Canadian spectrum auction rings in better cell phone deals

Tag : Light Up Phone
The results of Canada's eight-week long spectrum auction are in andthe event may signify the light at the end of the proverbial tunnelfor this country's long-suffering cell phone users.
Great news, greater expectations

The great news from the auction is that 292 new broadband licenseshave been handed over to five small telecom service providers byIndustry Canada. These providers entered separate bids in theauction.

The great expectations are lower rates and better services forCanadian mobile phone users, who for years have been paying amongthe 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 thewireless landscape to be redrawn in any significant way.

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

But he said the developments bring Canadians closer to service feesand 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 biddersthemselves, in the near future. It's these partnerships that willestablish the topography of Canada's wireless service landscape, hesaid.

"It's not the number of licenses released but the type of playersthat will determine the flow of the game."

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

"I would say don't chuck your current plan and don't hold yourbreath either," says Carmi Levy, research analyst and seniorvice-president at Toronto-based AR Communications Inc.

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

The government, meanwhile, became C$4.2 billion (US$4.18 billion)richer following Monday's wrap up of the cell phone spectrumaction.

The payoff was nearly three times as much as the $1.5 billion thatindustry insiders predicted when the auction was launched on May27.

At the time Industry Minister Jim Prentice announced that proceedsof 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 thewireless market dominated by Rogers, Bell and Telus and to put anend to the expensive and poor services offered by the big three.

The auction essentially reserved for small players, 40 percent ofthe 105 megahertz of airwaves up for sale.

Globalive Communications Inc., a Toronto-based provider that sellshome phone and Internet services under the Yak brand came out asTuesday's biggest winner.

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

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

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

The investigation is meant to ensure Globalive conforms withCanadian laws which limit foreign ownership of telecom firm to notmore than 47 percent.

Naguib owns the Wind cellphone brand in Italy and Greece and isalso chairman of Egypt's Orascom Telecom, which controls cell phoneproviders in Egypt, Pakistan, Algeria, Tunisia, Bangladesh andIraq.

Nuguib, who has a net worth of $12.7 billion, is ranked No. 60 inForbes' list of the world's wealthiest individuals.

Bjorgolfsson, ranked No. 307 in Forbes' list -- with a personalfortune estimated at $3.5 billion -- has a stake in telecomcompanies in Finland, Bulgaria and Poland through his London-basedfirm Novator Partners.

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

Other winners announced Tuesday were:
Quebecor Inc. of Montreal -- 17 licenses mainly in Quebec but somein Eastern Ontario and Toronto for $554 million. The companyresells access to Rogers' network in Quebec through its subsidiaryVideotron; Shaw Communications Inc. in Calgary, 18 licenses in Western Canadafor $189 million; Bragg Communications Inc., Halifax-based operator of Maritime cableprovider Eastlink, 19 licenses mainly in Eastern Canada but alsosome in Ontario for $25 million; Data&Audio Visual Enterprise (DAVE) in Toronto, 10 licenses inOntario and a few Western cities including Vancouver and Calgaryfor $243 million. Dave is controlled by John Bitove, founder of theRapors NBA basketball team and operator of the Canadian arm of XMSatellite Radio Existing players also won additional licenses that were notreserved for new entrants.

Rogers of Toronto paid $999 million for 59 licenses,Vancouver-based Telus purchased 59 licenses for $879 million, Bellof Montreal got 54 licenses for $740 million, MTS Allstream Inc. ofWinnipeg ended up with three new licenses for $40 million, andSaskTel of Regina, (a provincial Crown corporation) snapped threelicenses for $65 million.

A new era of choice?

Anthony Lacavera, chairman and CEO of Globalive, did not elaborateon his company's immediate plants but issued a statement saying theevent "marks a new era of choice in Canada's wireless world."

He said consumers can expect "innovations" from Globalive when thecompany announces its offerings.

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

Canadians, it said, miss out on high-tech mobile services such asvideo conferencing, video and TV streaming, interactiveapplications and faster Internet connections because these servicesare not being offered at rates enjoyed by users in other parts ofthe world.

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

These observations are bolstered by a recent survey released by TNSCanadian Facts, a Toronto-based full-service marketing and socialresearch firm.

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

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

Service providers have delivered considerable improvements in theengineering aspects of the market but need to offer consumers moreby way of devices and service offerings in order to attract moreusers, according to Michael Ennamorato, senior vice-president ofTNS.

"Service providers," he said, "need to entice users with moreattractive devices that offer features unavailable to landlinephone [users] and introduce cheaper and more flexible plans."

Unless providers are able to lower services and offer lesscomplicated plans that provide greater freedom to mix and matchfunctions, cheaper landline phone services will continue to be moreattractive.

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 dataservice because consumers have been held back by steep prices. Thecompany 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 newcomerswill seek mergers among themselves or with the incumbents in orderto gain market penetration or network access.

"In many cases, these newcomers will realize they'll need to formpartnerships."

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