Telecom: Mobile operators take battle to new front

By Jamie Sturgeon | Postmedia Network | Nov. 18, 2010

Far removed from the marketing carpet bombs new and established mobile operators are raining down on one another in cities across the country this fall, another front is opening up — political and regulatory scraps.

The latest salvo in this emerging battle was fired Thursday when startup carrier Mobilicity filed documents with Industry Canada urging the department to endorse laws recently brought on in Quebec and now tabled in Ontario curtailing what the carrier calls “anti-consumer” behaviour from market incumbents Rogers Communications Inc., BCE Inc.’s Bell Canada and Telus Corp.

“Without government legislation, incumbents will continue to avoid competition by employing ... anti-consumer tactics,” Toronto-based Mobilicity wrote in a letter to Industry Minister Tony Clement.

Mobilicity, which launched cellphone and mobile data services in Edmonton, Vancouver and Ottawa this week, alleges multiple transgressions from Rogers, Bell and Telus resulting in higher bills for customers, as well practices designed to unwittingly lock clients into longer contracts that remain costly to terminate.

The firm, which launched in Toronto in May as a low-cost alternative to the big three, said it “encourages the government to explore the introduction of consumer protective legislation similar to that enforced by the province of Quebec or recently introduced in the province of Ontario.”

Dave Dobbin, Mobilicity’s CEO, said the firm is rallying behind a private member’s bill introduced by Liberal backbencher David Orazietti in the provincial legislature this week that aims to reduce cancellation fees as well as make advertising and billing more transparent.

The move follows on the implementation in Quebec of Bill 60, legislation that makes similar demands of carriers in that province.

Mobilicity’s letter is the latest in a series of official complaints from new mobile entrants.

The startups, including Wind Mobile and Public Mobile face considerable in-market challenges against their well-entrenched foes, and are looking for any means of “relief,” Lawrence Surtees, senior analyst at IDC Canada said. “They have a number of frustrations.”

So-called “hard handoffs” of calls, where a signal is dropped once a customer leaves a new entrant’s home zone, is another point of contention made by Wind to regulators at the Canadian Radio-television and Telecommunications Commission.

There are no rules mandating seamless call transitions, and incumbents have used that to advantage by advertising that their larger networks experience fewer dropped calls, which is true. Rogers defended itself in a response to the CRTC dated Nov. 12 that its customers faced the same dilemma.

“Seamless handoff is not the norm for roaming arrangements,” the company said. “When Rogers’ customers pass from Rogers’ network to third party networks, their calls also drop.”

Yet Rogers’ launch of Chatr Wireless (and to a far lesser extent, a response from Bell’s Solo Mobile brand) is drawing the heaviest fire. Rogers introduced Chatr in July to directly vie for customers targeted by Wind, Mobilicity and Public Mobile.

Mobilicity and Wind are now challenging the brand’s legality through the Competition Bureau, a process still underway.

“They are not behaving politely, but no one expected competition to be a polite, gentlemanly sport,” Mr. Surtees said of Rogers and the other incumbents, recalling a quote from Theodore Vail, the U.S. architect of the AT&T phone system a century ago.

“He said competition is strife, it’s warfare and contention to the highest degree that the conscious of the contestants or the laws will allow.”

Financial Post
jasturgeon@nationalpost.com

Earnings preview: Telecoms dial 'S' for sweet spot

By Jamie Sturgeon | Financial Post - Stockhouse.com | Oct. 23, 2010

Make no mistake, there are seismic changes percolating just below the surface of the telecommunications industry.

New wireless competition, major acquisitions that hold the potential to sharply tilt the balance of power as well as new regulatory concerns threaten to drag on earnings for Rogers Communication Inc., BCE Inc. and Telus Corp.

Year to date, none have — while investors have poured funds into the three blue chip stocks in search of stability and yield. The S&P/TSX Telecom index is up 25% since Jan. 1, led by Telus’s 41% rise. Rogers is trading 25% higher and Bell up almost 22%.

The trio have been quintessential market darlings in 2010, a year that was supposed to be defined by instability for the big telecoms. New mobile startups were suppose to be winning over anxious customers in droves. In part as a result, incumbents were suppose to be at each others’ throats (even more-so) to guard not just wireless, but home-phone, broadband and TV subscriptions from rivals stepping up their attack.

The majority of these feuds have not emerged the way some thought, at least not yet, and the stocks show it.

To be sure, the three firms have benefited from a flight to defensive, yield-focused equities, but also from impressive operating results led by — big surprise here — wireless, where competitive threats appear to be largely mitigated.

As reporting season gets underway this week, most analysts agree the stocks hold the strong potential for yet more upside. “We believe all three large wireless incumbents are positioned to report better-than-expected results,” Jeff Fan said in a recent note clients.

Even with vast wireline businesses, it is no secret the major engines behind the profitability for all three incumbents are wireless earnings.

That is why shares in all three suffered a momentary shock last December when Globalive Wireless Management Corp. was given the green-light from Ottawa to launch Wind Mobile. Wind was joined by smaller urban-focused providers Mobilicity and Public Mobile in May, and Videotron Ltee. in Quebec on Sept. 9.

But the last 11 months have shown the new entrant threat to be inconsequential so far. Incumbents have effectively blunted the impact with new products like Rogers unlimited talk-and-text brand Chat, Bell’s matching Solo plans and Telus’s response to re-pricing in Quebec.

“Apart from Videotron’s launch in Quebec, wireless competition remained stable this quarter,” said Jonathan Allen at RBC Capital Markets. “New entrants did not appear to have much of an impact — indeed they have begun slashing prices and offering larger sign-up subsidies — a possible sign that growth is proving challenging.”

For Rogers, an area that will be closely watched is profit margin. CEO Nadir Mohamed warned investors on the last quarterly call that it could face substantial subsidy costs in upgrading its huge iPhone subscriber base to the newest iPhone 4. That threat has also likely been overstated, analysts say, given the short supply of the iconic device since its July 30 Canadian launch.

Rogers, which is expected to report earnings per share of 79 cents and consolidated revenues of $3.187-billion on Tuesday, faced potentially far bigger subsidies expenses owing to its large lead in smartphone penetration relative to Bell and Telus, who each hold about half the base that Rogers does.

But supply constraints mean Rogers margins will be spared, at least until next quarter.

Rogers’ considerable smartphone base stems from a network advantage it held between until last November. It has been almost 12 months to the day that the Bell and Telus activated their joint “3.5G” network, allowing them to sell the iPhone and other advanced smartphones that Rogers provided exclusively until then. The pair have been gaining on Rogers lead since, and are expected to show a further even of share distribution when Bell reports on Nov. 4 and Telus on Nov. 5.

“We forecast the incumbents adding roughly equal ... market share this quarter,” Mr. Allen said. He expects the firms to gain between 120-130,000 new customers apiece — a far cry from a few years ago when wireless was booming, but perhaps an achievement in 2010.

Price, though, has been sacrificed to get growth among those harder-to-find market segments (as one can see with Chatr’s unlimited plans). Analysts see flat to negative trends on average revenue collected per subscriber again this quarter, even as more people convert to smartphones and rack up data charges.

“With data substitution and competition in voice services intensifying, we estimate voice revenue decline continued to accelerate,” Phillip Huang at UBS said in an Oct. 14 note.

Mobile repricing — contained to voice services for now — underscores how new competitive threats are changing market conditions, as well the relative maturity of the wireless industry. Flat to lower revenue trends are now forcing Rogers, Bell and Telus to ramp up efforts to grow home broadband and TV subscriptions.

Bell, which is expected to report earnings of 74 cents a share on $4.496-billion in revenue, introduced its Fibe TV and Internet packages in Toronto and Montreal in the quarter, preceded by the launch of the Optik bundle by Telus in June. Both firms are banking on the bundles to offset wireless pressure going forward and analysts will be looking for an indication on how the new products are being received.

“We will be looking at Telus’s TV additions again this quarter to gauge whether the Optik IPTV offering is gaining momentum,” Maher Yaghi at Desjardins Securities said.

Mr. Yaghi estimates that about 30,000 subscribers were won by Telus (EPS of 73 cents on revenue of $2.469-billion) in the quarter, in line with the pace of acquisitions this year. It means chief Western Canada rival Shaw Communications Inc. will see a modest 2,000 reduction in its cable base, he and other analysts believe.

Bell just began selling Fibe in Rogers’ home market of Toronto in September, but may have had an impact its cable foe already, RBC’s Mr. Allen said.

“Our checks have found that Rogers has been actively contacting customers and offering large discounts,” he said. “It’s motivation is likely a desire to secure its customer base against Bell’s IPTV.”

These small-scale chess moves have had little influence over share values though, nor are they expected to after Rogers, Bell or Telus reports. With strong wireless performances and investors growing thirst for stable dividends, “we expect the recent moment in the stocks to continue for the rest of the year,” Mr. Yaghi said.

There are more bearish takes though.

“Canadian telco stocks are amongst the most expensive in the world,” Dvai Ghose at Canaccord Genuity wrote in a note this week. “We reiterate our fear that that we may be seeing a bubble develop ... that has been driven by an indiscriminate thirst for yield.”

He sees significant challenges that have perhaps gone undetected by the market, not least “unprecedented” discounting on wireless in recent months. Regulatory risks remain as well, with a review of foreign ownership rules now underway within Industry Canada that could hand new entrants big advantages in accessing foreign capital.

Whatever the impacts of the underlying shift will be, analysts say Canadian incumbents seem to be enjoying a relative sweet spot. The same can be said for their investors.

Financial Post
jasturgeon@nationalpost.com

Quebecor paces acceleration of wireless wars

Jamie Sturgeon | Financial Post | Sept. 6, 2010

TORONTO -- When Vidéotron Ltée chief executive Robert Dépatie confidently beamed this past spring that his Quebecor Inc. telecom division was “on the verge of launching Quebec’s most competitive and complete wireless service,” many believed a splashy launch was imminent.

June gave way to July, then August. It is now September, and Quebecor is ready for take-off, saying in a company release today service will be turned on Thursday.

Start your engines.

As the first of two well-entrenched cable incumbents to bring on wireless services this year and next, Montreal-based Vidéotron’s long-awaited entrance into Quebec’s wireless market represents a significant shift for the industry.

Analysts are taking Mr. Dépatie’s words seriously, and so is the competition. “Long-term, Vidéotron has great potential to make a lot of money out of wireless in Quebec,” Maher Yaghi at Desjardins Securities says.

He and others expect the firm to begin immediately stealing market share from wireless incumbents Toronto-based Rogers Communications Inc., BCE Inc.’s Bell Mobility, also of Montreal, and Vancouver-based Telus Corp. through a strategy built around bundling affordable mobile services into household cable, Internet and phone products Vidéotron already sells to its 1.8 million customers.

The company will offer 30-40% discounts to the incumbent wireless operators’ voice and data pricing in Quebec if customers take wireless as part of a bundle, Dvai Ghose, analyst at Canaccord Genuity said in a note Tuesday.

"[The] aggressive wireless price points ... will force Bell, Rogers and Telus to respond," he said.

Most stock analysts following Quebecor like Vidéotron's chances. Of 13 covering the firm, 10 rate it a “buy” or “sector outperform,” according to Bloomberg. Three, including Mr. Yaghi and analysts at TD Newcrest and Credit Suisse, rank the shares as a “hold.”

Vidéotron cut its teeth in wireless in 2006 when it partnered with Rogers in a resale deal that slapped its branding on phones that ran over the incumbent’s network.

But since paying Industry Canada more than half a billion dollars to secure its own wireless licences in 2008 and constructing a 3G+ network across its wireline territory, the most important growth engine for Vidéotron is now ready for prime time.

Mr. Yaghi conservatively suggests Vidéotron will win 45,000 customers before the end of the year, and will have attracted 165,000 through 2011. Combined with its existing 87,000 wireless clients — equal to about 2% of the Quebec market — Vidéotron will boast a subscriber base of a quarter of a million customers 15 months from now.

With nearly 40% of Quebec’s 4.3 million wireless customers toting a Bell device, it is no surprise the cross-town giant has been aggressively courting Quebeckers with discounts on Internet and TV alongside home-phone. It is part of Bell’s strategy to win the entire “broadband home” away from Vidéotron. Instead of the pesky cableco stealing its wireless business, Bell will take Vidéotron’s Internet and cable accounts, and if it can, reclaim home-phone customers, too.

"You'll see much more product and marketing development towards owning the entire household over the coming period," Kevin Crull, chief of Bell's residential services said in an interview last week.

Irrespective of whoever wins this tug of war, industry-wide disruption is expected.

Pricing has been guarded like a state secret. But there are good odds that Vidéotron will introduce some form of unlimited calling. There are ads floating around Quebec now suggesting customers will no longer have to fret over how many minutes remain on their plan.

If true, it could hold huge ramifications not just for major rival Bell, but the sector. So far, incumbents have steadfastly resisted introducing any unlimited options in their main brands, which consist of hugely profitable users paying high prices for buckets of minutes and data, usually shackled to a contract.

It is a cash cow Vidéotron now threatens to undermine in its bid to win share in Quebec. “If Vidéotron comes out and offers unlimited local calling, that could be a game-changer,” said one analyst who asked not to be named.

“Bell can’t stand still and not offer it,” he said. “And if they do it in Montreal they’ll have a hard time not doing it in Ontario.”

An unlimited offering from Bell in Ontario may provoke a swift response from Rogers, threatening to dent wireless earnings at both firms. With almost 50% share in Ontario, it is Rogers' most important wireless market.

Telus, the No.3 carrier in the country, is the incumbent with the least amount of exposure in Quebec (or Ontario for that matter), meaning it does not face the level of immediate pressure Rogers or Bell do. But with Calgary's Shaw Communications Inc. preparing to integrate wireless services with its household bundles next year, a similar scenario awaits in Western Canada, as well.

Newser: Wireless startups taking share from Rogers, Bell, Telus: report

Jamie Sturgeon | Victoria Times-Colonist | July 28, 2010

TORONTO -- Canada’s new wireless providers are luring subscribers from incumbents Rogers Communications Inc., Bell Canada and Telus Corp., rather than attracting customers who are picking up a cellphone for the first time, according to one of the first detailed looks at the new competition.

The revelation, among other developments, may revive concerns among investors that upstart players will wreak more havoc in the country’s traditionally staid $16-billion mobile market than has been assumed, while the established firms are likely to hit at their own bottom lines to guard market share, analysts say.

“Hide from wireless,” Jeff Fan at Scotia Capital recommended to clients in a note published Monday. “We expect competition risk.”

About three-quarters of all subscribers with Wind Mobile, Mobilicity and Public Mobile have been cherry-picked from the three major incumbents, a report from Scotia Capital says. It is a higher percentage than some thought would prevail, and could contribute to more aggressive efforts to retain customers at Rogers, Bell and Telus, which together currently control about 96% of the wireless market.

One rumour is that Rogers is set to introduce a new discount brand called “Chat.r.”

Rogers’ new brand would be aimed directly at the area in which new entrants are having the most success: low-income, city dwellers and immigrant communities that want cheap, unlimited voice and text services.

Chat.r will launch during the all-important back-to-school season, typically the highest selling period for a carrier alongside Christmas. Unlike Rogers’ current discount brand Fido, the new service will be completely prepaid with no contracts, closely mirroring the most attractive plans offered by the three new entrants, sources said.

Chat.r will stem subscriber losses for Rogers but at a price. The telecom behemoth will take a hit on the average revenue per user (ARPU) it generates per month, which currently stands at $62.02, the highest among Canadian carriers.

Rogers declined to comment on Chat.r.

“We’re always working to innovate and better serve Canadians, but have nothing to announce at this time,” said Odette Coleman, Rogers’ director of communications.

A new launch would have broad implications for the market. Bell and Telus will almost certainly move to match any repricing while new entrants will also react, threatening all with a punishing price war. “Our concern is that it will ignite retaliations,” Mr. Fan said.

After much uncertainty and — unfounded — anxiety last year, the market has mostly dismissed the new-entrant risk through fiscal 2010. Rogers, Bell and Telus have all seen their stocks rally (as much as 20% in Telus’s case) as ARPU has stabilized and performances have rebounded against weak year-ago comparables.

There may be room left in the run-up as solid second-quarter results are expected again at the end of the month. Yet after that, valuations will be hard-pressed to justify such levels, some say.

“We urge incumbent wireless investors not to be complacent,” Dvai Ghose, analyst at Canaccord Genuity said in a note late last week. The analyst also foresees downward price pressure ahead, especially in Eastern Canada.

In Quebec, Vidéotron Ltée. will launch wireless at the end of summer with aggressive discounts, particularly on data plans which could come in 40% cheaper than current incumbent pricing. Vidéotron operates in Montreal and surrounding areas, but a price cut there could prompt restive customers in other areas to barter for the same.

“Rogers and Bell are particularly susceptible as they enjoy industry leading market share in Ontario and Quebec,” Mr. Ghose said.

With the ability to bundle Internet, phone and TV services, Videotron is expected to experience more sustained success in the wireless market than Wind, Mobilicity or Public Mobile. Despite garnering most of their customers from incumbents, new entrants are believed to be tracking below their own estimates and even the more tempered expectations of analysts.

All four firms won licences to operate cellphone businesses at the 2008 wireless spectrum auction. Wind has been rolling out services across Canada since its December launch, while Mobilicity and Public Mobile began operating in Toronto in May.

jasturgeon@nationalpost.com

Earnings preview: Telecoms before the storm

By Jamie Sturgeon | Vancouver Sun | July 25, 2010

With the economy sending mixed signals, markets have been dicey for months. But there have been pockets of calm, and in particular Canada’s telecom sector, which has enjoyed steady gains against the S&P Canadian benchmark index in 2010.

Investors should not be surprised. For years now, wireless profits have fuelled enviable cash flows and solid earnings growth at Rogers Communications Inc., BCE Inc. and Telus Corp. In recent quarters, each firm has diligently spun out more and more cash to stockholders in the form of dividend hikes while Rogers and Bell have been busy buying back shares, making owning one if not all three a must for value seekers.

As Rogers kicks off second-quarter earnings season this week, the good times are expected to continue. “It will be relatively consistent for the big three,” Phillip Huang, analyst at UBS says, echoing the consensus view on Bay Street.

But good times have a history of ending and some, including Mr. Huang, believe the horizon on the sector’s safe-haven status appears fast-approaching.

“I would characterize it as the calm before the storm, especially if you’re looking at the wireless side,” he said.

The reason for the growing pessimism stems from fresh competition from stalwart cable firms now arming themselves with wireless, and cellphone startups that have recently entered market. Both forces threaten to dent the sector’s impressive cash-generating powers in the second half of the year, some say, and beyond.

On Tuesday, Bay Street expects Rogers to report earnings of 67¢ a share on revenues of $3.026-billion. One focus will be on wireless profit margins, which are expected to continue to fatten. Rogers has been the most aggressive of the big three telecoms in marketing smartphones to existing subscribers and new customers. It was the exclusive Canadian provider of the iPhone up until last November, and as more subsidy costs on expensive handsets are made back, margins are expected to rise among those users, which accounted for a third of its eight-million-plus base in the first quarter.

Many expect that higher mobile data revenues will help Rogers sail past Street estimates and adjust its outlook higher.

“Based on stronger wireless margins, we believe RCI will tweak and raise 2010 guidance this quarter,” Jonathan Allen of RBC Capital Markets wrote in July 7 note.

But margin gains reflects slowing growth. Wireless margins are rising because the amount Rogers is spending to subsidize new smartphones is decreasing as fewer new customers are signed up. New competition from the likes of Wind Mobile may be having some effect in core marketssuch as the Greater Toronto Area. But BCE’s Bell Mobility, once the third-place runner in wireless, is likely the greater concern for Rogers.

Bell has been steadily gaining ground since activating its new wireless network last fall, and is again expected to show robust customer additions when it reports on Aug. 5. A marketing barrage led by its sponsorship of the Vancouver Winter Games led to a blockbuster first quarter. Wireless additions are expected to moderate, but Bell may still add as many as 100,000 new subscribers in the spring compared to 90,000 at Rogers.

“Bell will again win market share away from Rogers. New entrants, as well, but to a lesser extent,” Dvai Ghose at Canaccord Genuity said.

The downside is that Bell faces a period of cost pressures as subsidies for iPhones and BlackBerries will be heftier than peers. But Bay Street expects Bell to report profit of 73¢ a share and revenue of $3.78-billon. Another 5% hike to the dividend to $1.83 is almost a lock, following a 7% hike at the end of 2009.

The leveling playing field in wireless between Bell and Rogers also sets the stage for a fierce battle for television subscribers once Bell introduces its new IP television product in Toronto and other markets this year.

As for Telus, the market will be watching whether a very promising start to the year can be maintained when it reports on Aug. 6. RBC’s Mr. Allen called Telus’s first-quarter performance a “turning point” as it recovered from a bruising 2009 which saw wireless revenues per subscriber fall the sharpest among the big firms, and intense competition from Western Canada cable giant Shaw Communications Inc. accelerate home-phone customer losses.

“Telus was arguably the hardest hit by the economy and competition last year,” Mr. Allen said.

But now Telus is hitting back. An aggressive roll out of its rival IP-based television and Internet product bundle, called Optik, is seeing gains against Shaw, and the benefits of cost-cutting efforts have started to pay off. The Street expects the Vancouver-based firm to report 76¢ a share in profit on $2.42-billion revenue and a performance in line with the high end of its full-year guidance.

Telus shares have climbed the highest among the big three this year, appreciating more than 20%, compared to gains of 9% and 13% for Bell and Rogers, respectively.

Average monthly revenues collected per subscriber (ARPU) are also expected show stabilization. Competitive pressures and lower overall usage because of a dismal economy saw voice fees cut last year and data usage fail to make up the difference.

“Declines are going to be much more modest this quarter than what we’ve seen,” Canaccord’s Mr. Ghose said.

Greg MacDonald of National Bank Financial said the quarter will show that wireless data revenues are beginning to buoy and even lift overall ARPU levels at the big three, even as they continue to lower pricing on mobile call charges due to new competition. “I’m looking for flat blended ARPU because of the data growth you’re seeing, despite high single digit erosion on voice,” he said.

Picking a winner among Rogers, Bell and Telus for the quarter can be debated. Investors have flocked to all three this year to take advantage of healthy dividend payouts that are second-best among Canadian stocks as a group (5.5% on average vs. 5.6% among utilities), and have steadily risen.

“All three have done really well,” Juliette John, portfolio manager for Bissett Investment Management’s dividend funds. She manages $750-million, of which 12% is spread across the three telecoms. “They’re considered a bit more conservative and that has become much appreciated I think. And of course that yield is really attractive.”

What cannot be argued is that they all face intensifying competitive pressure going forward, with no consensus on what the impact will be. “If equity markets remain volatile, then a position in telecom for another couple of months may still be attractive,” Mr. Allen said. “But we recommend that investors consider trimming positions as the year progresses.”

Rogers announced at the end of June it would launch “chatr”, and new discount brand to rival offerings from Wind and other upstarts Public Mobile and Mobilicity, which began offering services in key markets in May. Chatr would also preempt a wireless launch from Quebec cable power Videotron Ltee. this summer, and Shaw next year.

The fear is that the move will provoke aggressive responses from Bell and Telus, and perhaps trigger a price war, dragging down profits across the $16-billion sector.

“I’m not so much concerned about the standalone new entrants, even Videotron and Shaw,” UBS’s Mr. Huang said. “The real worry is about what the incumbents do to themselves.”

Canada’s wireless market is maturing and as the race for the last subscribers ensues, margins and revenues may be sacrificed to guard and gain share. Marketing costs are expected to soar in the current quarter.

Some, like Canaccord’s Mr. Ghose say the competition is having a greater effect than is realized. “I believe the new entrants have taken more share than what equity markets think,” he said.

Still, all three have the wherewithal to continue raising dividends and buying back shares. Dips in valuation in the coming months can even provide buying opportunities, Bissett’s Ms. John said.

“New entrants could create hiccups, but that could serve as buying opportunities,” she says, “depending on how aggressive all of the players become.”

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FEATURE: DATA TSUNAMI, and how we can avoid it

By Jamie Sturgeon | Canada.com | July 10, 2010

Ever heard of an exabyte? Probably not since it is a unit of measurement so vast that there hasn’t been a need to think about it until recently. The term is a metric, like the much smaller giga or megabyte, that is used to quantify digital data.

By some estimates an exabyte, or EB, is equal to about 50,000 years of high-quality DVD video. Times that by five, and that is how much data is being consumed across global wireless networks annually as ever more BlackBerries, iPhones, mobile modems and now tablet computers attach themselves to the World Wide Web.

And it has only just begun.

From five EBs currently consumed a year, that figure is expected to surge to 50 within four years, according to European network maker Ericsson AB.

“It’s a challenge for carriers,” said Mark Henderson, chief executive of Ericsson Canada at the Canadian Telecom Summit, an annual spring gathering of the industry’s top minds.

Will networks — including Canada’s — be able to cope?

Some do not think so. Jennifer Pigg, vice-president of research for Yankee Group, says “carriers haven’t prepared” for what she calls a data “tsunami” that has already started to clog up networks.

And mobile broadband hasn’t even hit the mainstream. Although accelerated by Apple’s iPhone launch a few years ago, the spectre of a tidal wave of wireless data has only come to the fore in the last 12 months.

AT&T and other major carriers in the United States are already experiencing network congestion resulting in dropped calls, sluggish transfer speeds and other periodic disruptions in certain high-use zones like New York and San Francisco.

“The few, the proud — the AT&Ts — have been the first out of the bunker if you will, and have taken some unexpected shock. Clearly, carriers didn’t realize [the data explosion] would have such a huge impact,” Ms. Pigg says.

Yankee Group suggests that wireless data traffic will increase 10 to 30 times over and above today’s usage within three to five years. Global wireless capacity, on the other hand, will grow to only four times the current bandwidth availability — nowhere near what’s required.

Canada may be more prepared than other nations. From national incumbents Rogers Communications Inc., Bell Canada and Telus Corp., to new startups like Wind Mobile and Mobilicity, Canadian carriers have poured a combined $6-billion since 2008 into building out modern data-centric networks and ballooning the country’s bandwidth capacity.

The majority of Canadian carriers possess advanced high-speed packet access “plus” (HSPA+) systems — the gold standard of modern wireless networks, capable of delivering data transfer speeds of between seven and 21 megabytes per second. That’s on par with fixed-line broadband connections. Moreover, these networks can readily be upgraded to next-generation 4G standards specifically designed to handle massive data loads.

“I think Canadian carriers have done a great job of keeping up with some of the most advanced data networks you see today,” said Ericsson’s Mr. Henderson. “We’re world-class at this point.”

The crowning achievement came last November when Bell and Telus turned on their joint HSPA+ network blanketing 93% of the population. Far more than just providing cellphone services to new areas, the billion-dollar undertaking introduced high-speed Internet to thousands of communities for the first time, bridging the digital divide for untold numbers of rural Canadians.

“The reality is, in Canada we have good service in broadband despite what some studies say,” says Greg MacDonald, telecom analyst at National Bank Financial. “We have high penetration of data at attractive rates. And for a country of this size, the coverage we have is phenomenal.”

Rates are debatable, with Canadian consumers paying higher prices than most other places. But what is certain is that Canada has world-class 3G coverage. Of about 20 large-scale HSPA+ networks operating throughout the world, Canada boasts three, according to the GSM Association, which tracks global deployment.

But even the industry admits demand is soaring and the clock is ticking.

“They are extremely well-prepared, there’s been massive investment. But that’s for now,” said Bernard Lord, president of the Canadian Wireless Telecommunications Association, of the state of Canada’s networks. “To keep up with demand, there will be much more investment required.”

Signs that demand threatens to overwhelm supply have already appeared. Bell has twice flirted with a capacity crunch. At the Vancouver Olympic Winter Games, Sidney Crosby’s gold medal-clinching goal in overtime saw a torrent of texts, streaming video and other data requests flood the network in a single, historic burst of wireless activity.

Those signals got through, but Stephen Howe, Bell’s chief technology officer, said the burst came close to exceeding what the carrier provisioned for. “With Sidney’s goal, we nearly hit capacity,” he said.

It happened again in April, during Game 7 of Montreal’s epic series with Washington during the National Hockey League playoffs. “Even though we added further capacity from the Olympics, in that short period of time we were already experiencing yet again huge growth in volume,” he said.

Every Canadian carrier is closely watching how others are managing.

“It’s not that bad things will happen if we continue on the same path — bad things are happening,” Mr. MacDonald said. “So you start questioning what the solutions are.”

Fortunately, fixes are emerging. “What AT&T — and Rogers and Bell and everybody — is doing, once they realize there is this stress on the network, is to make it as efficient as possible,” said Amit Kaminer, analyst at SeaBoard Group in Toronto.

In May, AT&T eliminated its flat-rate, unlimited data plan in favour of a tiered pricing system based on capped usage. The move limits usage to 2 gigabytes, and charges overage fees to users that exceed that. A second, less-expensive plan gives customers 200 megabytes, or enough to check emails and browse the Web. Analysts say the move better reflects current customer habits while mitigating network stress.

AT&T is also leading the charge in channeling traffic into manageable pools. In late May, it announced that it would set up a local Wi-Fi zone over Times Square in an effort to ease the load on the parent network.

“We’re just starting to find out the consumption patterns and usage on mobile data devices. It took us a couple of years to understand [cellular] voice. It took us a couple years to understand SMS [text flows]. It will take us a couple years to understand data,” Mr. Kaminer said.

Most of the ingredients are in place now to avoid the crunch. Leading microwave “backhaul” technology made by Ottawa-based DragonWave Inc. and others is available to efficiently beam huge amounts of traffic from cell towers into core networks and out to end users.

Other 4G technologies, like more efficient tower cells and data management software systems — collectively known as long-term evolution, or LTE — are already being deployed in the United States and will likely be introduced by Canadian carriers starting in 2012, said Mr. Howe at Bell.

But more efficient networks are only one side of solving the data equation. “The other thing that is fundamental to all this is the availability of spectrum. That’s the real estate we need to be able to deliver services,” said Mr. Lord, a former premier of New Brunswick who joined the wireless lobby association in October 2008.

Spectrum refers to the radio frequency bands wireless traffic flows over. It is a finite resource, which communications providers must share with others, like radio and television companies as well as government.

And more spectrum will be required by carriers.

Adrian Foster, a partner at Ottawa telecom consultants Mclean Foster & Co., and co-author of a recent policy paper released by think-tank C.D. Howe Institute, said that only about half of the spectrum that will be required in the next several years has been allotted.

If supply is to keep up, regulators and Industry Canada must speed up the process of parceling off more airwaves for communications companies. Ottawa is dragging its feet while countries in Europe and the United States are quickly advancing into 4G standards.

“What we’re primarily suggesting is we have gridlock,” Mr. Foster said of the regulatory environment. Waiting too long to free up more spectrum, specifically the 700-megahertz band now occupied by television broadcasters, will mean Canada will fall behind.

A new auction is expected to take place either next year or in 2012, but Ottawa has given no public indication of a concrete timeframe.

“The government has to make decisions,” Mr. Lord said.

On top of the 700MHz bands, another swath of spectrum in the 2.5GHz range is also being eyed for auction. Together, both would go a long way in ensuring Canadian wireless users are not faced with a capacity crunch.

To be sure, Bell and others have room to spare today — Bell has not yet needed to tap spectrum it acquired during Industry Canada’s last auction in 2008 — but demand is climbing fast. In some cases, it is a full year ahead of estimates, Mr. Howe said.

“There is a need for more spectrum, more backhaul — there are challenges,” Mr. Kaminer said, yet he quickly adds: “But we’re not working in a vacuum. There are a lot of companies and people working on this.”

jasturgeon@nationalpost.com

© Copyright (c) National Post

Telecom: BCE chief warns Ottawa to tread carefully on foreign-ownership reforms

By Jamie Sturgeon | National Post - CBC.ca | May 18, 2010

George Cope, chief executive of BCE Inc., cautioned yesterday that government should carefully weigh a decision to change or scrap foreign-ownership restrictions in the telecommunications sector, an area of the economy he says is already flush with investment.

This follows comments last week from Industry Minister Tony Clement further suggesting Ottawa is moving toward a policy shift to promote competition.

At a lunch speech in Toronto, the CEO of the country’s largest communications company said the Canadian market has become highly competitive in the two years since he took over, forcing BCE’s Bell Canada to pump $6-billion into new wireless and wireline upgrades through 2010 to stay ahead.

He pointed to Bell’s new, multibillion-dollar 3G+ wireless network jointly built with rival Telus Corp. as an example of how domestic needs are being met, and warned that allowing in firms from the U.S. and elsewhere may hinder future advancements.

“Do you think Summerside, P.E.I., would come up before Chicago? Not going to happen,” he said. “It happened in this case. So let’s be very, very careful about what we’re trying to solve in Canadian telecom rules because the investment is actually working.”

The network blankets 93% of the country.

Mr. Clement told a special parliamentary committee last week that restrictions could be lifted on the telecom sector by allowing key content assets owned by the biggest providers like Bell and Rogers Communications Inc. to remain in Canadian hands, while opening up distribution and network assets to foreign ownership.

The comments follow a pledge in the Throne Speech in March to liberalize the sector. “Our government will open Canada’s doors further to venture capital and to foreign investment in key sectors, including the satellite and telecommunications industries, giving Canadian firms access to the funds and expertise they need,” Gov. Gen. Michaëlle Jean said at the time.

Ottawa’s move stems from two federal blue-ribbon reports completed in 2006 and 2008, that call for a relaxing of the rules as a way to spur more investment in economically important communications service.

This year however has seen three new entrants into the wireless market, in Wind Mobile, Mobilicity and Public Mobile, with cable giants Videotron Ltee. and Shaw Communications Inc. are on their way with wireless in Quebec and Western Canada.

Competition in broadband is also heating up as Bell and Telus Corp. invest billions this year overlaying copper networks with fibre, bringing alternatives to rival services provided by Rogers and Shaw. “What problems are we trying to solve, what’s the objective?” Mr. Cope said.

Still, the industry, especially in wireless, remains dominated by Bell, Rogers and Telus.

Some analysts suggest that without consolidation or access to more foreign capital (through a change in policy), the young startups face near-certain failure and a retrenchment in services in the market.

jasturgeon@nationalpost.com

Telecom: Wireless leads way as Bell keeps getting better

By J. Sturgeon | National Post | May 6, 2010

TORONTO -- As BCE Inc.'s marketing slogan suggests, it just keeps getting better.

The Montreal-based telecommunications giant reported a 61% rise in profit for the first quarter Thursday in the clearest sign yet that its "five strategic imperatives" campaign is yielding positive results. But perhaps most impressive, Bell, whose ad pitch is that "Today just got better," is sustaining healthy growth in its wireless business when many say the market is ripe for a slowdown.

Bell Canada, the operating entity of BCE, added an industry-best 55,625 new wireless customers during the period, helping the firm to better-than-expected financial results.

A big reason: Bell ballooned its retail presence by 750 stores in January when it began selling services through The Source, the consumer-electronics retail chain it acquired last year. The move delivered a one-two punch to competitor Rogers Communications Inc., which had been selling its phones through the chain until then.

Another reason was the ubiquitous marketing presence Bell held across the country in February. As the premier sponsor of the Vancouver Games, hardly an event went by without some reference to the Montreal-based company.

"No doubt there had to be some benefit from the Olympics," added George Cope, chief executive, on a morning call with analysts. "The addition of the The Source as a new distribution channel and significant Winter Olympics advertising" likely helped BCE gain customers, Jeff Fan, Scotia Capital analyst said.

Bell has been looking to gain wireless share to offset declines in its traditional phone service, making it a top priority among its so-called "five strategic imperatives." Bell is the second-largest wireless carrier in the country with about 30% of the market, just ahead of Telus. Rogers is the market leader controlling about 37% of the market.

The assault was stepped up late last year when the company hit the switch on a new multibillion-dollar HSPA network, breaking Rogers' exclusive hold on the immensely popular iPhone. The move provided a company record 163,000 rise in net new wireless additions in the fourth quarter. Since taking over two years ago, Mr. Cope has moved aggressively on five fronts -- improving customer service; accelerating wireless sales; using its legacy wireline presence to advantage; while investing in broadband and cutting out costs. There was "clear progress" on all five in the quarter, the CEO said.

But competitive headwinds are gathering -- the very forces that the initiatives are broadly designed to counter: greater competition amid slower growth across the industry.

This summer, regional cable provider Vidéotron Ltée. will introduce wireless in Quebec, squaring its offerings with Bell's. Meanwhile, three new independent wireless entrants -- WIND Mobile, Mobilicity and Public Mobile -- will compete for customers in key markets.

Of the new threats, perhaps the biggest is posed by Vidéotron. The Quebecor Inc. subsidiary plans to wrap cellphones into its existing cable, home-phone and Internet services, and offer all four under a single, discounted bundle. It will be a potent offering that will tempt wireless customers from all three major carriers to switch, analysts say.

But it could be particularly painful for Bell, which counts Quebec as one of its most important markets. Here too, though, the five-point plan is at work. Bell invested $431-million last quarter in pushing fibre deeper into neighborhoods and in some cases, directly to the home.

All told, Bell is spending a good portion of $2.55-billion on replacing copper with fibre in core markets. Importantly, the upgrades will support an IP version of Bell TV, a product designed to thwart cable products from Videotron and Rogers.

"Wireline continues to exhibit an organic decline. However, BCE is undertaking investment to stem overall customer losses by focusing on IPTV, which could bring back some needed revenue growth," said Maher Yaghi, analyst a Desjardins Securities.

For the quarter ended March 31, BCE said it earned 65 cents a share, compared with 57 cents in the same period a year ago. Analysts expected earnings per share of 63 cents.

Financial Post

jasturgeon@nationalpost.com

Telecom: Mobile's big moment at Games

By J. Sturgeon | Vancouver Sun | Feb. 16 2010

Using a BlackBerry to snap Sidney Crosby on a breakaway or deliver a medal-clinching pass at GM Place in Vancouver will be a dream turned reality for thousands of flag-waving, smart-phone-toting Canadians over the next couple of weeks.

For the wireless carriers responsible for managing the networks all those digital images will be zipping over, that dream could easily become a nightmare if they are not prepared.

The 2010 Olympic Games offer a rare moment. The two-week burst of wireless activity as an estimated one million tourists converge on British Columbia's lower mainland is the first real test for how carriers like BCE Inc., Telus Corp. and Rogers Communications Inc. will cope with a torrent of demand for all that the mobile Web has to offer -- myriad multimedia applications, streaming video, updates, stories, texts.

"The Vancouver Olympics will be a good test bed for network capacity issues," says Michael Wade, a professor at the Schulich School of Business at York University and an expert on the Canadian telecommunications industry.

"At the Olympics, more so than normal life, it won't just be voice and texting," Prof. Wade says. "People will be taking pictures and even short videos, which they'll be sending out through their cellphones."

Prof. Wade says wireless carriers have roughly doubled network capacity at every Games for the last decade or so, or every two years. BCE's Bell Canada, the premier sponsor in Vancouver and official communications provider took that into account but went one step further, adding an additional 25% to the Vancouver region.

These Games are different in that the number of data-hungry smartphones in use between Vancouver and Whistler is expected to surge. At the Beijing Games in 2008 the iPhone was brand new. Waterloo, Ont.-based Research In Motion’s BlackBerry was still something used almost exclusively by corporate types.

Consumer sales for both have soared in the two years leading up to yesterday's opening ceremony. Both Apple and RIM are now flanked by competitors such as Google Inc.'s Android, which has partnered with handset makers such as Motorola and HTC Corp. to lure ever more consumers into the smartphone category. Figures from research firm Gartner Inc. suggest global penetration of smartphones reached 14% last year.

The fact that Olympic tourists are generally more affluent may also affect usage. "Bell has gone 225% above the capacity they had in Beijing, anticipating the extra load," Prof. Wade says.

"[We] did forecast what the traffic would be like and took into consideration that more people were doing more things with their phones now," said Bell spokesman Jeff Meerman.

Wireless expansion was one element of Bell's converged "all-IP" network, itself a first for the Games. It means every event broadcast, wireless email sent or call made -- in fact seemingly every form of communication short of smoke-signaling -- will run across a single Internet Protocolbased network and out to the world.

The network has been a massive, years-long undertaking, requiring literally thousands of kilometres in new fibre cabling buried in the ground, 42 new wireless cell sites, 7,000 IP phones, and 9,000 provisioned cellphones. The price tag -- more than $60-million.

But Bell is not the only one braced for the mobile onslaught. Rival carrier Telus has also been busy building additional cell sites and expanding capacity on its core network with more fibre. All in, the Vancouver carrier invested $51-million to install its new high-speed packet access (HSPA) network in Vancouver, Burnaby, Richmond, the North Shore, and Sea-to-Sky corridor, doubling capacity in those areas, according to spokesman Shawn Hall.

"They have invested quite a bit making sure that everything goes well," says Nizar Assanie, principal analyst at IE Market Research in Vancouver of both companies.

How these beefed up networks respond to the influx of traffic during the Games will be closely monitored. The event will serve as a litmus test for what will be required in the not-so-distant future when smartphones have replaced cellphones as the dominant personal device and other wireless products like Apple's new iPad encourage users to seek out bandwidth-hogging multimedia content.

Both Bell and Telus have special engineering teams assigned to compile every last bit of datum that will be used to determine how to meet demand when it arrives and avoid network overload.

And some important groups have raised red flags about a looming crisis. In the United States, Julius Genachowski, head of the Federal Communications Commission, the regulatory body for the U.S. telecom industry, raised the issue at an industry summit in San Diego last fall: "What happens when every wireless user has an iPhone, a Palm Pre or BlackBerry Tour?" he asked.

But the carriers are convinced that wireless networks will remain ahead of the rising tide of demand. Globally, the large majority of them are migrating, or at least making plans to, toward an ultra-fast technological standard called Long-Term Evolution.

In Canada, no major carrier has plans of rolling out LTE technology for at least the next few years. However, all are now armed with HSPA-based systems designed to move to the new standard when the market is ready.

"Carriers are investing a lot of money to ensure that the capacity is there," says Mr. Assanie of IE Research, a company that analyzes global trends. "It is their business to make sure."

Telecom: Virgin Mobile boldy moving up market to ward off new threats

By J. Sturgeon | Financial Post | 12.21.2009

Competition will be the watchword for Canada's wireless industry next year, as established players face off against a cast of new entrants poised to steal market share.

While the current operators are talking tough, questioning whether any of the new startups have the right strategy or wherewithal to challenge meaningfully, a shakeup of the entire sector looms.

Nowhere are the crosshairs of the new players trained more closely than on the lower end of the market -- existing cellphone users who merely want inexpensive voice and text-messaging services or Canadians who own no mobile phone because they find current prices prohibitive.

It means the discount or "flanker" brands of Canada's big three wireless firms -- Fido, owned by Rogers Communications Inc., Koodo, owned by Telus Corp., as well as Solo and Virgin Mobile Canada, owned by BCE Inc. -- will face the fiercest competition.

For one of them, the threat is affecting a reinvention, says its president.

"Early next year, we'll be in the first phases of a very different Virgin," said Robert Blumenthal, the head of Virgin Mobile Canada.

What that means is unclear -- Mr. Blumenthal is mum on details. But he did reveal that Virgin will begin selling Apple Inc.'s iPhone.

It is a move, he says, that signifies a transition at Virgin from a discount sibling to BCE's Bell Canada, which fully acquired it this spring, to a full-weight partner, offering a complete suite of services for consumers who are increasingly demanding faster and more sophisticated devices.

"You'll see a great expansion in our portfolio and us being able to offer higher-value devices and services," he said in an interview last week. "Where we had been traditionally lower down in the marketplace, we'll be expanding to realize our true potential."

In the new year, Public Mobile Inc., DAVE Wireless Inc. and Videotron ltee will all launch, joining WIND Mobile, which began offering services last week in Toronto and Calgary. DAVE and Videotron have been quiet on their plans, but Public Mobile has stated repeatedly it will offer cheap, flat-rate voice and text services for perhaps $40 a month across its coverage areas between Windsor, Ont., and southern Quebec -- the most populous region in the country.

Mr. Blumenthal says the threat is overstated, but admits that pricing pressure will be a theme for next year and that Virgin is "considering everything."

One thing is for certain: He wants Virgin to get simple.

As it stands, Virgin offers dozens of prepaid and contract plans, not to mention several "add-on" options. "The easier you can make the decision, the easier to sell, the easier to buy. It helps sales and it helps the consumer make choice," he said.

Virgin Mobile, a subsidiary of the U.K. conglomerate, originally entered Canada four years ago with its celebrity CEO Sir Richard Branson partnering with Bell. The Montreal firm supported Virgin with its network in exchange for shared revenues.

In May, Bell acquired Mr. Branson's half for $143-million while agreeing to continue paying licensing fees. It was then that Mr. Blumenthal, a former Telus executive, joined Virgin.

The division has become a key driver of wireless growth for Bell. Analysts suggest Virgin now occupies as much as 15% of the telecommunication giant's wireless base.

However, if it is to maintain momentum, Mr. Blumenthal says Virgin must leverage Bell's new network upgrade to capture higher-margin smartphone users, which make up the fastest-growing market segment.

"Over time, I have a belief that as more people become wireless users and their wireless usage becomes more of a necessity than a luxury ... people tend to move up."

-30-

Telecom: Bell poised to begin offering iPhone

By J. Sturgeon | Financial Post | 10.05. 2009

Bell Canada has cleared the way to begin offering the vaunted iPhone, announcing yesterday it has completed a long-awaited overhaul of its wireless network that will enable the carrier to support perhaps the most iconic handset in the history of the cellphone and smash the de facto exclusivity chief rival Rogers Communications Inc. has held over the device.

For years, both BCE Inc.' s Bell Canada and Telus Corp., the nation's second-and third-largest cellphone companies, respectively, have trailed Rogers, largely because of network superiority. Since its acquisition of Microcell in 2004, Rogers has used next-generation gear called high-speed packet access (HSPA), while the other two relied on CDMA, or code-division multiple access.

A primary advantage of HSPA is the favour it has gained with handset makers as it has overtaken CDMA technology with cellphone carriers around the globe.

Among the HSPA users is Cupertino, Calif.-based Apple Inc., which designed its smash-hit iPhone expressly for HSPA networks.

Having the the only compatible network in Canada, Rogers has been able to offer the iPhone while Bell and Telus watched from the sidelines.

That competitive handicap was dissolved yesterday as Bell announced it has completed a year-long transition to HSPA and will introduce service next month. "The new network will be ready to roll in November, quickly notching up competition and wireless choice for consumers and businesses across the country," said George Cope, chief executive of Bell.

In an interview, Wade Oosterman, president of Bell Mobility would not confirm whether Bell and Apple were in talks to bring the iPhone to Bell in light of the move, but said he anticipated making a new handset announcement soon. Sources suggested both Bell and Telus, which declined to comment on when it would introduce its HSPA upgrade, were close to securing a deal with Apple.

Bell's move, made months ahead of schedule, comes as Bell, Telus and Rogers brace for the arrival of new entrants analysts predict will steal market share from all three.

Three new players in Globalive Wireless, Public Mobile and DAVE Wireless are expected to launch services in major markets this year or early next year. Globalive, which is undergoing a review of its ownership structure by Canadian regulators, has vowed to launch in Toronto and Calgary before the year is out.

"[With] the coming arrival of new wireless brands and networks, Bell will be ready to compete," the Montreal-based company said.

The iPhone, like other smart-phones such as the BlackBerry, nets higher monthly revenue per user on average versus traditional cellphones that do not offer the same level of Web services and cannot be charged higher data fees, although analysts aren't sold yet on whether the hefty upfront subsidies carriers pay for the iPhone are worth it for them.

Both Bell and Telus announced last fall they had begun pouring millions into the network transition ahead of the 201 0 Olympic Games in Vancouver, which will see tourists from around the world converge on B.C., netting the companies lucrative revenues from international roaming fees.

Bell also recently announced an agreement with U.S. giant AT&T that will lock up roaming payments from U.S. customers travelling within Canada.

The earlier rollout will see Bell widen its handset offering for the holiday season as all three incumbents face pressure to capture as many customers as they can ahead of the market shakeup.

The move, which overlays HSPA gear on Bell's existing network, also means Bell can offer devices for both network standards. Bell is already the exclusive carrier of the Pre. Made by Palm, the CDMA-only handset is considered a chief rival to the iPhone.