TORONTO-The consolidation trend in the North American wireless sector is intensifying. The prevailing wisdom is that it is no longer good enough to be merely a regional or national carrier with transborder capabilities. The game plan is to be part of a global presence, as carriers jockey to align themselves with powerhouse international forces.
Just more than a year ago, Canada’s largest wireless player, then known as Rogers Cantel Mobile, joined forces with British Telecommunications (BT) and AT&T. The British and American partners acquired a 33-percent stake in Rogers, since renamed Rogers AT&T Wireless to reflect AT&T’s increased influence. The Canadian acquisition is part of a US$10 billion global march by BT and AT&T in their joint venture.
“The British Telecom partnership is really important for us because the most advanced wireless markets are in Europe. And we can tap the European expertise and innovation for use in Canada,” said David Robinson, Toronto-based vice president of product development for Rogers AT&T Wireless.
The carrier also welcomed the cash infusion from BT and AT&T. Rogers was severely being dragged down by debt and needed funds so it could expand its network to compete more aggressively against BCE of Montreal, the parent of Bell Canada.
Earlier this year, BCE sold a 20-percent stake in Bell Canada to U.S. carrier Ameritech and then announced it would buy the 35 percent of Bell Mobility that was publicly traded at the time to completely integrate the carrier into the Bell Canada fold.
While Rogers and Bell Canada both consolidated within their ranks as well as externally with global partners, a longstanding partnership inside Canada disintegrated. The recent unraveling of the Stentor alliance of telephone companies-the provincial Bell entities-means Bell Mobility and Telus Mobility will now compete head to head in each other’s territories.
Bell Mobility’s territory is Ontario and Quebec, but it provides national coverage for corporate accounts. Telus’ territory is ostensibly British Columbia and Alberta, but it sells services across Canada. The two former allies announced in May they would provide each other with reciprocal network capacity-digital access until 2004 and analog service until 2007. But that agreement is seen as a temporary measure.
In line with its national aspirations, Telus in August offered to acquire all the shares of Clearnet Communications for US$4.48 billion. Both Clearnet and Telus operate CDMA networks. They also each possess partnership agreements with key U.S. wireless carriers-Clearnet has roaming agreements with Nextel Communications and Telus has similar agreements with Verizon Wireless.
The combined wireless assets will include 1.8 million customers, annual revenues of US$1.5 billion and “immediate national wireless coverage,” according to Darren Entwistle, Telus president and chief executive officer (CEO).
Not to be left out of the consolidation fray, Microcell Telecommunications of Montreal sold a 15-percent share in the company to VoiceStream Wireless for about US$265 million. “The deal is more than just an equity stake. It is a strategic partnership to build a pan-North American network that will be very strong,” said Andre Tremblay, president and CEO of Microcell.
In turn, German telecommunications giant Deutsche Telekom has agreed to swallow VoiceStream for US$50.5 billion in stock and cash to get a GSM footprint in the United States. VoiceStream is one of the last independent U.S. nationwide wireless carriers with about 2.3 million subscribers. DT also plans to swallow Powertel, an operator with licenses covering 25 million people in 12 states not currently covered by VoiceStream in the southeastern United States.
Industry sources believe it is just a matter of time before foreign players make some sort of play for Sprint PCS and Nextel Communications, the two other carriers that offer near-nationwide service in the United States.
There is no denying consolidation has realigned the U.S. wireless industry. The big boys with a national reach-AT&T Wireless; Nextel; Sprint PCS; Verizon Wireless, the merged Bell Atlantic, GTE, PrimeCo and AirTouch entities; and VoiceStream-have won about 75 percent of the subscribers in the United States, and their combined share is increasing.
Spectrum for sale
Upcoming spectrum auctions on both sides of the border will realign the marketplace, letting the incumbents buy extra bandwidth to establish their third-generation (3G) networks.
In Canada, four spectrum blocks of 10 megahertz each will be made available regionally in 14 area licenses in the fourth quarter for a total of 56 spectrum units. However, Canadian 20- to 33-percent foreign-ownership limits will still apply, effectively locking out U.S. interlopers.
“I think an imprudent amount of money will be spent,” said Iain Grant, managing director of the Yankee Group in Canada in Brockville, Ontario.
Based on the auction frenzy in Europe, where more than US$80 billion has been raised, industry sources speculate the Canadian auction could easily become a US$1 billion-plus raffle.
Canadian prices are expected to be significantly lower because its licenses are not as lucrative as those in Europe. The United Kingdom auctioned spectrum blocks of 20 megahertz and 30 megahertz for periods of 20 years, and the population density is about 59 people per square kilometer of land area. In Canada, only 10-megahertz licenses are to be auctioned for 10 years, and the density is a more sparse 3.4 people per square kilometer.
“Canada has one of the most favorable wireless rates in the world, partly because we do not have a tradition of auctions. Wireless charges for consumers may increase significantly in the aftermath,” said Braham Eiley, president of The Convergence Consulting Group of Canada of Toronto.
In a surprise move, the Canadian government decided not to mandate frequencies to new entrants. The incumbent carriers are all expected to bid for additional capacity, likely to drive up prices for new operators hoping to get in on the action. So far, two upstarts have expressed an interest in bidding for a personal communications services (PCS) license-Mobilexchange, headed by veteran Canadian wireless executive Mike Kedar, and 3G Networks, controlled by Rick Buckingham of New Brunswick.
The United States is preparing for two upcoming auctions, which could give large players additional spectrum to deploy 3G services.
The re-auction of C- and F-block PCS licenses was delayed from its late November date. The U.S. Federal Communications Commission (FCC) is expected to announce a new date soon.
The C- and F-blocks, which were originally set aside for small businesses, have been opened up to allow large players to participate. How much the large players will participate, however, depends on the status of the litigation surrounding most of the licenses.
The U.S. Supreme Court is slated to decide in October whether it will hear arguments as to why the U.S. Court of Appeals for the 2nd Circuit ruled incorrectly when it said NextWave Telecom still had to make installment payments on its PCS licenses, even though it was in the midst of a bankruptcy proceeding. NextWave declared bankruptcy after winning 90 C-block licenses at auction.
The second auction, currently scheduled for 6 March, is equally controversial.
The FCC plans to auction 30-megahertz of spectrum in the 700 MHz band, but because television channels 60-69 currently occupy that band, it is unclear when the spectrum would be available for wireless use.
U.S. carriers have expressed dismay over paying for spectrum that may not be available until 2007 or later or for which they will have to pay high premiums to relocate the incumbent television broadcasters.
The added spectrum in both countries sho
uld pave the way for 3G services, which will multiply by at least 20 the current data speeds of cellular phones.
“We’re going to see a
lot of activity from wireless operators in Canada and the United States in trying to expand their data services. This activity will be essential to reduce the disintegration of traditional revenues around voice services,” said Steven Rodin, president of Davinci Technologies of Toronto, a software developer of data applications for wireless handsets.
Wireless Web surfing is still a slow, bare-bones experience. “Right now, performance is still wanting, but carriers will attain bandwidth breakthroughs,” said Roberta Higgins, a U.S.-based analyst with the Yankee Group.
The fastest wireless speeds range from 9.6 kilobits per second (kbps) to 14.4 kbps, considerably slower than the Internet connections of 56.6 kbps for those using dial-up modems on home PCs. Cable modems or high-speed lines in offices are much faster still.
“Much of the development work on wireless browsers is coming out of the U.S., so we anticipate rapid innovation in North America when data speeds catch up,” said Higgins. She noted Bell Mobility and Sprint PCS have been two early leaders in wireless Internet applications, but other carriers are catching up quickly, so as not to be left at the starting gate.
Global Wireless Washington Reporter Heather Forsgren Weaver contributed to this report.
