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    More talk, more data, lower prices  
    Financial Post  
   

David George-Cosh

 
    January 07, 2008  
   

As new competition shakes up the wireless telecommunications market in the next couple of years, Canadians can expect to shrug off the burden of binding contracts with high fees, hidden costs and roaming charges, and pay lower prices for a greater array of options and services.

"When the new entrants get their gloves on the whip and start rolling out things, we're going to see a lot more creativity in pricing options," said Iain Grant, managing director of telecom consultant Seaboard Group.

Under new rules unveiled this week by Jim Prentice, the Industry Minister, nearly 40% of the 105 megahertz wireless spectrum to be auctioned next year will be set aside for new players. It has left the three incumbents -- Bell Canada Inc., Rogers Communications Inc. and Telus Corp. --livid, and threatens to up-end what some see as a very cozy tea party.

Quebecor Inc. was the first to jump into the fray officially with its pledge to join Canada's auction, and, if successful, to spend $500-million over the next few years to build a wireless network with the latest technology.

Analysts say consumers won't have to wait until that network is built for competition to begin because the new rules unveiled by Mr. Prentice dictate that incumbents allow the fledgling wireless operators to roam on their networks for at least five years.

Eamon Hoey, senior partner with Hoey Associates Management Consultants Inc., says the new business models brought about by competition "will deal with the angst of consumers on contract issues." Among those long-term agreements and additional monthly fees for network access and roaming.

"The more nimble companies will be contractless, simple to understand and you have options to buy buckets of minutes for prepaid prices," says Mr. Hoey.

In the United States, for example, consumer-friendly MetroPCS offers cellular customers unlimited calling and long distance for a flat rate of US$35 per month.

"Try finding that in Canada," says Mr. Hoey.

The volatility in wireless, the fast-est-growing segment of Canada's $36.1-billion telecom industry, is expected to be felt in the United States as well. In the already far more affordable U.S. industry, media and technology giant Google Inc. threatened to completely change the game yesterday when it announced plans to bid for wireless spectrum.

In Canada, the more competitive field could also include any of Manitoba Telecom, Halifax-based Eastlink Corp., Look Communications, long-distance re-seller Yak Communications, and Toronto's Bassett Media Group.

The winner, or winners, will enter an industry in which earnings margins have been healthy, in excess of 40%, and customer turnover has been low, at less than 2%, according to ratings agency DBRS. In addition, average revenue per customer is on the rise.

The percentage of the population with cellphones and other wireless devices is among the lowest in the developed world, at about 60%, according to the Canadian Wireless Telecommunications Association. That compares to about 84% in the U.S. and observers say a new Canadian player could be absorbed by the growing market.

"You would need another Rogers to fill the gap," says Robert Yates of LeMay Yates Associates Inc., a telecommunications consultancy.

But if the big three want to grab those potential customers they will need to take a page out of the new entrants' business plan and become more creative and flexible with pricing and plan options, analysts say.

"Right now, they are harvesting the few for a lot. I see in the future, they'll be harvesting the many, for somewhat less," says Seaboard Group's Mr. Grant.

Lower prices will also mean Canadians will use their cellphones and other mobile devices as more than just a voice communication device.

"Once you stop looking at your cellphone … [as something] that's going to surprise you with a $3,000 bill, we start using cellphones in different ways," said Mr. Grant.

For example, cellphones are used as money-transfer devices in lieu of bank cards in Africa and to pay subway fares and parking meters in Europe.

"When you have more phones in more pockets, it becomes more ubiquitous and then you can start doing different things," Mr. Grant said. "Then carriers like Bell, Telus and Rogers can start looking for new revenue streams they haven't got right now."

Mr. Hoey foresees the death of the CDMA network, which Bell and Telus have invested billions of dollars to build. He says the faster, more reliable GSM network will be used as the standard for wireless transmission.

"CDMA was only sustainable in an oligopoly," says Mr. Hoey. "The new entrants are much more likely to choose GSM technology because it's less expensive to deploy which will [take less from] consumers wallets."

But these sweeping changes may not happen overnight. While some analysts say a new national player can emerge moments after the auction is held, Ms. Thomas believes it will take anywhere between three to five years to properly roll out the infrastructure needed to compete with the big three telecom companies.

However, former upstarts like Microcell Telecommunication Inc.'s Fido brand and Clearnet Communications Inc., which were granted spectrum in 1995, may provide an insight into what's to come. "Fresh approaches to service bundles with disruptive price points and fresh advertising messages sent tremors through the majors and forced them to respond with more attractive bundles of their own," says Ed Daugavietis, a senior research analyst with Info-Tech Research Group. He says the pace of innovation has been more gradual since Fido and Clearnet were acquired by Rogers and Telus.

"We look forward now to a fresh injection of competitive energy."

 


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