With more wireless competition looming, executives at Telus Corp. are believed to be mulling a pricey swap of the firm's network technology in a bid to offer subscribers a bigger selection of mobile devices and grab a larger slice of lucrative international roaming fees.
In the wireless equivalent of moving from Betamax to VHS, Telus executives are considering adopting new technology "as early as this year," industry sources say. The change would effectively make all or part of Telus's CDMA network compatible with the GSM-based systems operated by most carriers outside of North America. The two acronyms stand for code division multiple access system, and global system for mobile communications, respectively.
The idea "has been presented at the board level and is being actively considered," said one source familiar with the situation who asked not to be identified. The source cautioned that there were no guarantees Telus will go ahead with a changeover, which analysts say could cost about $500 million.
A Telus spokesperson declined to comment.
The CDMA format is still common in North America but is increasingly falling out of favour as the rest the world moves toward GSM. A switch would allow Telus subscribers to roam on more overseas networks and choose from a much larger (and cheaper) selection of cellphones built for global markets, where some 80 per cent of cellphone users now operate on a GSM format.
Telus would also benefit by getting a slice of the roughly $500 million in annual roaming fees that now goes to Rogers Communications Inc. At present, Rogers operates Canada's only coast-to-coast GSM network, a position it solidified after it beat out Telus's bid to buy GSM-operator Microcell Telecommunications Inc., the operator of the Fido brand, three years ago.
Telus executives have previously said they would prefer to stick with their existing network, but some believe the mood within the company's Vancouver headquarters changed after the carrier learned in late November that Ottawa aims to promote wireless competition by setting aside airwaves for new entrants in a forthcoming auction.
Any new wireless carrier is expected to build a network using GSM-based technology.
"I think there's a strong argument to be made for biting the bullet and doing it now," said Dvai Ghose, an analyst at Genuity Capital Markets. "If Telus manages to accomplish (the switch) with a modicum of success, I think it's a positive for Telus and a negative for Rogers, which loses exclusivity in Canada."
Bell Canada Inc. is facing the same pressures with its CDMA-based network, but that carrier is believed to be focused on completing a $51.7 billion privatization deal.
A Bell spokesperson said the carrier is committed to the CDMA platform, citing the technological advantages and North American coverage. CDMA has historically claimed better capacity for voice and data communications.
Telus, by contrast, has apparently solicited multiple bids from telecom-equipment makers in an effort to explore different transition scenarios and the costs.
The options range from a complete network swap to building some sort of hybrid network that would run certain GSM devices.
Of course, such a strategy has its downsides.
Amit Kaminer, an analyst for consulting firm The Seaboard Group, said Telus may be wise to sit tight until so-called 4G, or fourth generation, wireless technologies effectively merge the two standards. That way Telus could avoid the expense of overhauling its current "3G" network twice, Kaminer said.
The gamble is that no one knows for sure when a single standard will become commonplace. Some analysts say Telus could be waiting as long as five years, a lifetime in the fast moving telecom sector.
In the meantime, both Telus and Bell could face significant disadvantages in getting hold of the latest devices.
"It's very difficult for them to compete on a product like the Motorola RAZR when you're getting it nine months late and it's several hundred dollars more expensive," said Genuity's Ghose.
One recent high-profile example is Apple Inc.'s much-ballyhooed iPhone, which was launched last June as a GSM-only device. Plans for a CDMA version have yet to be announced, making it a near certainty it will end up with Rogers when Apple finally decides to launch the iPhone in Canada.
Telus CEO Darren Entwistle refused to comment directly on the possibility of a GSM switch when asked about it during Telus's third-quarter conference call with analysts. He did, however, acknowledge "certain advantages" relating to the availability and cost of GSM devices, as well as the potential for roaming revenues with "lucrative" margins.