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Three years ago a small, fiery competitor gave Canada's wireless industry a scare.

Microcell Telecommunications introduced its City Fido plan, which was unlike anything the market had seen. For just $40 a month, customers in Vancouver could make as many local calls as they wanted. It competed not only with other cellphone companies but was cheap enough that customers could use it to replace their home phones.

“They call it judo strategy — you really take the strength of your adversary and you use it against them,” explained Microcell's former chief executive officer, André Tremblay. “We were really eating into their core business.”

City Fido was the culmination of several years of heated cellphone competition in the late 1990s, during which startups Microcell and Clearnet Communications emerged to challenge the reigning wireless giants, Rogers, and the dominant telephone companies in each region.

That era ended with Telus Corp.'s purchase of Clearnet in 2000 and Rogers' acquisition of Microcell four years later. Those deals left the market with only three national carriers and, according to critics, not enough competition.

There is little difference between the service plans carriers offer, their rates are much higher than in the United States, and their profits keep climbing.

Once again, the wireless business is at a crossroads. Analysts say it's time for new blood, and the opportunity for would-be rivals may emerge when the government makes more wireless spectrum available next year.

“Clearly there's room for someone to try,” said Yankee Group analyst Jeff Leiper. “There's dissatisfaction with pricing. Penetration is lower [than in other countries].

The story is very different in the United States, where there are more wireless subscribers as a proportion of the population and the competition is fierce. Five national carriers lead a pack of 180 companies fighting for customers.

Canada, by contrast, has about 20 wireless carriers, including the three national companies, Bell Canada, Rogers Communications Inc. and Telus Corp., and a few provincial and regional players. But outside of Ontario and Quebec, the markets are largely dominated by one or two carriers.

The big Canadian carriers also all own land-line telephone businesses. If they aggressively cut prices on their wireless services, they risk eating into their land-line customers, much as City Fido was trying to do.

But prices are not the only area where Canadian consumers are at a disadvantage compared with their U.S. counterparts. Only in March, and then only in big cities, will Canadians be able to keep their cellphone number if they switch carriers. Americans have been able to do that for three years. The Canadian carriers had argued for an even greater delay, but federal regulators stepped in and set the March date.

These factors help explain why cellphones have not caught on in Canada as they have elsewhere. Canada trails not only the U.S. but Europe and some Asian countries in adopting wireless, and less than 10 per cent of Canadian households have replaced their traditional land-line phone with a cellphone.

“The smaller number of mobile providers in Canada — and the fact that all three national wireless service providers are also owned by large telecommunications service providers that also provide wireline services — may mean there is less competition in the Canadian wireless market than in the U.S. market, which consequently has resulted in higher prices, less innovation, lower uptake and lower rates of usage,” the federal Telecommunications Policy Review (TPR) panel, which looked at the industry, wrote in a report earlier this year.

The big wireless carriers, however, blame other factors for the slower take-up rate and say Canada will catch up. They insist competition is intense in the wireless market, which is a rare bright spot in the shrinking telecom industry.

“When you have new products coming to market with the staccato of a machine gun, when you have competitive intensity that frequently begets irrational pricing, like giving away . . . huge swaths of air time, it doesn't look to me like that's an industry that is complacent from a competitive perspective,” said Telus chief executive officer Darren Entwistle.

Others disagree. The three-person TPR panel, whose members include Mr. Tremblay, are among the voices pushing for more wireless competitors, which could lead to lower prices. But for the big carriers it could threaten lucrative revenue streams.

Microcell and Clearnet certainly shook up the industry.

Microcell's first cellphone plan, for example, was $40 for 400 minutes, a big reduction from the going rate of $120, said Mr. Tremblay, who recently started his own firm to seek opportunities in various aspects of the wireless business.

“Microcell was by far the price leader, so there's no question with them gone there just wasn't the obviously cut-rate pricing we had before,” recalled Merrill Lynch analyst Glen Campbell.

So who could become the next Microcell? It's never easy for new players. Microcell itself ran into financial trouble and at one point was under court protection from creditors.

The easiest and cheapest way to break into the market is by piggybacking on the big operators' networks, buying air time from them wholesale and reselling it. A number of well-known brands, such as Virgin Mobile Canada, Loblaw Cos. Ltd., and 7-Eleven have entered this way in recent years, thus avoiding the huge capital cost of building a network, including cellphone transmission towers.

Virgin Mobile Canada, known for its edgy advertising, believes it's making an impact. “Certainly Virgin coming into the market has provided consumers with great options compared to what rate plans looked like before,” CEO Andrew Black said.

However, these companies, known as mobile virtual network operators, don't have the same independence in terms of pricing and marketing because they rely on a supplier for their phone minutes.

Companies that want their own networks may get their chance soon when Industry Canada kicks off its auction of new wireless spectrum.

But would-be entrants argue they need breaks to help overcome the hurdle of startup costs. Setting aside wireless spectrum and forcing established companies to share towers and open their networks to roaming customers of the upstarts would make it easier for them to get into the business.

They're not holding their breath, however.

“If you look at the way the last spectrum auctions went in the cellular space, prices have been bid up quite high” by existing players, Toronto Hydro Telecom president Dave Dobbin said. “It creates an environment where smaller players aren't able to make the business case to roll out a network.”

Industry Canada did give the little guys — Microcell and Clearnet — a leg up in 1995 when it put a cap on the amount of spectrum companies could hold.

Vidéotron Ltée, which currently resells Rogers' wireless service in Quebec, is arguing for similar help this time around. “We say to the government, if they really wanted to implement more competition in the industry, you have to reserve part of the spectrum for new entrants,” said Vidéotron spokeswoman Isabelle Dessureault.

Foreign companies that want to set up in Canada face an even higher hurdle than acquiring pricey spectrum. The government limits them to a stake in phone companies that is effectively capped at 46.7 per cent, and that law would have to be changed.

For now, Industry Minister Maxime Bernier, who has pushed for less regulation in other parts of the telecom industry, is keeping his cards close to his chest when it comes to the government's auction plans.

“Advanced wireless services are vital communication resources for building a strong networked economy for Canada,” Mr. Bernier wrote in a statement. “My goal is that Canadian consumers and the economy ultimately benefit from a competitive environment.”

The existing wireless carriers are less than keen on the idea of government breaks for new network-based rivals.

“Clearly, anything that starts to tamper with market economics creates situations that can actually backfire,” said Nadir Mohamed, chief operating officer of Rogers' communications group.

“The reality is less about saying do something unique on spectrum, to a clear sober look at can the market actually support more than three players that are facilities-based,” Mr. Mohamed added later.

Bell Mobility president Wade Oosterman says there's room for new entrants — in rural areas. He says wireless penetration is lagging in those markets, not in the cities, where Bell and other carriers have concentrated their services.

While they may not welcome them, new competitors likely won't spell the end of the world for Canada's existing wireless carriers.

“More competition is better,” said Brian Sharwood, an analyst at telecommunications consulting firm SeaBoard Group. “We still have 40 per cent of the market in Canada that hasn't got a cellphone yet. Every time there's more competition, you open up different opportunities and different ideas.”