As the buzz of Apple Inc.'s iPad launch fades away, a cold reality is settling in for Canadian wireless carriers: What will they do when the device comes here?
In the United States, AT&T Inc. is offering what many analysts consider a shockingly low price to service Apple's latest device - $29.99 (U.S.) per month for unlimited data and only $14.99 for up to 250 megabytes. But consumers are unlikely to see similarly cheap plans here.
"The Big Three will be vying for a piece of the action," said Tony Olvet, vice-president of research at IDC Canada, referring to Canada's national incumbents, Rogers Communications Inc. , BCE Inc.'s Bell Canada unit, and Telus Corp. , all of which now carry Apple's iPhone.
But, he added, "I'd be very, very surprised to see anyone do a $29.99 Canadian unlimited data price."
The iPad, which allows users to surf the Internet and download video, may help Canadian wireless firms attract new customers who are attracted by its larger screen. Yet all three major carriers have so far resisted offering unlimited plans for the iPhone, partly because of AT&T's experience: iPhone customers use a lot of bandwidth, clogging the network.
On a conference call last week, AT&T executives spent a lot of time defending their network. Wireless logjams and dropped calls on the company's network, caused in part by its exclusive deal to carry the iPhone in the U.S., has led to vocal customer dissatisfaction. Spotty coverage has already provided rival Verizon with fodder for biting ads.
Now the company is set to provide data for the iPad, which many will use for the same type of multimedia consumption as the iPhone, but on a screen that makes longer sessions more comfortable.
Carriers will benefit from gaining subscribers for free, since Apple will sell the device without the subsidies from carriers common in Canada and the U.S. for smart phones. But there is a big risk.
"It doesn't make sense for any one carrier to go out and aggressively strike a deal with Apple," says Scotia Capital analyst Jeff Fan. If users start to hog the network, "then performance of the network could go down. It might affect other users and create further issues, in terms of how people perceive your network."
Some even question the merits of carrying iProducts at all. The iPhone uses up to seven times the bandwidth of a voice-only user, which forces a carrier to bulk up its network even as it pays hundreds of dollars per device in subsidies.
A report from U.S. research firm Sanford C. Bernstein calls this the "iHog Dilemma." On one hand, carriers gain data-using customers that on average provide more revenue than voice-using customers. On the other hand, the firm notes, "heavy usage levels associated with the iPhone can be blamed for severe network degradation, customer dissatisfaction, higher capital spending requirements, and lower return on invested capital."
Dvai Ghose at Genuity Capital Markets, questions the particulars of AT&T's arrangement. "I'm glad they're not subsidizing the device, from a financials standpoint, but the data pricing of only $30 is very low," he said. "The data pricing is so low that it embarrasses your other offerings."
Some speculate the iPad's low data pricing may have resulted from a threat to break Apple's exclusivity with AT&T. According to one source inside the Big Three, Apple is "one of the most challenging" companies to deal with in negotiations. "They're driving the bus," the source said. "It would definitely need to be thought out. You need to model the usage to make sure that you charge a price that's fair and recovers your costs."
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