The cellphone market that Canadian consumers have come to know over the last decade is on the edge of a shakeup that will see pricing plans reinvented by a handful of new wireless players building operations today.
Within the next year, most Canadians will have the opportunity to sign up for service without the customary fees and rules that have helped drive the profits of the Big Three traditional players.
The new entrants that recently won wireless spectrum licences from the government are designing plans they hope will dislodge millions of customers from their traditional providers.
Systems access fees, lengthy contracts, roaming and long-distance charges, and fees for basic features such as voicemail and call display – all of which Canadians have accepted as a matter of course – are likely to be absent in the coming wave of offerings.
“We are not going to irritate customers,” is how David Dobbin, president of Data & Audio Visual Enterprises Wireless Inc., frames his firm's model, expected to launch early next year in a number of large cities.
In his mind, that means removing “unique Canadian conditions,” such as three-year service contracts that all too often outlast the handsets supplied.
Anthony Lacavera, chief executive officer of Globalive Communications Inc., agrees that 36-month wireless plans that carry hefty penalties to break are a “hot-button” issue for consumers. The firm's market research has also shown that users want clear, upfront pricing on the plans they buy, he said.
“If it's $40 when I walk out the door, it had better be $40 on my bill. Not $58.”
The new arrivals are carefully shielding full details of their launch plans to try to avoid getting pre-empted by competitors. But Alex Krstajic, CEO of Public Mobile Holdings Inc., which plans to launch in Ontario and Quebec by the end of the year, has been specific that his firm will offer unlimited voice and texting for $40 a month.
The big three wireless companies are already taking steps to prepare for the first new competitors in a decade. Rogers Communications Inc., BCE Inc.'s Bell Canada and Telus Corp. are spending large amounts to beef up networks. They are also adjusting pricing and extending their distribution.
Discounts are already starting to appear in the Big Three's discount brands: Fido, Solo, Virgin and Koodo. Jeffrey Fan, an analyst with UBS Securities Canada Inc., expects these price reductions, combined with the effects of the recession, will drive down average revenue per user on voice for the Big Three to between $45 and $40 by the end of the year. (Data revenue on top of that boosts the full average by at least another $10.)
Each of the new independent players say they are fully funded by investors to build their networks, launch and operate.
Two established cable giants also recently received wireless spectrum licences. Quebecor Inc.'s Vidéotron Télécom Ltée plans to launch service in Quebec next year. Calgary-based Shaw Communications Inc. has opted to refrain from rolling out wireless service for at least a year.
The new competitors insist that they can differentiate their offerings on more than just price. By building their customer-care systems from the ground up, with the latest technology, and by keeping their plans simpler than what the industry offers today, they think they can provide superior service at lower cost. “We have a real luxury,” Mr. Dobbin said. “We are building from scratch. It's fresh.”
Not surprisingly, the market leaders express some doubt about the true viability of all this new competition. They emphasize that their own companies have spent billions of dollars over the years to establish some of the most reliable networks in the world. They also question whether the relatively small Canadian market can support so many players. Americans, for example, are largely served by four main carriers: Verizon Communications Inc., AT&T Inc., Sprint Nextel Corp. and T-Mobile USA Inc., as well as more than a dozen regional and discount providers.
George Cope, CEO of BCE and Bell Canada, says the new Canadian players are disadvantaged because there are already seven national brands in the country - the three incumbents and four of their own discount brands.
“Major carriers in the U.S. did not have a multi-brand discount strategy,” he said in December. “So discount brands were brought to market by new entrants. The discount brands in Canada are already here through the current structure.”
Some analysts also question how many players will ultimately survive here.
“We believe consolidation amongst the new entrants is inevitable given their complimentary skill sets,” Mr. Fan wrote in a research report. “As one entity, they would pose a much stronger threat. At present, no combinations and partnerships have resulted since each believes it has the best approach.”
