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TELECOM REPORTER

The future of the cellphone, it seems, involves doing everything with the device but talking to other people.

Wireless data, rather than voice services, is now one of the strongest revenue streams for Canadian carriers. The growth reflects both increased smart phone use, as more people choose iPhone and BlackBerry plans, and a decline in the use of cellphones as a means to actually speak to others. The trend rose during the recession, with thrifty consumers sending cheaper text messages rather than making calls.

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Canada's largest carriers - Rogers, Telus and BCE Inc.'s Bell Canada unit - are all reporting strong data growth.

"It's absolutely the growth engine of the wireless business," Rob Bruce, president of Rogers Wireless, said on a conference call yesterday.

He had good reason to be optimistic, speaking shortly after Rogers Communications Corp. posted strong fourth-quarter results. Growth in wireless data revenue pushed total wireless revenue up 4 per cent to just over $3-billion, with data now accounting for 24 per cent of that total. Smart phones now account for 31 per cent of Rogers' wireless subscribers.

"We see a ton of room for that growth to continue," said Nadir Mohamed, Rogers' president and chief executive officer.

But the downside of a data-intensive network, which also includes mobile Internet sticks plugged into laptops, is already clear. It allows customers to cut down on the number of minutes spoken, which saves money for consumers but costs carriers by eroding stable revenues gained from offering voice services.

Telus Corp., which reported fourth-quarter earnings last week, saw a 45-per-cent slide in profits due, in part, to customers who cease making calls and opt for texting instead. This, despite the fact that the cost of voice calls has declined.

"Voice pricing has been declining in the wireless industry, almost from inception, but it's traditionally been made up by increased usage," Robert McFarlane, executive vice-president and chief financial officer at Telus, said in an interview last week. "What's happened in the past couple of years is you've had rate reductions, but you've also had volume reductions."

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The deluge of data usage is driven in part by sophisticated handsets, such as the iPhone and BlackBerry, or devices powered by the Android operating system. But as wireless phones become more advanced, and as people use high-bandwidth activity such as streaming video, the devices hog space on networks, slowing service for everybody.

Costly infrastructure investments are necessary to head off customer frustration. In the U.S., AT&T's network is so strained in high-density areas customers sometimes have to dial several times before they are connected. Rogers' Mr. Mohamed thinks this won't be a problem in Canada, however, because of increasing convergence between wireless services and broadband Internet.

ROGERS (RCI.B)

Close: $32.95, down $1.58

***

Rogers Communications

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Q3.........................2009....................2008

Profit...........$310 -million.....$$138--million

EPS..................51 cents..............(22 cents)

Revenue.........$3-billion..........$2.9-billion

Source: Company reports

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