New entrants seek to change wireless game

For consumers hoping for new choices in the world of mobile phones, the words of Public Mobile chief executive officer AlekKrstajic weren't exactly music to their ears.

"Take a good look at the three of us," he told an audience at the Canadian Telecom Summit in Toronto on Wednesday, pointingto himself and the heads of Globalive and DAVE Wireless, two of the expected new entrants in Canada's mobile telephone market.

"Two out of three of us will not be around at next year's telecom summit," said Krstajic. "All three of us may be here, but two out of three will have different business cards."

The expected arrival of new entrants to Canada's wireless industry has brought with it hope for consumers looking for choices beyondthe current offerings of Rogers, Bell and Telus, and the new entrants have done nothing to dissuade that. There have beenpromises of unlimited talk and text for a single fee, assurances of better customer service and simple billing and hints of lower datarates and unlocked phones.

But Krstajic's bold pronouncement spoke to the difficult task facing the new players as they take on Rogers, Bell and Telus, who havea combined 95 per cent of the market between their seven collective brands and have already begun making changes in anticipationof new competition.

Consumers have been awaiting the arrival of the new entrants since they won spectrum from last year's auction of wireless airwaves,which raised $4.2 billion for the federal government. The government reserved 40 per cent of the 105 megahertz of airwavesup for sale for new entrants to encourage competition in the wireless industry.

Services to launch in late 2009, early 2010

So far, the new entrants have offered only scraps of information, in part for competitive reasons and in part because they havebeen busy over the last year assembling their management teams, positioning their future brands and setting up their networks.

But some details have emerged.

Public Mobile, backed by several private equity firms, has said it plans to launch a $40 unlimited talk-and-text service in Ontario andQuebec late in the third quarter of 2009, building its network from Windsor to Quebec using a block of spectrum it acquired at theauction that other players, including the incumbents, chose to ignore.

Toronto-based Globalive Communications Inc. has said it plans to launch two brands, a discount phone under the Yak brand with aprice target of $40 a month and a still to be named core brand, but has only said it plans to launch a countrywide network with theexception of Quebec by the end of 2009.

Globalive CEO Anthony Lacavera said his company plans to start its rollout in major citiesincludingToronto, Ottawa, Calgary, Edmonton and Vancouver and that it is setting up a GSM-based high-speed network.

Toronto-based Data & Audio Visual Enterprises Wireless Inc., or DAVE Wireless, the wireless company headed by entrepreneur John Bitove,has said itplans toroll out service in early 2010 to Toronto and expand to other cities shortly thereafter.

DAVE Wireless president Dave Dobbin said his company plans to roll out a network compatible with a newer version of High-Speed Packet Access technology (called HSPA+) expected to catch on with smartphone makers in 2010.

Marketing challenges

Montreal-based Quebecor Inc. is also expected to launch its own network in Quebec by the end of 2009, though in February presidentand CEO Pierre Karl Peladeau complained incumbent wireless companies were delaying the approval of agreements to share towersand roaming services.

In addition to battling incumbents and battling each other, each of the new players faces unique obstacles to gaining traction in Canada.

For Public Mobile, it has to convince Canadian consumers that the chunk of isolated spectrum it bought in the "G" block has a future.

Analysts are divided: a Dave Wireless commissioned report from analyst LeMay-Yates Associates said the spectrum was untested and unlikely to be a priority for handset makers, while a SeaBoard Group report from earlier this year suggested Public Mobile may have scored a coup in picking up spectrum for much less than the new incumbents.

DAVE Wireless also faces marketing challenges, and recently announced that the company will have a new name when it launches.

As Dobbin said during the telecom summit: "I'm Dave from DAVE... gotta change the name."

Regulatory hurdles to clear

Globalive's challenges are both administrative and legal. It paid $442 million for its wireless spectrum and has the most ambitious plans for building a national network, with the hope to gain1.5 million customers in the first three years.

But it is also facing regulatory challenges over the financial backing it receives from Egypt's Orascom Telecom Holding SAE. Foreign ownership of telecommunications firms is limited to 20 per cent of the voting shares of an operating company and one-third for a holding company. Industry Canada approved Globalive's ownership, but in April Telus and Shaw Communications called on the CRTC to make that review process more transparent and "immediately initiate" a review of Globalive.

The CRTC responded in May by issuing a notice of consultation requesting public comments on whether the commission should review foreign ownership rules in a public hearing or if the existing closed-door procedure is appropriate.

Telus, Shaw, Bell and Rogers all filed comments arguing in favour of public hearings, but other groups, such as the Public Interest Advocacy Centre, said the process would cause unwanted delays.

The group also said adding another layer of bureaucracy for companies with some foreign ownership goes against the spirit of the government's stated goal for the auction to increase competition. A 2006 Telecommunications Policy Review Panel Report argued loosening restrictions on foreign ownership would act to increase competition.

But each company also has its advantages. Lacavera has said the established Yak brand allowsGlobalive to bundle services, something Quebecor is also likely to do when it rolls out its service. Dobbin said his track record at Toronto Hydro Telecom and the track record of his team of executives gives DAVE wireless a better understanding of how to compete with the incumbents. And Krstajic said his company's focuson working-class Canadians wanting simple phones and low price plans is an untapped market.

Crowded marketplace

Though none of the new entrants has launched their services, their expected arrival has already had an impact on the incumbent wireless carriers.

Since the auction, Rogers and Bell lowered their prices and dropped their system access fees on their Fido and Solo brands, following the lead of Telus discount brand Koodo earlier in 2008 and in anticipation of new entrants to the marketplace.

And earlier this month Bell announced it was purchasing the remaining stake of Virgin Mobile it didn't already own.

Bell and Telus have also agreed to work together to set up a next generation HSPA wireless network by 2010 to pave the way for future wireless standards and allow them to offer phones such as Apple's iPhone, which don't work with Bell and Telus's current wireless network technology, an older communications standard known as code division multiple access (CDMA).

Rogers has joined Bell and Telus, in a rare show of open collaboration, on a new service called Zoompass that allows consumers to transfer money by phone.

Consumers may be hoping the new players will increase competition and lower prices not just at launch time, but also for the long term. But the concern is that the new carriers might go the way of Microcell's Fido, which emerged as a disruptive player in the wireless market before it was bought by Rogers and becamea discount brand for the communications giant.

'Canadians excited to give us a shot'

The new rules prohibit entrants who bought advanced wireless spectrum which includes Globalive, DAVE and Quebecor but not Public Mobile from selling to any of the incumbents until 2013.

But given the entrenched position of the incumbents, speculation has been high that the best chance for success for the newcomers is to consolidate into one entity.

Lacavera and Krstajic said they have had discussions about partnering but both have decided to go it alone for now. And Lacavera said he was open to partnerships with any of the new players.

But for now, the new players say they are gearing up to go it alone and carve a niche in the market. Lacavera said conversations he has had with consumers suggest there is pent up demand for alternatives, but the new companies will have to earn their trust.

"Canadians are excited to give us a shot," he said."But if we don't deliver we're not going to be around long term."