Hurdles to clear before older network technologies can be phased out

Telus Corp., BCE Inc. and Rogers Communications Inc. have several hurdles to clear before they can benefit from shutting down their older IDEN, CDMA and GSM wireless networks, a move that's likely to happen over the next three to ten years, industry analysts said. The three incumbent carriers, which each operate three to four wireless technologies, could each save as much as $40 million a year by eliminating these older networks and reuse the wireless airwaves for more fourth-generation LTE traffic. Before that can happen, though, the companies must migrate customers using those older technologies to other services, and ensure their international roaming agreements don’t compel them to keep the older networks running. “I don’t think it’s going to happen overnight,” Canaccord Genuity analyst Dvai Ghose said in a telephone interview Thursday. As smartphone use has grown, most Canadian consumers have made the shift to phones that use the newer network technologies, though others have continued using old devices. Ghose, who estimated that BCE could save between $30 to $40 million by decommissioning its older CDMA network, said the primary difficulty in doing so will be convincing customers who are set in their ways to part with trusted technology in favour of something they’ve likely never used. “There will always be a rump of people who never want to do , and those are the ones that you’ll have to force off,” he said. Wireless carriers want that rump to get as small as possible by the time they force customers to change networks, Ghose said. Large migrations, he added, would cause financial and technological headaches for the companies, which would have to pay for engineers and tech support to help manage the migrations, and whose free cash flow would take a hit from any sudden surge in device subsidies. “I think by and large they’re going to try to do it naturally over time,” Ghose said. Roberta Fox, a telecom analyst and chief innovation officer at consulting firm Fox Group in Toronto, noted that Telus’ IDEN network caters to a niche market of business consumers, such as workers in the transportation and construction fields, who use the network’s push-to-talk, or "walkie-talkie" service. Many of those customers, she said, “will kick and drag their heels for as long as they can” to avoid moving away from the low-cost IDEN service. “It’s going to be the business customers and governments saying, ‘We don’t want to change,’” she said, adding that while Telus has only a small number of push-to-talk customers, they are predominantly long-time and loyal subscribers. In addition to slow-moving customers, the wireless carriers will also have to migrate a number of additional services off their older networks before they can be decommissioned, Fox said. Rogers has a long list of machine-to-machine connections that operate on its GSM network, while Bell and Telus also support other wireless services over their CDMA networks, such as early generation Internet sticks. MacDougall, MacDougall & MacTier analyst Troy Crandall said potential network migrations could also be held up by agreements with carriers in other countries that allow their subscribers to piggyback on the older Canadian networks when travelling to Canada. In the case of Telus, he said that the company has a CDMA roaming agreement with U.S. provider Verizon Communications Inc., which has said it doesn't plan to decommission its CDMA network until 2021. “If you’re a Verizon user and you’re coming to Canada, you’re going to need to have CDMA access in Canada if you’re going to roam,” Crandall said. “What I don’t know about these agreements—and this isn’t necessarily something they would tell an analyst—is how long are these agreements for and when were they signed and when do they expire.” Richard French, a former CRTC vice-chair of telecommunications and a BCE Inc. executive before that, said in a telephone interview that many international roaming agreements contain clauses that allow companies to back out of their roaming requirements if they choose to decommission their networks. “I’d be very surprised if a roaming agreement would compromise the technological flexibility of one of the partners,” French said. “Roaming is important but it’s not important enough to be the tail that wags the dog.” John Gossling, Telus’ chief financial officer, said in an interview Thursday that Telus’ roaming commitments will “certainly be one of the considerations” the company will consider as it looks at winding down its CDMA network. Despite the challenges relating to decommissioning an older network, each of the analysts said they believe the carriers will all attempt to do so as soon as possible. The costs of running parallel networks are greater than most people might think, Crandall said, noting that each carrier needs a dedicated team of engineers for each network, and also needs to ensure all of their technicians are trained and up-to-date on every networks’ operations. It’s also much cheaper to repair or replace failing network equipment if all of those repairs relate to similar technologies, allowing the companies to capitalize on economies of scale, he said, adding it will cost less to buy smartphones if those devices don’t require chipsets to support four different network technologies. “It’s expensive to keep these older networks running,” Crandall said. “Every time you reduce these types of things it reduces complications and it just makes things more efficient.” Perhaps most importantly, decommissioning older networks can allow the companies to “refarm” the wireless airwaves used to support those networks, independent consultant Eamon Hoey said. The older networks run on 850 MHz spectrum, which is “at least of equal value” to the prized 700 MHz spectrum Industry Canada will auction off in January, Hoey said. Each of the analysts said they believe Bell and Telus will decommission their CDMA networks—and Telus its IDEN network—sometime over the next three years, while Rogers’ GSM network will likely last longer, perhaps another 10 years or so. Gossling said Telus will time the decision to decommission older networks in part around how quickly its remaining CDMA and IDEN customer bases move to the newer networks. “This is something that still has a lot of planning to do around it,” he said. “It’s really early days on us getting a plan going and looking at the benefits and how we’d do it,” Gossling said. “Some people are very happy with the older device that they have and for whatever reason, they’re probably not going to aggressively go and look to change it or update it.” —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Hurdles to clear before older network technologies can be phased out

News | September 19, 2013

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Hurdles to clear before older network technologies can be phased out

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