New players and networks look to shake-up Canadian market - New market entrants get set for launch; incumbent operators migrate to HSPA, LTE

Canada's mobile market is on the verge of major change with a raft of new operators expected to launch services this year and the country's major CDMA operators in the process of rolling out new HSPA networks.

Although the three main mobile incumbents - Rogers Wireless, Telus and Bell Mobility - were the biggest winners in last year's Advanced Wireless Services (AWS) spectrum auction, the auction created a number of smaller or regional rivals. Most prominent among these is Globalive, which paid C$442 million (US$415 million) for licenses to provide mobile coverage to a population of 26 million, covering all major areas except Quebec. Despite the global credit crisis, the operator - which includes Orascom Telecom among its backers - is still planning to launch services in the second half of this year and is targeting 1.5 million subscribers within the first three years, possibly using an advertising-funded business model to differentiate its offering. It is also widely-speculated that Globalive could team up with the Quebec-focused Quebecor - another spectrum winner in last year's auction - which would effectively create a fourth operator with nationwide reach. Quebecor, via its telecoms subsidiary, Videotron, is already building-out an HSPA network and could launch services before year-end with an offering expected to be based around its cable TV and other media content.

Meanwhile, Bell and Telus confirmed speculation recently with the announcement that they are to begin moving from CDMA- to GSM-based technology by jointly rolling out a shared HSPA network. The C$1 billion network is being built by Huawei and Nokia Siemens Networks and the two operators are expected to launch HSPA services in early 2010. They will continue to support customers on their existing CDMA networks, at least in the medium-term.

Both Bell and Telus have also outlined plans to move to GSM-based LTE technology for their 'next-generation' mobile communication networks, most likely using their recently-acquired AWS spectrum. In this sense, the two CDMA operators look set to follow the example of US CDMA operator Verizon Wireless, which has announced that it will use the spectrum it acquired in the US 700MHz auction for LTE.

One key motivation for Bell and Telus has been the need to compete more effectively with Rogers Wireless in terms of handset portfolio. To date, Rogers has benefited from being the sole distributor of high-profile WCDMA- based devices such as Apple's iPhone 3G and the HSPA-enabled BlackBerry Bold. In the last quarter of the year, Rogers said it sold around 130,000 iPhones, around 40% of which were accounted for by new subscribers.

These developments are set to stimulate a Canadian market that is surprisingly under-developed in terms of high- speed mobile services. At the end of 2008, market-leader Rogers Wireless still had less than 500,000 connections on its WCDMA-HSPA network, representing just 6% of its total connections base. It was a similar picture at Bell and Telus, which both had around 6 - 7% of their base migrated onto their higher-speed EV-DO networks by year- end.

Mobile penetration in Canada is also low by developed market standards. Penetration at the end of 2008 was around 65% compared to over 91% in the neighbouring US. This suggests plenty of room for growth for the new market entrants and offerings, though it is likely that most new players will focus initially on urban areas to avoid the capex requirements in building-out networks to Canada's vast rural areas. The incumbent operators have faced similar challenges with regards to the roll out of their high-speed networks.

Matt Ablott, Analyst, GSMA Intelligence:

Despite the worsening of the global economic situation since the AWS spectrum was allocated last summer, new Canadian market entrants such as Globalive are still committed to launching their first mobile services this year. If the new players are able to sufficiently differentiate their offerings and target niche markets then they should be successful, though expansion outside of Canada’s urban areas is likely to require regulatory help. Meanwhile, the focus on high-speed mobile services made possible by the AWS spectrum should also see Canada’s incumbent mobile players up their game. Moreover, the new HSPA network being rolled out by Bell and Telus is likely to usher in a new era of competition between Canada’s three largest mobile operators, leading to major advances in areas such as mobile broadband and a significant uplift in high- speed mobile connections.