Wireless wars: The battle for cellphone markets
CBC News Online | September 20, 2004
Rogers Wireless's purchase of Microcell Telecommunications, the operator of the Fido cellphone network, could mean lower cellphone prices across the country, a top industry analyst says.
Microcell has constantly aggravated its three main competitors by offering much lower prices, including unlimited local calls in Toronto and Vancouver at $45 a month. However, it struggled to provide consistent coverage outside major cities.
If Rogers goes ahead with a friendly takeover bid, it could continue Fido's bargain rates while using its own national network to boost coverage.
"If Fido is maintained not just as a brand but as a marketing strategy, this could be good news for consumers," said Ian Angus, president of Angus TeleManagement Group of Ajax, Ont. "Fido is pretty hard to touch."
Rogers Wireless, the cellphone arm of the media conglomerate Rogers Communication Inc., announced a $1.4-billion cash takeover of Microcell on Sept. 20, 2004.
Merger leaves 3 main rivals
The merger, still subject to approval by the industry regulator and a vote by shareholders, will make Rogers the largest wireless provider with about 5.1 million customers, against about 4.5 million with BCE's Bell Mobility and three million with Vancouver-based Telus Corp.
A far smaller percentage of Canadians use cellphones than in the United States and Europe, partially because traditional wired phone services are much cheaper than in other countries. However, the wireless branches are often the most profitable and fastest-growing sections of companies.
Rogers' offer topped an earlier $1.1-billion hostile takeover bid by Telus, the country's second-largest telephone company. Microcell's board rejected that offer as inadequate.
If Telus had succeeded, the Fido brand would likely have disappeared, leaving the three competitors with virtually identical pricing, Angus said.
"Telus's goal was to wipe Fido off the face of the earth. If they had done that, you would have seen really intense competition for the Microcell customer base."
Jousting for radio spectrum
Many analysts, Angus included, speculated that a desire to snap up radio spectrum cheaply drove the Telus bid.
Industry Canada originally limited the amount of radio spectrum that cellular telephone companies could hold to spur competition and innovation in the burgeoning industry.
The federal government eliminated the caps at the end of August, deeming the industry to be sufficiently established and competitive.
Telus had reached its spectrum cap in most of its operating areas, but likely hoped to acquire Microcell's spectrum at a discount price before the caps were lifted.
If Telus had bought Microcell, it was expected to keep the spectrum it needed and sell off the rest to rivals who were also no longer limited in their ownership of wireless "real estate."
Takeover may lure younger customers
The latest takeover, if it goes ahead, will give Rogers a stronger grip on the lucrative youth market, which it struggled to attract.
Fido captured a large share of that market, in part because - unlike its rivals - it did not demand contracts or long-term commitments. (Fido's 1.2-million subscriber base has the highest rate of turnover or "churn" in the industry.)
Bell is aggressively chasing younger consumers. It recently teamed up with Virgin Group and plans to soon launch Virgin Mobile, a youth-oriented brand that has been remarkably successful in the U.S. and England.
Next challenge: number portability
Once the Rogers-Microcell merger shakes down, the industry's next challenge is likely to be the issue of number portability.
Right now, unlike in traditional telephone services, customers switching from one wireless service to another can't take their number with them. However, there is strong consumer and business demand for the option.
"I think number portability is going to be a big item in the next year," Angus said.
The CRTC is expected to rule on the issue in 2005, which means consumers will likely see a change by the following year.