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John Bitove, chairman of DAVE wireless, and then-president Dave Dobbin, present their new brand name and logo, Mobilicity, on Feb. 2, 2010 in Toronto. Editor's note: Mr. Bitove's name was misspelled and Mr. Dobbin's title was out of date in an earlier version of this caption. (Peter Power/The Globe and Mail)

John Bitove, chairman of DAVE wireless, and then-president Dave Dobbin, present their new brand name and logo, Mobilicity, on Feb. 2, 2010 in Toronto.

 

Editor's note: Mr. Bitove's name was misspelled and Mr. Dobbin's title was out of date in an earlier version of this caption.

(Peter Power/The Globe and Mail)

Canada's newly competitive cellphone market at risk Add to ...

Fed up with expensive cellphone bills, Brian Wilson cut off his wireless service with Rogers Communications Inc. more than a year ago. Today, he’s thinking of going back.

Every time he walks into a building, he worries about losing the signal on his Samsung smartphone. As he travels between his home in Vancouver and the University of British Columbia, where he works, his phone sometimes kicks into “roaming” mode – meaning he’d have to pay extra fees to make a call or use data services – even though he’s still within the coverage area of his new cell provider, Mobilicity.

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He’s not thrilled with the customer service, either: Mr. Wilson says the company gave him the runaround when he tried to have some roaming charges reversed. So while he doesn’t want to give the industry giants any more of his money, he’s having second thoughts about his decision to go with one of the Canadian wireless industry’s newest players.

“If I could get better pricing and support a competitive startup, it seemed like a chance worth taking,” says Mr. Wilson, 46, who designs online courses at UBC. “I’m willing to put up with a bit [of hassle] ... But at some point, you’re thinking, ‘Well, it is really not worth it.’ “

Mr. Wilson is one of hundreds of thousands of Canadians who signed up with the upstart competitors in a Canadian wireless industry overwhelmingly dominated by the troika of BCE Inc. , Telus Corp. and Rogers. But more than four years after the federal government unveiled an ambitious plan to boost competition in the $17-billion sector, new companies such as Mobilicity, Wind Mobile and Public Mobile are still struggling to gain a foothold against the goliaths.

The Harper government’s attempt to engineer more competition for the benefit of Canada’s 27 million wireless users has been successful in a couple of ways: Prices have fallen for the average customer, and service plans are now more flexible. The question is, for how much longer? The upstarts’ networks are still poor – both in quality and scope – and there is constant talk of consolidation among players that may be too financially weak to go it alone. Many believe the endgame will see the Big Three eventually consolidate their grip on the market by buying up their smaller rivals, returning the wireless industry to its former state as a cozy oligopoly.

“There is a fundamental difference between competition and sustainable competition,” says Alek Krstajic, chief executive officer of Public Mobile. “I think what this country needs is sustainable competition.” The upstarts say that for all their success in driving prices lower, they will die off without further help – or without foreign funding, which is currently restricted by Ottawa’s foreign ownership rules in the telecom sector. Some of them are already pointing fingers at the government that encouraged them to launch in the first place, arguing that Industry Canada has failed to enforce the sector’s rules of fair play, such as forcing BCE, Telus and Rogers to share their wireless towers.

The incumbents, meanwhile, argue that Canadians simply prefer the major players’ higher-quality service as well as the higher-end devices they offer such as the iPhone, which the upstarts lack. If the government wants to score political points by lowering prices for consumers, and the big wireless companies say, they will further fragment the relatively small Canadian market and make it more difficult for carriers to afford the latest, greatest wireless technology.

All of this has put the Harper government in a difficult spot. Ottawa is set to auction off valuable wireless licences, probably later this year or next. It must soon decide what the rules for that auction will be – whether to tilt them in favour of new wireless companies by setting aside licences that only they can purchase, as the government did in 2008 to stimulate more competition. Its decision on that question and on foreign ownership will shape the industry’s future, and will help determine whether the new entrants can survive for the long haul, or are doomed to disappear.

A key public policy issue

The last burst of wireless competition, which began in the late 1990s, ended with the new entrants succumbing to financial problems or selling out to the giants they had been fighting for years.

Clearnet Communications Inc. was scooped up by Telus for $6.6-billion in 2000 after it had amassed around two million subscribers. Microcell Communications shook up the market with its Fido brand but later buckled under financial pressure. After emerging from bankruptcy protection in 2003, it faced a hostile takeover bid from Telus before it was purchased by Rogers for $1.6-billion in 2004.

Today’s new wireless players might not be as strong as Clearnet and Microcell were. Back then, fewer Canadians had cellphones, so there were many more new customers to pick off. “They were better financed, and it was a growth environment – as in, all telecom was growing, there was a lot of growth, and the incumbents were on their heels a bit,” says a senior industry executive who has worked at both new and incumbent telecoms.

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