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Canadian telecom giants are feeling the heat like never before.

A titanic struggle to divvy the spoils of the nation's wireless riches has begun, pitting an increasingly savvy and demanding customer against finely tuned telecom incumbents.

Customers, showing an almost insatiable appetite for all things wireless, are adopting the technology in all its forms. They're also quickly taking for granted that instantaneous voice and data communications should be the norm.

At the same time, phone giants are working with device manufacturers and software developers to raise wireless communications to a new level with smart phones and speedier networks.

Round 1 between the two forces began this week, as Rogers Communications Inc. got blindsided by customer wrath and backpedalled on its pricing for the iPhone launch. The government pounced on Bell Canada and Telus Corp. for levying new text messaging charges, and the industry kept bidding up the prices of new wireless licences under auction — a sale that promises to inject fresh competition into the telecom industry.

Apple Inc.'s iPhone, which Rogers debuted Friday, is more than a sleek, fashionable device. It showcases a new category of handsets now available on each of the carriers' networks. These smart phones tap an enhanced level of wireless technology, sometimes called 3G for third generation, and can deliver Web pages, multimedia and e-mail at speeds close to home broadband rates.

As new capabilities blossom, three incumbents remain in control of the national wireless networks and consume the lion's share of profits from the $12.7-billion industry, awash in new spending.

Last year, 1.6 million subscribers joined the wireless ranks, bringing the total number of customers in Canada to 20.1 million and making wireless — untethered from the regulations that defined the previous generation of phone services — one of the economy's fastest growing segments.

"It's very competitive and every one of us moves pretty quickly, and when we think we have an advantage we will try to utilize it to attract as many clients as we can in the market," said George Cope on the first day of his job as president and chief executive officer of BCE Inc. and Bell Canada.

Bell wants to steal some of Rogers' thunder from the iPhone by introducing next month a similar-looking smart phone, Samsung's Instinct, at a lower price.

"There is a greater awareness on the part of the consumer about what they should be paying for telecom service," says Niraj Dawar, a marketing communications professor at the Richard Ivey School of Business.

There is some irony to the fact that as the phone companies roll out new services that allow people to communicate instantly in new ways, their customers are using the technology to express their criticism of how those services are offered and priced.

In the case of Rogers this week, the company bowed to market pressure and slashed its data fees for the iPhone two days ahead of the launch, after receiving a deluge of calls and watching an online petition against its pricing add more than 60,000 names.

"I hesitate to say there is a revolution under way," says Michael Janigan, executive director and general counsel for the Public Interest Advocacy Centre. "But I am intrigued by the depth of the public response. There is new resonance, and there is a degree of latent animosity to the whole of the wireless industry."

In most industries with high fixed costs, such as airlines, competition tends to produce dramatic price wars because the marginal cost of adding a customer is tiny and the revenue generated flows straight to the bottom line.

Canada's telecom carriers run high fixed-cost operations but don't follow that model, Mr. Dawar says. "Price is not where they want to compete."

Instead, the phone companies try to differentiate their products from each other, with things such as unified billing, bundled services and trendy handsets like the iPhone.

They also have a habit of making public statements that signal to one another that they are not about to engage in price wars, a process called "price signalling," Mr. Dawar says. That's most likely why when one carrier moves from per-second charges to per-minute charges, the others shortly follow suit, he said.

Two countries where phone companies have unleashed all-out pricing wars are Hong Kong and India. The result is fees of about a penny per minute, but a lack of funds to upgrade networks.

George Muenz, an IT worker in Vancouver, is one of the more than 60,000 to add his name to the petition against Rogers's pricing on the website RuinediPhone.com. He says Canada's phone companies have failed to understand how their own markets are changing.

In Rogers' case, the company has imposed caps on the amount of data an iPhone user can send and receive. That's problematic for running always-on features that Apple has created, such as weather, GPS and stock updates.

"It wasn't about price, it was about the restriction and limitation of the user experience," he said. "Their business model is just outdated. Instead of saying 'how can we make money off the technology,' they say 'how can we restrict the functionality.'"

After Rogers responded to the public outcry by tripling the amount of data that customers can buy for $30 a month, the 52-year-old opted to buy an iPhone.

For John Barr, a lawyer in Winnipeg who has promised his 15-year-old daughter a cellphone for earning an A average, the issue is more about getting what he pays for.

He bought his elder daughter a mobile phone in January, subscribing to a $30-a-month plan. In the first seven months of the contract, he says he has not had a bill for less than $45.

"When I sign up for a plan for $30 a month, I'd like to be paying $30 a month," he says. "These people are playing it like they have a captive market."

Mr. Barr has heard about the government's plan to keep the wireless industry unregulated but to allow in more competitors. He's hopeful new entrants will make the process of buying a phone a lot easier. But some experts say that's wishful thinking.

Industry Canada's wireless spectrum auction will result in several new regional wireless players and likely one new national entrant with a footing in all provinces but Quebec. Rollout of new networks will take between 18 and 24 months.

"There's a strong incentive [for new entrants] to play by the rules because the incumbents are making so much money," Mr. Dawar says. "The profits are so juicy, and the position so privileged, that even a slice of this market for a new player would be extremely profitable."

Canada has tried and failed in the past to support more than three carriers and it is extraordinarily expensive to build out a network.

"There's an expectation that because we are going to have new entrants it will get more competitive," says Mark Tauschek, senior research analyst with Info-Tech Research Group. But he predicts that the auction will bring only incremental change and no silver bullet.

Online communities are a powerful tool for challenging the incumbents, but one of the best ways to spur competition would be to remove the government restrictions on spectrum ownership and let companies buy and sell holdings the way developers can trade land, says Leonard Waverman, dean of the Haskayne School of Business at the University of Calgary.

In the short term at least, the auction is causing the telecoms to actually raise prices, something that consumers should brace themselves for over the next year, as the Bell and Telus moves on texting indicate.

"They see competition coming and they are already rebalancing their price systems, even before the new entrants arrive," Mr. Waverman said.

As for the public outcry that forced Rogers to reprice its iPhone plan, he says: "I don't see this as something firms need to be wary of. They are still very much in the driver's seat."