Skip to content

Mobile phone sector to get more crowded

|Written By Glenn Kauth

Canada’s mobile phone sector is about to get a lot more crowded as a number of new companies get set to enter the field in the coming years.

David Kidd says he’s curious about how the entry of two major cable TV companies will affect the market.

The expanded sector comes following last year’s wireless spectrum auction, which netted 15 successful bidders and $4.2 billion for federal government coffers.

The winners included existing telecom giants such as Bell Mobility Inc., Rogers Communications Inc., and TELUS Communications Inc. along with several new prospective providers.

Two cable TV and Internet service providers, Shaw Communications Inc. and Vidéotron Ltée, are planning their own moves into wireless as well as lesser-known entities like Public Mobile Inc., Data & Audio-Visual Enterprise Wireless Inc. (DAVE), and Globalive Wireless Management Corp.

Some companies, notably Public Mobile and Globalive, have said they plan to launch new discount services by the end of the year. But David Kidd, the head of the communications law practice group at Blake Cassels  & Graydon LLP in Ottawa, says he’s also curious about how the entry of two major cable TV companies will affect the market.

“I think that we’re waiting to see how quickly they roll out, but certainly the two cable companies, Vidéotron and Shaw, clearly in my view are going to make a big difference to this market because of their ability to bundle services. They also have already a captive audience of video customers through their cable offerings.

Vidéotron has also exhibited quite a degree of competitive spirit in the wire-line side with their voice over IP offerings. They’re competing very much on price on the wire-line side, and I suspect they’ll compete very much on price on wireless as well.”

At the same time, Kidd notes some of the lesser-known companies are also showing promise despite the fact that, unlike the cable companies, they can’t bundle their services with TV and Internet offerings. “In addition to the two cable companies, there are these very well funded other entrants, Globalive and Audio-Visual, which is commonly called DAVE,” he says.

“They also pose a very good competitive threat. Mind you, they are single-offering-type companies in that they do not have the ability to bundle their own native services such as wire-line or video. So, their competitive advantage is somewhat less and narrowed to two - one of quality and price.”

Nevertheless, the expanded field has already seen a slight retrenchment as Shaw announced recently that it would delay introducing its wireless services.

“Basically, the Shaw family is saying: ‘Given the capital resources we have available, the company is doing well [and] we think there is a better return on investing in enhancements to our cable products and our high-speed Internet services,’” says Phil Rogers, a partner practising telecommunications law at Osler Hoskin & Harcourt LLP in Ottawa.

“They’re being vague about their capital plans in wireless for the future. They’re not saying they have backed off. They’re just saying they’re going to delay.”

Still, Rogers notes the federal take from last year’s auction indicates “strong interest” in the sector. “I think they will all enter, and all that spectrum will end up being used eventually,” he says.

Of course, getting off the ground with sufficient financing in the current recession isn’t necessarily easy in a capital-intensive industry. Already, though, 13 of the 15 bidders for wireless airwaves last year have received licensing approval from Industry Canada, which means they passed federal restrictions on foreign ownership of telecommunications companies.

Those rules limit foreigners to holding a maximum of 20 per cent of a telecom’s voting shares at the operating company level and 33 1/3 per cent of the voting shares at the holding company level.

In addition, telecoms must also meet what’s called a control-of-fact test to ensure that even foreign investors meeting the voting share requirements don’t have undue influence over the company through other means such as shareholder agreements, Kidd points out.

But while most of the new entrants have passed those tests, Kidd notes debate continues on whether those restrictions are still necessary. “The whole question of foreign ownership restrictions is an area where Canada has not been moving as quickly as some of us would like.

There have been a variety of reports that have suggested that Canada should open up foreign ownership restrictions in telecom.

However, the government has so far seemed not to move on that, and it possibly is due to the economic environment that we’re in, which tends to be more inward-looking and restrictive in terms of policies rather than opening up the market to foreign investment as it should.

So I think there’s a level of frustration there and a conflict of how are you going to increase competition in the wireless market while at the same time keeping foreign ownership in place.”

In Globalive’s case, it has significant foreign involvement by an Egyptian company. But as Rogers points out, the key to passing the test is to restrict voting shares to the prescribed levels. “The ownership issues have been dealt with satisfactorily,” he says of the new entrants that have received approval.

Nevertheless, Michael Hennessy, the senior vice president for regulatory and government affairs at TELUS, argues the government needs to be more transparent about how it assesses companies’ compliance with the ownership restrictions.

“Because it’s all done behind closed doors, you don’t know what the test is,” he says, noting he’s been especially curious about how Globalive - which is purported to be 65-per-cent owned by the Egyptian company - got its licence. “What it is that Globalive had to do, therefore, to come into compliance is unknown.”

Already, both Public Mobile and Globalive have said they plan to compete in the market based on price through unlimited talk and text plans serving a national network. Kidd expects Shaw and Vidéotron will focus on bundling services through a network targeted at their respective cable audiences in Alberta and Quebec.

He points out, however, that the existing carriers have already gotten a jump on the prospective competition by lowering their prices. “I think the three incumbents are already being more price conscious both because of the tougher economic time we’re currently in and also in anticipation of the new competition entering the market,” he says.

But exactly what the new entrants will mean for consumers isn’t yet clear, Rogers notes. “There should be more price competition, but the form of that is very difficult to predict because there are so many ways it can be done,” he says.

“Maybe some of them will start using American-style pricing, which is a little different from Canada in terms of pricing for data services and abolishing the distinction between local and long distance calls. Those are all marketing judgments, and each of those new entrants will have to make their own decisions on that.”

Kidd notes as well that getting off the ground in the industry isn’t cheap or easy due to the need to do everything from securing financing to establishing towers and roaming agreements with other carriers.

“It’s a very capital-intensive business, and the possibility of erecting new radio towers has become an issue of environmental control and resistance,” he says.

“So tower sharing is advocated and promoted in the recent policies issued by Industry Canada. That means you have to negotiate access with incumbent tower providers because the possibility of erecting your own towers becomes increasingly remote.”

As a result, Rogers says that while the new entrants certainly foresaw profit when they bid for new wireless airwaves, he doesn’t expect they’ll be making big money soon.

“There’s no doubt there’s money to be made, but it’s important to remember how long it took them to get there,” he says, citing the early struggles of one of Canada’s first wireless companies, Cantel, in the 1980s. “Those companies lost money on wireless for years and years. They probably only turned cash positive certainly [after] more than 10 years.

“It might have been more than 15 years. It was a long time getting to the point where you can say there’s money to be made in the business. I don’t know how long it’s going to [take] before people can make positive returns from the new entrants that are coming on.

But it’s not something you should expect to see happen, nor would any investors expect to see happen, right away. There usually are losses at least in the first several years.”

cover image

DIGITAL EDITION

Subscribers get early and easy access to Law Times.

Professional Development


Law Times Poll


A Law Times column argues it’s time for provincial laws dedicated to stopping defamatory publications on the Internet. Do you think that new legislation will help counter defamatory statements online?
RESULTS ❯