Top Ten Developments in the Canadian Payments Industry in 2010

New Canadian Wireless Entrants lash out at Incumbents

At the Mobile Monday Toronto meeting held on December 6, senior executives of Wind Mobile and Public Mobile sketched the emerging Canadian wireless environment and lashed out at incumbents for their anticompetitive behaviour. The new entrants to the Canadian wireless market were represented by Anthony Lacavera, Chairman of Wind Mobile, and Alex Krstajic, CEO of Public Mobile. In a panel session chaired by Jeff Mucci, Publisher of RCR Wireless, Lacavera and Krstajic highlighted the impact that new wireless entrants have had on the mobile market in Canada.

 Prior to entry, they said, unlimited plans were “unheard of” in Canada, but are now offered by most operators. Service pricing has decreased as a result of competition, and the large wireless carriers have launched competitive offerings. Incumbents have also tried to bolster their position in the marketplace by having subscribers sign lengthy wireless contracts – in most cases up to three years – in an effort to prevent erosion of their subscriber base. Lacavera commented that the contract cancellation penalties are particularly harsh in Canada, and that mobile service agreements are more onerous than most car lease agreements. The key reasons why subscribers are prepared to sign these contracts are that incumbents subsidize phones, and they also offer some of the most sought after handsets, including the iPhone.

Krstajic noted that Rogers’ launch of of the low-end brand, chart, was a blunder of note on a number of levels. Firstly, it cannibalizes Rogers’ own profits. Secondly, the brand chose to differentiate itself on a false claim of having the fewest dropped calls – a move that has recently seen Rogers fined $10 million by the Competition Bureau for false advertising. Krstajic’s prediction is that “a senior executive from Rogers will lose their job over this within the next year”.

Anticompetitive antics

Both executives were most vocal on the anticompetitive behaviour that they claimed was being practised by incumbents. Kristajic noted that, while tower sharing was mandated by government almost three years ago, not a single tower has been shared by incumbents. One of the strategies followed by incumbents has been to populate their towers with inactive antennas in anticipation of applications by new entrants, on the basis that they are building out their capacity in preparation for future demand. This allows them to assert that their towers are not able to take any additional antennas at any reasonable height on the tower (increased height equates to increased coverage). Furthermore, they then maintain that that some of the towers have reached the maximum stress limits and that placement of new antennas on the towers will require the applicant to pay for rebuilding the tower to handle the increased load. Lacavera and Kristajic called on the CRTC and policy-makers to prevent this kind of anticompetitive behaviour and enforce tower sharing on reasonable and competitive terms.

Lacavera and Krstajic admitted, in response to a question from the floor, that their organizations didn’t share any towers with each other. Lacavera commented, somewhat sheepishly, that this is an area “where we should definitely do more”.

The issue of future 700 MHhz spectrum auctions also drew fire. Krstajic said that the questions of “set asides” for new entrants was being determined by Industry Canada, and commented that the full allocation should be set aside so that incumbents were not allowed to bid. He refuted claims by incumbents that they urgently needed spectrum for future network development and suggested that incumbents are hoarding it. He accused Bell and Rogers of being “spectrum squatters”. He quipped, rather humorously, that “Bell, Rogers and Telus have all been breast-fed until the age of twelve on spectrum! They're obese on it!”

However, both incumbents and new entrants believe that it is unlikely that the full allocation of 700 MHz would be set aside for new entrants. The executives representing the new entrants suggested, in recognition of this, that incumbents wanted to accelerate the 700 MHz spectrum auction process since they realized that new entrants were still busy investing in and building out their networks – leaving little financial capacity for engaging in a further round of expensive spectrum auctions.

The mobile industry has been participating in discussions with, among other entities, the Payment System Review Task Force, in order to advance the mobile payments and mobile commerce agenda. Krstajic commented that this was not an immediate area of concern for Public Mobile since it was not, at this stage, of great importance to their blue-collar target market. Lacavera stated that this was yet another area where incumbents, in consort with the large banks, were trying to dominate and limit the role that new entrants could play.

When asked when Wind Mobile would be offering the iPhone, Lacavera pointed out that the Advanced Wireless Spectrum (AWS) that Wind offers services on differs from the bands used by incumbent mobile operators, and that Wind did not yet have the volume that would make it attractive for handset manufacturers, including Apple, to supply them. However, he said T-Mobile’s use of the same AWS spectrum in the USA, and their plans to offer the iPhone, would result in Apple supplying to this market, and hence Wind was likely to offer these devices at some stage in the future.

While all Canadian carriers were invited to participate in the panel discussion, only Wind and Public Mobile accepted.