Ring in the new – Canadian cell phone users big “winners” of wireless spectrum auction

The results of Canada’s eight-week long spectrum auction are in and the event may signify the light at the end of the proverbial tunnel for this country’s long-suffering cell phone users.

Canadian providers of telecom network gear are very optimistic about the possible business opportunities.

Great news, greater expectations

The great news from the auction is that 292 new broadband licenses have been handed over to five small telecom service providers by Industry Canada. These providers entered separate bids in the auction.


The great expectations are lower rates and better services for Canadian mobile phone users, who for years have been paying among the steepest contract fees in the world.

A loosening of the market hegemony of the big incumbents – Rogers, Bell and Telus – is a possible outcome.
But industry analysts say it would take at least six months for the wireless landscape to be redrawn in any significant way.

A clearer picture of the market is not likely to surface until the first quarter of 2009, according to Lawrence Surtees, vice-president and principal analyst for communications research at IDC Canada in Toronto.

But he said the developments bring Canadians closer to service fees and options enjoyed by U.S. and European cell phone users

“I’m still waiting for the other shoe to drop,” the analyst said.

Surtees foresees further consolidation among winning bidders themselves, in the near future. It’s these partnerships that will establish the topography of Canada’s wireless service landscape, he said.

“It’s not the number of licenses released but the type of players that will determine the flow of the game.”

For now, another analyst is advising consumers to hold on to their existing plans.

“I would say don’t chuck your current plan and don’t hold your breath either,” says Carmi Levy, research analyst and senior vice-president at Toronto-based AR Communications Inc.

Levy explained it would take some time for winning bidders to build up relationships, develop appropriate products and services, and cultivate a market presence that empower them to compete head-to-head with the current market leaders.

The government, meanwhile, became $4.2 billion richer following Monday’s wrap up of the cell phone spectrum action.
The payoff was nearly three times as much as the $1.5 billion that industry insiders predicted when the auction was launched on May 27.

At the time Industry Minister Jim Prentice announced that proceeds of the auction would be used to pay down the national debt.

Taking on the Big Three
Prentice said the government embarked on an auction to open up the wireless market dominated by Rogers, Bell and Telus and to put an end to the expensive and poor services offered by the big three.
The auction essentially reserved for small players, 40 per cent of the 105 megahertz of airwaves up for sale.
Globalive Communications Inc., a Toronto-based provider that sells home phone and Internet services under the Yak brand came out as yesterday’s biggest winner.

The 30 licenses, across the country, which it purchased for $442 million, ideally positions the company to offer nation-wide cell phone service.

Globalive known for its budget contract plans and pay-per-use model now has 30 days to pay Industry Canada $442 million.

The government agency, on the other hand, is expected to spend the next few weeks examining the corporate structure of the company (backed by two billionaires – Naguib Sawiris of Egypt and Thor Bjorgolfsson of Iceland).

The investigation is meant to ensure Globalive conforms with Canadian laws which limit foreign ownership of telecom firm to not more than 47 per cent.

Naguib owns the Wind cellphone brand in Italy and Greece and is also chairman of Egypt’s Orascom Telecom, which controls cell phone providers in Egypt, Pakistan, Algeria, Tunisia, Bangladesh and Iraq.

Nuguib, who has a net worth of $12.7 billion, is ranked No. 60 in Forbes’ list of the world’s wealthiest individuals
Bjorgolfsson, ranked No. 307 in Forbes’ list – with a personal fortune estimated at $3.5 billion – has a stake in telecom companies in Finland, Bulgaria and Poland through his London-based firm Novator Partners.

Users of Wind services in Italy and Greece paid less than $27.05 a month for services in 2007, compared to $59.40 by Telus and $55.09 by Rogers’ subscribers.

Other winners announced yesterday were:

  • Quebecor Inc. of Montreal – 17 licenses mainly in Quebec but some in Eastern Ontario and Toronto for $554 million. The company resells access to Rogers’ network in Quebec through its subsidiary Videotron;
  • Shaw Communications Inc. in Calgary, 18 licenses in Western Canada for $189 million;
  • Bragg Communications Inc., Halifax-based operator of Maritime cable provider Eastlink, 19 licenses mainly in Eastern Canada but also some in Ontario for $25 million;
  • Data&Audio Visual Enterprise (DAVE) in Toronto, 10 licenses in Ontario and a few Western cities including Vancouver and Calgary for $243 million. Dave is controlled by John Bitove, founder of the Rapors NBA basketball team and operator of the Canadian arm of XM Satellite Radio

Existing players also won additional licenses that were not reserved for new entrants.

Rogers of Toronto paid $999 million for 59 licenses, Vancouver-based Telus purchased 59 licenses for $879 million,

Bell of Montreal got 54 licenses for $740 million, MTS Allstream Inc. of Winnipeg ended up with three new licenses for $40 million, and SaskTel of Regina, (a provincial Crown corporation) snapped three licenses for $65 million.

A new era of choice?

Anthony Lacavera, chairman and CEO of Globalive, did not elaborate on his company’s immediate plants but issued a statement saying the event “marks a new era of choice in Canada’s wireless world.”

He said consumers can expect “innovations” from Globalive when the company announces its offerings.

The statement noted that Canadians pay an average of 60 per cent more for mobile wireless services than their American counterparts.

Canadians, it said, miss out on high-tech mobile services such as video conferencing, video and TV streaming, interactive applications and faster Internet connections because these services are not being offered at rates enjoyed by users in other parts of the world.

The media release also noted that Canada lags in wireless adoption. Only 58 per cent of Canadians have wireless devices compared to 77 per cent in the U.S.

These observations are bolstered by a recent survey released by TNS Canadian Facts, a Toronto-based full-service marketing and social research firm.

Only two-thirds of Canadians between the ages of 16 and 60 use a mobile phone on a regular basis, according to TNS.

This places the country well below the global average of 80 per cent among the 30 countries surveyed and even further behind the 90 per cent and 97 per cent levels found in the U.S. and U.K., respectively.

Service providers have delivered considerable improvements in the engineering aspects of the market but need to offer consumers more by way of devices and service offerings in order to attract more users, according to Michael Ennamorato, senior vice-president of TNS.

“Service providers,” he said, “need to entice users with more attractive devices that offer features unavailable to landline phone [users] and introduce cheaper and more flexible plans.”

Unless providers are able to lower services and offer less complicated plans that provide greater freedom to mix and match functions, cheaper landline phone services will continue to be more attractive.

Meanwhile IDC’s Surtees says as the market continues to evolve, wireless data will be the industry’s new frontier.

“The new players will now be considering where they can make money. And it won’t be in the very crowded wireless voice arena.”

“Wireless data is where the big bonanza lies,” he said.

There could be considerable pent up demand for wireless data service because consumers have been held back by steep prices. The company that can offer the cheapest data rates at possibly an “all-you-can-eat” model will lead the market, the analyst said.

Levy of AR Communications said it is very likely that the newcomers will seek mergers among themselves or with the incumbents in order to gain market penetration or network access.

“In many cases, these newcomers will realize they’ll need to form partnerships.”

How this affects service prices and feature offerings still remains to be seen, he said.

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Jim Love, Chief Content Officer, IT World Canada

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