Finance topics

It’s been a long time coming, but Canadian cellphone users are finally set to experience the sorts of wireless plans and services – unlimited local calls, flexible contracts, cheap data plans – that consumers in some other countries have enjoyed for years.

The country’s $12.7 billion wireless market is about to undergo a massive shakeup with the arrival of several new players following Ottawa’s decision to boost competition in the sector through an auction of wireless airwaves last year.

In fact, observers say Canadians are already starting to benefit from lower prices and more customer-friendly plans as existing giants Rogers Communications Inc., Bell Canada and Telus Corp. rush to shore up their sizable subscriber bases.

Most of the activity so far has been at the incumbents’ discount brands – Fido (Rogers), Koodo (Telus) and Solo (Bell) – where talk and text plans are available for as low as $15 per month and controversial "system access" fees have been dumped.

"They’re trying to get a head start because they know, once these new entrants come in, they’re going to be fighting for the same customers," said Jamie Chadwick, managing director of Save Cell Communications, a Toronto company that helps subscribers save money on their wireless bills.

Chadwick said the country’s low rate of wireless penetration has created a potentially huge opportunity for newcomers to carve out lucrative business.

Only about 70 per cent of Canadians own cellphones, according to industry statistics. That compares with more than 85 per cent in the United States and more than 100 per cent in some European countries, where there are more mobile devices than people.

"The large majority of people who don’t currently have a cellphone," Chadwick said, "don’t have them for one simple reason: It’s too expensive."

First out of the gate is expected to be Public Mobile. Led by CEO Alek Krstajic, the company aims to launch before year end in Southern Ontario and parts of Quebec with $40-a-month plans that include unlimited local calls and text messaging.

"We need flat-rate billing," Krstajic said during a telecom conference this week in Toronto. "And not just flat-rate to my favourite 10 friends or unlimited nights and weekends. Unlimited is like freedom. It’s either unlimited or it isn’t."

In some respects, Public Mobile’s plan is similar to a monthly $45 unlimited local calling plan that Microcell Telecommunications introduced six years ago in Vancouver, Toronto and Montreal under the Fido brand.

Dubbed City Fido, the short-lived plan encouraged consumers to ditch their home telephones with TV commercials that featured giant spools of spiralled telephone cords being unrolled throughout a city, creating a tangled mess of old technology. Microcell eventually ran out of money and was bought by Rogers in 2004.

Other new faces on the block are Globalive Wireless and DAVE Wireless (Data & Audio Visual Enterprises Wireless Inc.).

Anthony Lacavera, the CEO of parent Globalive Communications Corp., has said Canadians are fed up with poor customer service and inflexible three-year contracts that prevent them from shopping around for the best deal.

Out of the three new entrants, Globalive is the only one proposing to build a national wireless carrier with the key exception of Quebec. Backed by Egypt’s Orascom Telecom Holdings SAE, the company paid $442 million for spectrum and is proposing to launch two brands before the end of the year, one of which will take the name of Globalive’s Yak long-distance service.

Lacavera has said he wants to offer a wide-range of devices to a mix of consumers and small and medium-sized businesses, leveraging the experience and market clout of his Egyptian partners. He also has talked about bundling wireless offerings with home phone and Internet services – a key tactic used by Rogers, Bell and Telus to lock in subscribers high quality business cards.

"We want to be able to provide services to a broad segment of the market over the long term," he said in a recent interview.

It’s not clear yet if DAVE Wireless plans to follow a similar model. Dave Dobbin, a former Toronto Hydro Telecom president, has refrained from talking in-depth about its plans, citing competitive reasons. The company paid $243 million for spectrum in major cities across Canada and is backed by an investment fund led by XM Canada satellite-radio founder John Bitove and New York private investment firm Quadrangle Partners.

What is known is that DAVE is proposing to build a 3G high-speed network in 10 cities and has signed a roaming agreement in the U.S. with T-Mobile. It also plans to launch under a different name.

Consumers are bound to be the biggest winners in the coming flurry of competition, but already some are predicting several new competitors will meet the same fate as Microcell and Clearnet Communications, previous wireless challengers that were ultimately scooped up, by Rogers and Telus, respectively.

Krstajic, a former executive at both Bell Mobility and Rogers Cable, told several hundred attendees at the Canadian Telecom Summit this past week that two of the three new players would not be around in 12 months.

Not surprisingly, as Public Mobile’s chief executive, he argued that Globalive and DAVE Wireless would be the most vulnerable because both are proposing to go head-to-head with the deep-pocketed existing players.

By contrast, Public Mobile plans to build an ultra-low cost network between Windsor and Quebec City using a slice of unwanted spectrum called the G-block, which its backers, including American firms Columbia Capital and M/C Venture Partners, purchased for just $52 million, about a fifth of what the others paid in the same markets.

Public Mobile’s strategy targets the roughly 30 per cent of Canadians who do not yet own cellphones, while deliberately avoiding high-end devices such as the iPhone and the BlackBerry, which require both voice and data plans.

Krstajic said he is hoping to fly under the radar of the incumbents by focusing on a segment of the market that the existing players have already deemed unprofitable.

The challenge for Public Mobile will be proving that it can build a successful business on a chunk of wireless spectrum that virtually every other big carrier in the world has ignored. Furthermore, the company is betting that there will be a future for bare-bones cellular services at a time when the industry is rapidly moving toward all-in-one smartphone devices.

Amit Kaminer, an analyst at telecom consultants The SeaBoard Group, said he believes the current round of wireless challengers stand a better chance of succeeding on their own than did their predecessors.

"The new entrants coming in now are coming in with a new value proposition and a new cost structure," he said. "Rogers, Bell and Telus say it takes $2 billion to build a network, but that was 20 years ago. It doesn’t cost that much now."

Kaminer cautioned that making inroads in the Canadian market will not be easy. Canadians might not always be thrilled with their current wireless service, he said, but all three existing players have "sharpened their pencils" in recent months when it comes to pricing, customer service and product offerings.

"Rogers, Bell and Telus are going to put a lot of money into retention," he said. "If you’re a subscriber whose contract is ending, it’s going to be very hard for you to leave because they’re going to throw everything at you but the kitchen sink."

Source