The cozy world of Canadian telecom appears set for a shakeup, as Ottawa's auction of wireless spectrum licences draws to an end and a major foreign phone company readies to pump money into a new national network.
Canadian consumers can expect to see more enticing price packages tailored to both heavy and light users of mobile voice and data. At the same time, investors in Canadian telecom firms should prepare for weakening valuations, some experts say.
The changes won't occur overnight. It will take about two years for the winners of the new licences to build infrastructure and operations. But the auction results are a watershed moment in Canadian communications, said Genuity Capital analyst Dvai Ghose.
Six weeks of aggressive bidding have pushed prices far above all initial expectations. But a small, private Canadian firm called Globalive Communications Corp., which sells Yak long-distance services, has managed to win licences across the country, with the critical exception of Quebec. Another new player, Data & Audio-Visual Enterprises Wireless Inc., a venture of Canadian satellite-radio king John Bitove and Microsoft Corp.'s co-founder Paul Allen, has obtained spectrum in B.C., Alberta and Ontario.
Regionally, Calgary's Shaw Communications Inc., Quebecor Inc. (which owns Vidéotron Télécom Ltée), and Atlantic Canada's Bragg Communications Inc. have each obtained enough spectrum to build wireless networks in their home regions.
Industry Canada will conclude the auction when there are no new high bids. Just a trickle occurred yesterday, with bidders vying for control of four slices of airwaves in northern Canada, Southern Ontario and Red Deer, Alta.
The results of the auction mean there will be two to three new players in most markets, rather than just one, as originally expected. The exception is in Quebec, one of the most intense battlegrounds, where at considerable cost Quebecor appears to have captured most of the new licences and quashed Globalive's hopes of a truly national network.
Analysts, however, say there is plenty of room for Globalive to make a reciprocity deal with Quebecor, possibly opening up Western spectrum for the Quebec firm.
In addition to the $444.1-million Globalive has committed to buying spectrum rights, it will need to spend about $1-billion to build its network across the country, Mr. Ghose estimates.
This level of upfront cost makes it very difficult for a newcomer to succeed in Canada's telecom market. Today, the $12.7-billion wireless industry is dominated by three companies whose profit margins are higher than almost anywhere else in the world: Rogers Communications Inc., Bell Canada and Telus Corp.
But Globalive has collected some powerful partners in its quest to build a new national wireless network: Weather Investments, controlled by Egypt's Naguib Sawiris, and Novator, founded by Iceland's Bjorgolfur Thor Bjorgolfsson.
Through Weather and its holdings in a firm called Orascom, Mr. Sawiris rules a wireless empire with more than 90 million clients in the Middle East, Africa, Asia and Europe. His customers are based in such diverse markets at Italy and North Korea. In a recent interview with The Globe and Mail, he said he was attracted to the Canadian market by a dearth of competition.
"The competitive environment is not competitive enough, which means at the end the consumer is not getting his best deal," Mr. Sawiris said.
With a total of 94 million subscribers around the world, Weather/Orascom "enjoys a level of scale that cannot be matched by any of Canada's wireless incumbents," Mr. Ghose said.
For example, the company is the biggest customer to equipment gear maker Alcatel-Lucent, which gives it sway on pricing and financing. The volume of its business also gives it leverage with manufacturers of handsets.
Weather will try to use its scale to help Globalive build a network more cheaply than anyone else and give the firm "a significant competitive advantage," Mr. Ghose said.
With lower costs, and experience selling competitive phone services in diverse markets, Weather and Globalive will likely offer wireless packages that the incumbents have so far declined to provide, he added.
Mr. Ghose says it makes little sense for new entrants to build more than one network and he sees other players buying capacity on infrastructure built by Globalive. In addition, resellers could jump on the bandwagon, buying space from Globalive and offering inexpensive alternatives to the incumbents' discount brands, Fido (Rogers), Solo (Bell) and Koodo (Telus), he says.
The new entrants will need time to build their networks and establish their wireless operations and they are unlikely to have an effect for several years.
But their mere presence on the sidelines is introducing uncertainty in the market for Rogers, Bell and Telus. Mr. Ghose cut his price targets on both Rogers (to $45 from $54) and Telus (to $43 from $50) yesterday.
