.
All of which is why Johanne Lemay, co-president of the Montreal-based telecommunications consultancy Lemay-Yates Associates Inc., says the development of wireless here in the next 24 months will be fascinating.
“I think it’s going to be very exciting, not only from the competitive perspective, but in terms of what we’ll be able to do with our mobile phones,” she said in an interview. “We’re just at the start of a significant upramp in terms of innovation.”
Here’s a brief look at the new entrants:
Globalive Wireless: A division of long-distance dial-around operator Globalive Communications Corp. of Toronto, it’s backed with significant investment and experience from Egypt’s Orascom Telecom Holding SAE. The closest of the newcomers to becoming a national operator, Globalive paid $442 million for 30 licences covering much of the country, except southern Quebec and Nova Scotia. Launch cities will be Vancouver, Calgary, Edmonton, Toronto and Ottawa. Aims to sign up 1.5 million subscribers in the first three years in part by leveraging Globalive Communication’s long-distance and Internet subscribers. By 2014, hopes to have 3.5 million subscribers. Promises “cost-effective, simple” plans.
Globalive’s launch date may be delayed by a CRTC inquiry into the extent of Orascom control . The commission said the hearing, to be held in September, will look into “the complexity of Globalive’s corporate structure and financing arrangements.”
DAVE Wireless: DAVE paid $243 million for 10 licences that include southern and eastern Ontario, Victoria, Vancouver, Edmonton and Calgary. That leaves no coverage in southern Quebec or the Maritimes. Owned by Toronto entrepreneur John Bitove and U.S. venture company Quadrangle Capital Partners, which has wireless experience. Promises plans with “simplicity, flexibility.”
Videotron: Paid $555 million on spectrum mostly in Quebec, but also, significantly, for spectrum over Toronto. The cable division of Quebecor has been a virtual mobile operator for years by reselling Rogers spectrum. Now it has spectrum of its own and is the only one of the newcomers that can bundle wireless with TV, Internet and home phone offerings to match Rogers and Bell.
Public Mobile: A partnership between Canadian and U.S. capital companies, some of whom have extensive experience with wireless startups, this upstart paid only $52 million for PCS spectrum that few wanted. It believes it got the deal of the century, for its spectrum covers Toronto and Montreal. The company says it will stay out of the crosshairs of Bell, Telus and Rogers by pitching phones to those who so far have believed cellular was unaffordable.
Will the new entrants succeed? In a study done after last year’s auction but before the recession started, the Convergence Consulting Group of Toronto estimated that by the end 2015 the new entrants will have 8.2 million subscribers, or 24 per cent of Canadian wireless market, thanks to aggressive pricing. Videotron will be EBITDA positive (that is, earnings before interest, taxes, depreciation and amortization, which is a measure of operating revenue minus expenses) in its second year, Globalive by its fourth year.
However, the study assumed Shaw and Bragg would be in business. Eventually they will be, but it isn’t clear when.
Constructing a new wireless network isn’t cheap – Globalive estimated it will need more than $1 billion over several years to build out its network. It is possible Shaw and Bragg are waiting to see how deep a hole the newcomers will dig themselves into, and then make someone an offer they can’t refuse.
Consider the obstacles the newcomers face: Incumbents who will be ruthless in their pricing and have greater product bundling capabilities, a recession that has cut into consumer discretionary spending and unfamiliar brand names. Bell and Telus could launch their new network before the newcomers can and steal their thunder. The newcomers’ networks and customer service will have to be almost flawless from launch, for thanks to the Internet a poor reputation will spread faster than the flu.
In one sense, the new entrants have a five-year deadline. That’s when the federal prohibition against Bell, Telus and Rogers buying the newcomers expires. Few industry observers believe that all can survive. Many believe at least one of the newcomers will have to merge or closely partner with another. So consider that Videotron offers a way to fill a hole in Quebec for DAVE or Globalive. Or that DAVE or Globalive offers a way for Shaw or Bragg to have an instant network.
Michael Rozender, an Oakville, Ont., wireless consultant to enterprises, says subscribers, not profit, will be the new entrants’ initial goal. “Swim fast – acquire subscribers quickly – and swim fast enough to keep ahead of the sharks and whales until you are ready to be swallowed and achieve your exit strategy for your shareholders.”
Canadians have seen benefits from the auction even before the newcomers have launched, says Amit Kaminer, an analyst with SeaBoard Group: Bell, Rogers and Telus have cut prices, improved options and increased network speeds. “But there’s still a way for the new entrants to make a mark on the market,” he added. Look for the new entrants to spur shorter contracts, bigger buckets of time and more included services such as caller ID or voicemail.
“I think we are going to see a much-revived and rejuvenated wireless market,” he predicts.