Ottawa's spectrum sale, topping $4 billion so far, set to hike competition
Canadian cellphone users could already be experiencing the effects of Ottawa's plan to encourage more wireless competition, even though it appears unlikely an auction of wireless airwaves will immediately yield a fourth national player.
Rogers Communications Inc. has slashed its wireless data rates for BlackBerry devices and other smartphones. Some observers are treating that as early evidence that the Big Three wireless carriers – Rogers, Telus Corp. and Bell Mobility Inc. – aren't about to be caught standing still as Ottawa's spectrum auction nears its final days.
"The incumbent players are going to have to change, and we're already starting to see that with some of Rogers's new rate plans," said Carmi Levy, senior vice-president of strategic consulting for AR Communications Inc.
Rogers unveiled the new pricing data model last week after chief operating officer Nadir Mohamed said at a telecom conference that the company's pricing was set to "evolve" to accommodate a shift to smartphones that emphasize such features as mobile Web browsing and multimedia applications.
The changes come amid an ongoing auction of wireless airwaves that was designed by Industry Canada to boost competition in the wireless industry. The sector has been criticized for having some of the highest rates in the developed world. Forty per cent of the auction's spectrum is being made available to new entrants only, while the remaining 60 per cent is available to all bidders.
Total bids surpassed $4 billion earlier this week. That's more than double what most observers predicted when the auction began in late May.
The figure suggests a keen interest in a limited resource, but several analysts noted that no one bidder appears to be in a position to accumulate enough spectrum to build a coast-to-coast wireless network to challenge the national dominance of Rogers, Telus and Bell.
Newcomers Globalive Wireless and Quebecor Inc.'s Vidéotron unit have so far committed about half a billion each. Vidéotron, however, appears to be focused on Quebec. And analysts say intense bidding in a handful of key markets may prevent Globalive from achieving its national goals.
That could encourage potential new entrants to partner with each other once the auction is over. That's especially so because the higher-than-expected bid prices threaten to eat into capital that was slated to pay for the construction of new wireless networks.
"I think some of the players may have spent too much, or more than they thought, on spectrum," said Amit Kaminer, an analyst at consulting firm The SeaBoard Group.
Kaminer said significant money can be saved by sharing infrastructure, establishing mutually beneficial roaming agreements and negotiating group deals with telecom-equipment makers. As well, auction rules require "mandated roaming" on the networks of incumbents for any new entrant that intends to build a national network. A regional player gets mandated roaming for only five years.
"These guys have more in common then they do in competing," said Kaminer. "Plus, it's harder for an incumbent to match services of a new entrant on a national basis. It's easier for them to focus on one market and drive out a competitor."
The challenge, however, will be finding a way for different companies with divergent interests to work together.
A partnership between Globalive and John Bitove's Data & Audio-Visual Enterprises Wireless would make the most sense, Jonathan Allen, an analyst at RBC Capital Markets, said in a research note to clients this week. He cautioned, however, that the effort may still not be enough to capture "national" status.
Globalive is the parent of the Yak long-distance service and is being backed by financial partners with experience launching and operating cellphone companies in several European countries.
Levy said he is confident the auction will eventually yield a fourth national player, ushering in an era of more competitive wireless pricing.
"We will get a process that will take us to that point. It just might take a little longer. The opportunity is there."