Wireless Telecom Wars Heating Up


At no point in history has competition within the wireless telecom industry here in Canada been so heated and intense as it is right now. Bitter feuding between the incumbents and the new players as well as consumers annoyed by the industry as a whole has grown so fierce that the federal government has stepped in to calm the waters, or should we say the airwaves.

That was part one. If the drama created from that wasn’t enough there’s certain to be more to come after the federal government eased restrictions on foreign ownership. No sooner had that blockbuster regulatory modification been announced by Industry Minister Christian Paradis when word trickled out that U.S. telecom powerhouse Verizon Wireless wants to enter into the Canadian market with the express idea of purchasing both WIND Mobile and Mobilicity. When that news first became public it the sent stock prices on a downward plunge for the three established wireless telecoms – Bell, TELUS and Rogers. Verizon has about 117 million subscribers south of the border, making it the largest wireless company in the U.S.

There are about 5 billion mobile cellular subscriptions worldwide. Wireless phones make use of radio waves to enable their users to make calls from many locations worldwide and have changed the way humans interact to a degree unimaginable not that long ago.

Here in Canada, we have a high rate of per capita cell phone users compared with other countries, and are in fact higher than the United States. But this country is also known for customer complaints, most of which have hinged on the costs. In 2010-2011, the CCTS had a 114 per cent increase in the number of complaints compared to 2009-2010 (8,007 complaints versus 3,747), which they link to an increase of public awareness of their services. Complaints for wireless services led the way with more received than all other services combined, at 62.3 per cent. As for the nature of these complaints, almost 80 per cent of wireless complaints were either related to billing errors (45%) or contracts disputes (34%) combined.

All Noisy on the Wireless Front

The wireless telecom industry is somewhat unique in that there seems to be disputes between providers and customers as well as providers vs. providers. That was front and centre at the Canadian Telecom Summit where there was a rare opportunity to see and hear the gloves come off in a free-for-all forum debate about the state of the industry and why newcomers can’t make inroads. Just prior to the heated discussion came the announcement from Ottawa that it was striking down all three-year cell phone contracts. That means consumers are free and clear to move on to another provider after 24 months if they feel they aren’t receiving the type of service they expect. This will allow consumers to seek out more competitive options in a shorter period of time. In addition to that, service providers must also unlock phones after 90 days, which in effect opens the door for the consumer to take their business elsewhere. There are data pricing limits and also a $100 cap for roaming charges which many users will find very helpful.

“We are ecstatic that the commission has put caps for roaming and for data usage into the code,” says John Lawford, Executive Director and General Counsel at the Public Interest Advocacy Centre (PIAC). “It is there to remove abuse of consumers and you all know how bad it was. So kudos to the CRTC for calling out the wireless telecoms on it and shame on all of you (the telecoms) for letting it go on that long.”

“Consumers have a problem with this industry,” Lawford continues. “They’re still very angry at you and this anti-wireless sentiment can be parlayed into political action very quickly.”

Lawford also believes the there will be continued piecemeal federal legislation interfering in the industry as governments and politicians look to earn brownie points at the expense of an industry that leaves itself wide open to criticism on many occasions. It can be avoided with greater harmony, but that too could happen if lions and hyenas got along better as well. Consumers can’t be blamed if they are rather cynical about the prospects of a more united industry and one that takes the concerns of consumers more seriously.

“If the code is respected then focus can switch to competition in the industry, lowering prices and improving service for consumers,” he says.

A key sore point with the newcomers in the wireless telecom industry revolves around spectrum, and how much the Big 3 control. Currently Bell, TELUS and Rogers hold about 85 per cent of the available mobile spectrum. The remaining 15 per cent is held in little slices by a host of other service providers, including the likes of WIND Mobile, Mobilicity and SaskTel. The incumbents’ answer to that is that they have close to 90 per cent of the customers. But Edward Antecol, VP Regulatory Affairs & Carrier Services Globalive/Wind Mobile, says there’s much more to that than meets the eye.

“How many people do they serve per megahertz of spectrum,” he says. “U.S. carriers serve a lot more customers per megahertz of spectrum that they have and their efficiency is far greater than those of their Canadian counterparts.”

The incumbents are in possession of a tremendous amount of valuable spectrum and not using it as efficiently as they could. Spectrum is the lifeblood of any wireless carrier.

“New entrants have it far worse than the incumbents in terms of the need for spectrum,” Antecol continues. But the moves by Industry Minister Christian Paradis have helped to greater reduce that gap.

Sufficient Competition?

Competition or lack thereof, is a repeated complaint by many Canadian consumers when discussing the wireless telecom industry on top of which there is no shortage of addition annoyance by what is perceived to be a lower standard of quality services than what we should expect. The possibility of a wireless giant such as Verzion entering the mix would most definitely result in increased competitiveness and what should lead to lower prices for consumers. But not everyone agrees that more is always better.

“I think the plain facts speak otherwise,” says Ken Engelhart, SVP, Regulatory & Chief Privacy Officer Rogers Communications. “At Rogers, if you get an iPhone, unlimited voice, unlimited text, one Gig of data, that costs you $80. AT&T is $85 for the same thing and Verizon is $90 for the same thing. AT&T and Verizon pay way less for their phones because of volume discounts they have a much more densely populated serving area and for the exact same package Rogers prices are less.”

Engelhart believes the state of the competitive wireless industry has more to do with the successes of Rogers, Bell and TELUS as opposed to any inroads the newer companies have been able to make. Canada currently has 80 per cent broadband penetration throughout the population precipitated largely on strong competition between the top-end phone companies and cable companies. Australia, for example, comes in at about 59 per cent penetration.

“I think the much-maligned state of competition in Canada is delivering terrific results for Canadians,” he says.

The Canadian wireless market does pose certain challenges that aren’t brought forward in many other developed countries in that we have such a gigantic geographic base to cover and a very small population density. Consider the fact you could fit France and Germany within Ontario with room to spare it helps put into perspective the vast land mass that must be blanketed from coast to coast.

Despite such challenges, Canada does rank high in capital investment so investors do see the upside to the industry in this country. Such investments help Canada to lead in 4G LTE (long-term evolution) deployment currently available. Of the number of carriers who offer LTE to more than 60 per cent of the population in the entire world Canada ranks No. 1.

Industry Minister Christian Paradis has stated proposed spectrum transfers including advanced wireless services (AWS) spectrum transfers that will result in undue concentration and therefore reduced competition will not be permitted.

“I will not hesitate to use any and every tool at my disposal to support greater competition in the market,” Paradis said in Ottawa. But other than outright veto power, it seems he’s running out of tools to select to keep his word on this coming true. Why then does it seem as if the likes of Rogers are hogging all the spectrum?

“We’re using all our spectrum,” Engelhart replies. “We’re using it much more efficiently than any of the new entrants and are using all our AWS to provide LTE services. The only spectrum we’re not using is where there is no LTE ecosystem yet.”

The new LTE wireless technology differs somewhat from previous generations, but the more spectrum you have the more capacity and more customers you can serve, which continues to be true for LTE. But with LTE the more spectrum you have available the faster the network will be, which is the primary difference between it and prior generations. That is the reason why Rogers, Bell and TELUS feel it’s justified to obtain as much of it as possible.

“You can’t put up more cell sites to get speed,” Engelhart says. “You need continuous blocks of spectrum in order to hit higher speed.”

Bell and TELUS combined their spectrum, as approved by government policy, giving them a distinct advantage over the competition.

“What it means is they can get a faster headline speed because they are combining their spectrum,” Engelhart continues. “If our customers are going to have an experience as fast as Bell and TELUS we’re going to need that additional spectrum.”

Edward Antecol, VP Regulatory Affairs & Carrier Services Globalive/Wind Mobile took umbrage with just about everything Engelhart said, including the corporate claim by Rogers that it is more efficient than competitors, including those in the U.S.

“Rogers is using its spectrum far less efficiently than the U.S. carriers,” Antecol remarked. Before he could continue, Engelhart then shot back saying “You have 15 per cent of the spectrum for 10 per cent of the customers; we’ve (Rogers, Bell & TELUS) got 85 per cent of the spectrum for 90 per cent of the customers.

Who’s using it more efficiently?”

The simple math says that statement by Engelhart is true. However, it doesn’t take into account companies such as WIND Mobile are still very much in a startup mode, and to expect the same ratios from them and any of the three established telecoms is difficult to compare on similar playing field.

Another concern voiced by Antecol is that when the Big 3 take the smaller slivers of available spectrum it further closes the door for the new entrants to establish any type of base from which to grow.

Mobilicity, which had hoped to be bought out by TELUS, stated publicly they went half way around the world trying to sell their spectrum, a point Engelhart quizzed Antecol about.

“I presume that they also went to see you,” Engelhart inquires. “You could have bought it – and you can again apparently.” That’s because the federal government denied TELUS from acquiring Mobilicity saying it would unfairly provide TELUS with additional spectrum that has been set aside for new entrants.

“It’s a lot more efficient to have a monopoly than it is to have disruption and that’s what’s going on here,” Lawford chimes in. “We have the opportunity for new entrants to be on the same circuit as you guys (Big 3) which is LTE. You guys have enough so why do you need to close off the last few slivers. It’s about having a competitive market and reduced prices. Consumers need to come first.”

Tower Sharing

“We have a consumer code now which will soon be in place,” Bibic replies. “We’ve liberalized the foreign ownership rules. We had spectrum options in 2008 and the one that’s coming up next January that allows other entrants to come on and we have tower sharing rules. You look at that and compare it to any other industrialized country in the world, Canada has put in place a policy regime and is more conducive to new entry than any other country.”

With that framework in place Bibic believes the capital markets must decide whether the model is sustainable. All public policy foundation pieces are in place and the market will ultimately decide whether three, four, five or six competitors will be sustainable in a country of about 33 million people. Most industrialized countries average three major wireless telecoms that have survived.

Not surprisingly, the small, newer players looking to get into this area vehemently disagree with the notion that three carriers is the ideal number and that competition is now peaked.

“If you think we have the environment for sustainable competition I think you’re deluding yourself,” Antecol answers back. “I don’t think the roaming policy that relies on commercial negotiation results in anything close to fair roaming rates. As for tower sharing, I can tell you there are times it costs us as much to put an antenna on an undesirable portion of the tower as it would for us to build an entirely new tower ourselves. We’re paying extreme rents to get on towers and municipalities won’t let us build additional towers. We’re a far cry from a level, competitive playing field.”

Ted Woodhead; SVP, Federal Government & Regulatory Affairs at TELUS says he’s heard first hand about a number of fire alarms that have been pulled by the newcomers in a frantic state and says his company has responded with possible solutions, but never heard any further responses, so he assumes they were false alarms.

“You entered the market thinking that Canada was ripe for a pre-paid model with the feature functions and you miscalculated,” Woodhead bluntly states.

“Canadians love data use; they love iconic devices, expensive handsets and in fact they don’t like pre-paid so much. That is where your (new players) problem is at.”

Woodhead also showed frustration in saying the new players have blamed their misfires on regulatory issues and the established companies for alleged stonewalling, something which Antecol took exception to. And when told he could take his complaints to arbitration if the new entrants feel so hard done by, Antecol brought up a reason why companies such as WIND don’t bother going down that route.

“First of all the incumbents have inflated the costs of tower access to an extreme where it’s often cheaper for us to build an entire tower than take the bottom 15 feet of your existing tower,” he shoots back. “It’s just a ridiculous commercial standard to expect us to negotiate through arbitration because it also costs more to go to arbitration than just build a tower ourselves.”

The original mandate was to see a fourth major player in each of the different regions across Canada, even if it meant several companies were used to cover off the entire country. The thinking being that increased completion will be good for consumers who will allegedly pay less. Lawford says it’s important to stay the course.

“In the past the government has given up on having a fourth national carrier,” he says. “They’ve given up and then gone back; given up and then gone back. When you take that approach you fail. You need to stay the course.”

If Verizon Wireless moves in to this market it would seem to be a precursor to that elusive fourth national regional carrier, and that’s when the fireworks will really begin to fly. Canadians love fireworks displays.

By Angus Gillespie