Will new broadband wireless services transform the business model?

It was a long process: there were 331 rounds of bidding, from late May until July 21. In the end, 15 successful bidders emerged. These companies bought 300 broadband wireless spectrum licences for a total of $4.25 billion – a nice chunk of revenue for the federal government. But what does it mean for Canadian mobile phone subscribers? It was a long process: there were 331 rounds of bidding, from late May until July 21. In the end, 15 successful bidders emerged. These companies bought 300 broadband wireless spectrum licences for a total of $4.25 billion – a nice chunk of revenue for the federal government. But what does it mean for Canadian mobile phone subscribers?It was a long process: there were 331 rounds of bidding, from late May until July 21. In the end, 15 successful bidders emerged. These companies bought 300 broadband wireless spectrum licences for a total of $4.25 billion – a nice chunk of revenue for the federal government. But what does it mean for Canadian mobile phone subscribers?Forty per cent of the spectrum auctioned was reserved for new entrants in the mobile market. While the three large incumbents emerged with more than 50 winning bids each to take a slim majority of the new licences, most successful bidders are new entrants. As a result, one impact of the auction is clear: increased competition.That usually means customers get more for less, and that’s what telecom industry analysts expect.“What we’re expecting is downward pressure on prices and upward pressure on service,” says Eamon Hoey, long-time telecom industry consultant and senior partner of Hoey Associates in Toronto. David Komaromi, technology director at national law firm Fraser Milner Casgrain LLP in Toronto, hopes that’s true. “My hope is that it creates serious competition for the big players out there which translates into better consumer choice,” he says. Change won’t come overnightHoey says mobile calls within the same carrier’s network could eventually cost as little as two or three cents a minute, though he expects the decline to take at least a couple of years. He forecasts service improvements on several fronts, such as better coverage, more choice in international roaming at lower cost, and easier-to-understand bills. He also expects a move away from the present mobile business model where most people buy phones from carriers and are locked in with long-term contracts and phones that won’t work on other networks.The North American wireless business model is dead, Hoey argues. “It’s a business model that’s not workable the minute you have effective competition.”In much of the world, you can buy a cellphone anywhere and choose the network on which you use it. In some countries carriers are required to offer phones not locked to their services the way most phones sold in Canada (and the U.S.) are. And, Hoey says, in much of the world the prepaid model, which has gained limited acceptance in Canada, is the norm. You buy buckets of minutes from a carrier first, then use them up. He expects that approach to replace the model most Canadians are used to, in which you sign up for a one- to three-year contract and receive a monthly bill.Contracts aren’t history yet, and Hoey notes that with new competition expected in the next year or so, the incumbents are “anxiously signing up everyone.” Established carriers want to get as many customers as possible into new contracts before new rivals start trying to lure them away. That, says Iain Grant, managing director of telecom consulting firm SeaBoard Group in Montreal, could mean there are good deals to be had – but beware of tying your hands just before new options appear. While the prospect of new competition implies better deals for wireless subscribers, Grant warns the early benefits may go mostly to the low end of the consumer market.“We see a number of companies who are obviously going to redefine what the low-cost user is going to pay for services,” he says. “I think we have some very interesting times for the entry-level or the survival-level user.” And besides reducing mobile phone bills for those whose bills are already relatively small, Grant predicts the new offerings will help induce “the 40 per cent of Canadians who have heretofore sat on their hands” to acquire their first cellphones.That would contribute to increasing Canada’s mobile penetration, which SeaBoard estimates at around 60% – among the developed world’s lowest.But does it help business and professional users whose monthly bills are often well above the $65-to-$70 national average? They will probably not see the benefit as quickly as low-budget and first-time cellphone users, Grant predicts.Of course the implications will only become clear as the new entrants launch their services and the incumbents respond. That’s going to take time. Nonetheless, the first new services are expected before the end of 2009.New entrants to shake up marketVideotron Ltee. and parent company Quebecor Media Inc. have been most communicative about their plans. On October 22, the companies announced plans to have a third-generation wireless network up and running in 12 to 18 months.Total investment by Videotron, including the cost of buying spectrum, is over $1 billion. Approximately $250 million will be spent over four years to build the network using High Speed Packet Access (HSPA) technology. Robert Depatie, Videotron’s president and chief executive, said at the announcement that the network will be able to deliver speeds up to three megabits per second. Videotron hasn’t revealed pricing, but during the press conference Depatie promised an “unprecedented offer” with an emphasis on simplicity. “That means it’s not going to have any hidden fees,” he said, “and I’m repeating, no hidden fees.”The company didn’t announce plans for the blocks of spectrum it acquired in the greater Toronto area, though Pierre Karl Peladeau, Quebecor’s president and CEO, described that as “a quality asset that allows us to have a good position in possible negotiation with suppliers.”Peladeau also emphasized content, saying his company will repurpose content from its media operations for mobile delivery. But if Peladeau is pushing ahead rapidly, other successful bidders are taking it slow. DAVE Wireless and Eastlink declined to comment on their plans, saying they have nothing to announce yet. Jim Shaw, chief executive of Shaw Communications Inc., is more candid. Shaw won’t make any material investments on wireless in 2009, he says, and will take another look at the market late next year.“Given the state of the market and given our strong position as a video, data and telephony provider,” he says, “it’s our feeling that a decision to go out and spend a whole lot of money on a business that might be there or might not be there in the long term is not prudent use of our resources.”Shaw will enter the wireless business, Shaw says, but being a conservative company by nature, it will take its time.Globalive Communications Corp. plans to roll out 3G wireless services across the country except in Quebec, starting with Toronto, Vancouver, Calgary, Edmonton and Ottawa in the third quarter of 2009, says Tony Lacavera, Globalive’s chief executive.Lacavera says subscribers want more choice, fixed price plans they can understand and budget for, and freedom from being locked in. “People are really looking for an ability to not be tied into these long-term contracts,” he says. So Globalive plans simple, fixed-price deals with limited contract terms or none.And bearing out Grant’s prediction that the benefits will accrue mainly to consumers at first, Lacavera says Globalive will focus primarily on the consumer market.Another player to watch is BMV Ventures, the name announced in late October for a group of U.S. and Canadian investors that acquired four licences for PCS G Band spectrum in the Windsor to Quebec City corridor. U.S. investors include M/C Venture Partners and Columbia Capital, venture capital firms with experience in wireless, broadband and media. In late October, BMV appointed former Bell Mobility president Alek Krstajic as its chief executive and said it plans to launch services in the third quarter of 2009.Meanwhile Bell Canada Enterprises and Telus Corp., the two national incumbents whose networks run on CDMA technology, announced plans to work together on a new high-speed network that will use HSPA, the latest iteration of the GSM technology that rival Rogers Communications Inc. uses and that prevails in most of the world outside North America. They project a full national launch by early 2010.So Canadians will have more choices. “I would say that in Canada we have been behind in these areas and I’m optimistic that things are changing,” Komaromi says. “You will find radical improvement in how you are treated by your existing carriers,” Grant says. “We have to get away from that idea that we are merely sheep, or birds who are just there to be plucked.”

Will new broadband wireless services transform the business model?

News | November 24, 2008

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