Cost structure of wireless industry under fire from leaders, conference told

Leaders of Canada’s wireless industry are cautiously hopeful about the future of the sector, but warn that governments must be more responsive to their concerns. That was the underlying message at a session at last week’s EXPO COMM Canada 2002 conference in Toronto. On the second day of the two-day gathering, George Cope, Telus Mobility’s president and CEO, and Nadir Mohamed, president and CEO of Rogers Wireless Inc., participated in the leadership panel, What Telecom Needs from Canadian Policy. A third scheduled panelist, AT&T Canada Corp. executive VP Henry Yip, cancelled his appearance at the last minute. Cope lambasted the federal government, primarily Industry Canada and the CRTC, for its monetary demands. He said his company, Rogers, Bell Mobility Inc., W2N Inc., and Thunder Bay Telephone collectively spent $1.48 billion in the 2001 spectrum auction (RoW, Feb. 5/01). The industry handed over more than $1.3 billion to various levels of government in the form of taxes, licence fees, R&D and contribution costs. This has a detrimental effect on deployment, he offered."Money flows to investment or it flows to Ottawa," he stated. Cope also called for reduced regulation, saying this would ensure ongoing expansion capability. He also urged the companies themselves to cut costs as a method of promoting reinvestment and innovation. "We have to focus on getting rid of costs we can’t afford," Mohamed agreed. "Just as operators must change the way they do business, so government must change."Mohamed concurred that taxes are too high and raised the question of foreign ownership restrictions. (Buzz at the conference suggests that the government may announce a review of those limits by the end of the month.) He would also like to see spectrum caps in Canada lifted, as they have been in the United States. Industry players and the Canadian Wireless Telecommunications Association (CWTA) have been lobbying the government for years to cut both direct and indirect costs on the sector. Most recently, the CWTA and Telesat Canada called for such cuts in comments to Revision to the 1992 Spectrum Policy Framework (DGTP-004-02; RoW, Oct. 15/02). The message has not gone unheard, either. The Organisation for Economic Co-operation and Development (OECD) recently called on the Canadian government to cuts costs imposed on the wireless industry (see story in this issue). While complaining about the high level of financial obligations, both CEOs were enthusiastic about the prospects for new services in the wireless sector. Each promoted new products such as text messaging, interactive gaming, images and ringtones, and camera phones. Mohamed reported that on a recent holiday in Spain, everyone he saw was using wireless devices for either messaging or gaming. Cope stated that 50,000 ringtones are purchased daily south of the border and that the same trend is being discovered here. The youth market is driving the trend, he said. That bodes well for the industry, since a 12-year-old who gets a cell phone is likely to become a customer for life. Mohamed noted that while teens are the first to adapt to new technology, adults tend to follow their children’s lead. Mohamed reported that 80 per cent of Rogers employees are using their phones for SMS. He believes his company has an advantage in the marketplace because it does not charge those who receive messages, only those who send them.Camera phones are expected to explode in popularity. Cope presented figures projecting that 16 million devices will be sold this year, increasing to 147 million by 2007. He predicted that 400,000 to 500,000 Canadians will buy new wireless phones for Christmas. His company wants 399,999 of those subscribers, he joked. Measurement benchmarks for industry change with times Mohamed also talked about the change in the perception of success in the wireless sector. At one time gross additions were the only standard of measurement. After the churn rate became a factor, net additions became the benchmark. That later evolved to EBITDA profitability with the final goal being growth in cash flow. Most wireless companies are now at EBITDA profitability, Mohamed said, with real profitability still far on the horizon. "As an industry, we are not delivering profit growth to our investors and creditors," Mohamed said. "That cannot continue." Cope painted a bright picture of the wireless sector. All the companies in the sector account for more than 25,000 jobs and posted $6.6 billion in revenues last year. The wireless contribution to Canada’s GDP last year was $4.9 billion, while it has spent $10.7 billion in capex since 1995. "It’s hard to find an industry with such good numbers without an export aspect," Cope told the sparsely attended forum. During a question-and-answer session, both men downplayed the idea of providing service to every single Canadian. While wireless firms have been able to roll out to each section of the country, deployment to every town and hamlet is not viable."None of this is services for the sake of services," Mohamed explained. "You don’t make an investment where you don’t have a hope of a return." Cope offered numbers that illustrate the disparity in deploying service. To install a cell site in downtown Toronto costs $6.85 per POP. This is calculated by having 3,939 people per square mile and having the $27,000 licence fee covering one kilometre. By contrast, Chatham ON has 17 people per square mile and the licence fee covers eight kilometres. That works out to an installation cost of $198.53 per POP. Both CEOs discounted the hoopla over 3G deployment. Mohamed said Rogers is not looking at the technology, while Cope maintained 3G is mostly a European phenomenon. The Rogers chief called upon his fellow executives to pay attention to subscribers instead of other industry folks. "We have to listen to our customers and find out what they want," Mohamed said. "Rather than what the suppliers give or guess what our rivals will do."

Cost structure of wireless industry under fire from leaders, conference told

News | November 12, 2002

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