Will Bell and Telus shut down CDMA?

A deal announced earlier this month by Telus Corp. and Bell Canada to collaborate on an HSPA network was a pre-emptive strike against companies like Globalive that won spectrum in last summer’s wireless auction, a Forrester analyst says.

“This is I think a proactive move with respect to raising the barriers to entry to those new entrants,” said Brownlee Thomas, Montreal-based principal analyst for enterprise telecom services at Forrester Research Inc.

Rather than ditch their CDMA and EVDO networks, Telus said it will support its EVDO and Mike networks “for the foreseeable future” while Bell said it “continues to expand and enhance” its national CDMA network. Mike is a push-to-talk service that Telus inherited when it acquired Clearnet Communications in 2000.

“Certainly for the foreseeable future we will be offering EVDO,” said Stephen Howe, senior vice-president, wireless network and chief technology officer at Bell Mobility.

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But this does not mean EVDO will be available forever, Thomas suggested.

“EVDO is excellent technology with very efficient use of radio spectrum,” she said, but noted Rogers Communications originally offered cellular service using TDMA before overlaying its network with GSM.

“When you do these overlays typically that’s going to be your replacement,” she said. “By 2012 they’ll make a decision turn down something.”

Telus did not get into specifics of cost, only saying that its “initial capital expenditures” for the HSPA buildout “are included” it its 2008 capital expenditures “guidance” of about $1.9 billion and total spending related to the HSPA network is “approximately $750 million.”

Howe would not say how much Bell will spend but Lawrence Surtees, vice-president and principal analyst for communications research at IDC Canada, estimates each carrier will spend $350 million this year and next on the HSPA network.

“Keep in mind (Bell has) an annual (capital expenditure) program of about $4 billion including mobility,” he said.

And Thomas said supporting EVDO and HSPA might not be easy.

“If they have spent $1 billion overlaying the network, what’s next? Are they going to shut off CDMA? I would say CDMA’s evolution path would probably be put into question in Canada because of this because it’s always difficult to support multiple protocols and they’re quite incompatible.” Surtees said the biggest advantage for both carriers is the ability to offer additional handsets.

“It gets them to be able to contemplate devices like iPhone if (Apple CEO) Steve Jobs is willing to provide it to them,” Surtees said.

Howe said although Bell Mobility currently offers some dual mode handsets that use both EVDO and HSPA, the national HSPA network would let them offer more handsets.

And HSPA will definitely offer better speeds, Thomas said.

“That will give you an experience that feels like DSL,” she said “This will also target the millennials, the people born after 1980 who may be single, living in apartments. Their world is mobile and they would now not need to have that high speed interconnection at home. If they’re on their own or sharing an apartment they will keep everything self-contained and they would this instead of buying a cable modem or DSL connection.”

Surtees said this would help Bell and Telus compete with companies that bought spectrum in Industry Canada’s auctions earlier this year.

“The timing is interesting given that spectrum action will introduce at least one or two major newcomers in most territories within about a year or so,” he said. “This allows Bell and Telus to be on par with what we would expect a newcomer to go with HSPA speed right out of the gate.”

Thomas said it will be more difficult for companies like Globalive, which operates discount provider Yak, and John Bitove’s company, Data and Audio-Visual Entertainment (DAVE).

Combined with the recent credit crunch in the U.S. and resulting economic slowdown, Thomas predicts companies who spent money on wireless spectrum “will be challenged to raise capital” for their network.

“If it’s hard to raise capital, the cost of borrowing will be higher,” she said, adding this may delay some rollout plans or could even push new entrants to partner with cable companies who bought spectrum, such as Shaw and Videotron.

When Bell and Telus get their HSPA network up and running it will also take away a key advantage for Rogers, Thomas said.

“Rogers has basically been picking up all of the overseas usage” for international travelers except in the U.S., where Verizon and Sprint wireless use CDMA and therefore can provide roaming service to Bell and Telus users.

“Rogers has really had the Canadian market sewn up and has been able to reap all of the (roaming) revenue.”

Thomas said a lot of European carriers make about 10 per cent of their earnings from roaming charges. While she did not have figures for Canada, she said five per cent is a “reasonable estimate.”

“Rogers picks up all that cream.”

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