The Great White “Wireless” North: Canada’s wireless industry a flurry of activity

Often overlooked when discussing North American telecom markets, Canada is more than a smaller clone of its southern neighbor. Challenged by a land mass greater than the U.S., but with one-eighth the population, Canada’s wireless operators have still managed to cover more than 99% of the country’s population with wireless service and become a robust segment of the country’s economy.
The market
Canada’s wireless industry employs more than 25,000 employees, and according to the Canadian Wireless Telecommunications Association, generated more than $15.9 billion in revenues in 2008.
Similar to the U.S. market, the Canadian wireless market is dominated by a handful of nationwide operators and further fleshed out with a smattering of regional players. The country’s nationwide players include Rogers Wireless, which operates a GSM-based network serving more than 8 million customers; Bell Wireless, which uses CDMA and beginning later this year HSPA technology to serve its 6.6 million customers; and Telus Mobility, which uses CDMA, iDEN and plans to roll out HSPA technology this year to serve its 6.3 million customers.
Rogers garnered a significant boost in 2004 when it acquired upstart Microcell Telecommunications Inc. for $1.1 billion. The deal catapulted Rogers past Telus Mobility and Bell Canada, the parent of Bell Wireless, as the nation’s largest operator and also took Microcell, which was seen as an aggressive price operator, out of the competitive landscape. Bell has gradually lost market share during the past several years, while Telus has seen modest growth and Rogers has remained flat.
The three big players accounted for around 21 million of the country’s 22 million wireless customers at the end of the second quarter of 2009. The largest regional player, SaskTel, counts just more than 500,000 customers leaving the remaining regional operators fighting over the rest.
This domination by three operators has been a bone of contention in the Canadian market. Some have noted that there are really only two competitors as Bell Canada and Telus Mobility have network-sharing agreements that relegate them to eastern Canada being served by Bell Canada and western Canada being served by Telus Mobility. (SaskTel has made a business for itself being stuck in the middle serving Saskatchewan.)
Bernard Lord, president and CEO of the Canadian Wireless Telecommunications Association, noted that while the three largest operators dominate, the industry supports more than two dozen wireless operators with networks covering more than 99% of the country’s nearly 34 million people. Lord admitted that with most Canadians living within a couple hundred miles of the U.S. border, covering them with wireless service is not a significant challenge, but getting service to those last few percent who live in the country’s more challenging climates is, well, a challenge.
“We know the government announced plans to spend ($214) million to help carriers extend and expand broadband and we think that is a very good step,” Lord said, commenting on a recent Canadian government broadband stimulus package.
Another difference between the U.S. and Canadian wireless markets is the offering by Canadian carriers of three-year contracts for customers to receive the greatest level of handset subsidy, with one- and two-year contract bringing only a small discount on the price of devices. This is in stark contrast to the U.S. market, where an increasing number of carriers are making their no-contract offerings more appealing to consumers and are even provide some level of subsidy for those devices.
Also, unlike the U.S. market where there is thriving third-party ownership of cell towers, most of the 8,000 towers covering Canada are owned by the wireless carriers. This is seen by some as a possible barrier to the ability of new entrants to enter the market successfully.
Spectrum
To support its wireless networks, Canada relies on spectrum positions similar to its southern neighbor. The country started wireless services using the 850 MHz spectrum bands, opened up competition in the mid-90s with 1.9 GHz spectrum auctions and more recently completed auctions for spectrum in the 1.7/2.1 GHz “AWS” bands and 2.3/3.5 GHz bands. The country is also preparing to auction off 700 MHz spectrum similar to what the U.S. Federal Communications Commission completed in 2008.
“There is a need for more spectrum and significant buildout is taking place,” Lord said of the country’s current spectrum position. “The incumbents and the new entrants are building out their networks and that means Canada will have four or five nationwide 3.5G networks by this time next year. This will probably be more than any other country in the world.”
One policy hanging over the heads of Canadian carriers is the impending renewal process for leasing licenses. The original cellular and PCS licenses were given away through a comparative review process in 1985 and 1995, with the first auction of PCS licenses commissioned in 2001. Those licenses are up for renewal in 2011, with the government attempting to figure out the “value” of those licenses and thus what they will charge for their renewal.
This has many in the industry concerned over both what the charge might be for a license renewal as well as for the possible extension of license terms once renewed.
“Currently Industry Canada is reviewing its policy framework and how spectrum licenses are awarded,” Lord said. “We have filed several recommendations over the summer on this. One is that any company that wins a spectrum license should have a high confidence that that license will be renewed and also argued for longer license terms. Carriers have to spend so much money to both buy the spectrum, which last year totaled some $4 billion, and to build out those networks, that they need some assurance that they can have enough time to recoup those investments. Currently Canada licenses are good for 10 years. In some other countries those licenses are good for 20 years, so we think it’s important that we can ensure that there are longer terms for licenses.”
Telus Executive VP and CFO Bob McFarlane recently noted during the company’s second-quarter earnings call that the carrier was not concerned about the issue, but that it was monitoring the situation.
“We’re into a conventional process with Industry Canada and with respect to what the base is that they should calculate as the spectrum license fees on a go-forward basis,” McFarlane said. “They haven’t even selected the consultant under advice, and so we’re at a very front end of that regulatory process and the fees could either go down from where they currently are, they could stay the same or they could go up, and those are three possible alternatives. So it’s really too premature to comment about it. But I’m not particularly concerned at this juncture.”
Industry Canada did recently extend the deadline for companies that won spectrum in the 2.3 GHz and 3.5 GHz bands to provide coverage citing a lack of suitable equipment available for those bands.
New competitors
One result the government is hoping to achieve from recent and scheduled spectrum auctions is the growth and development of new carriers that can compete with the current incumbents. Industry Canada set aside 40% of the spectrum in the 2008 AWS auction for new entrants. (This is
similar to the policy in the U.S., but appears out of step with reality as both nation’s regulatory bodies have approved recent deals that have consolidated wireless operators and removed competition from the market.)
One company looking to take advantage of spectrum won during the AWS auctions is Globalive Communications Corp., which is set to market services under the Wind brand. Globalive, which is affiliated with Greek and Italian mobile operator Wind Telecommunications, recently selected Nokia Siemens Networks and Alcatel-Lucent to build out its HSPA network and signed a deal with DragonWave Inc. for backhaul equipment. The company said it plans to roll out service beginning in late 2009, with broader deployment plans across Canada throughout 2010. In support of its launch plans, Wind has said it plans to hire 1,000 employees through early next year, with a recent announcement of hiring at least 500 employees to staff a call center in Peterborough, Ontario.
Similar to the U.S., Canada is also in the midst of a national debate regarding net neutrality. Proponents claim that Bell Canada and Telus, parent companies of Bell Wireless and Telus Mobility, are making it difficult for new entrants to offer competitively priced broadband services due to high backhaul fees. This issue is currently focused on wired broadband services with plans by Canadian Radio-television Telecommunications Commission to take up the wireless telecommunications angle at a later date.
Olympics
One unique event that has driven a lot of change in the Canadian wireless market over the past couple of years has been the awarding of the 2010 Winter Olympics that will take place in Vancouver.
Similar to what China attempted to do with the recent Summer Olympics in Beijing, Canadian operators are hoping to use the international exposure of the event to highlight their advanced wireless networks. Bell Canada and Telus Mobility announced last year plans to roll out HSPA networks on top of their current CDMA-based networks as a way to capture possible roaming revenues from international travelers converging into the country, as well as to establish their technology evolution paths to LTE. Along with Rogers Wireless, all three of the nation’s wireless carriers are expected to provide substantial coverage of the games over their mobile networks.