Bell is in danger of losing its number two spot in the cellphone market to Telus. (Ryan Remiorz/Canadian Press)

The death of Bell Canada Inc.'s privatization is good news on an operational level, analysts say, because the company will now be free to spend on two areas it has neglected since the wheels of the deal began turning a year and a half ago — its internet and cellphone services.

On both fronts, the Montreal-based company has been getting clobbered by competitors. On the internet side, Bell has seen cable company competitors blaze ahead in terms of the speeds offered to customers, particularly in Quebec where Vidéotron has aggressively moved to steal market share with some of the fastest services in North America.

Montreal-based Vidéotron, which is owned by media giant Quebecor Inc., earlier this year rolled out fibre-optic internet access with download speeds capable of up to 100 megabits per second, but put a cap on the service it is actually selling of 50 megabits. Bell's speeds over its network, however, in Quebec top out at about 16 megabits.

Vidéotron's speed advantage, coupled with aggressive pricing and a bundled package of cable television and home phone services, is paying off. The company surpassed the one-million mark in internet customers this summer, most of which came at Bell's expense.

Bell could see the same scenario play out in its other main territory, Ontario, where Rogers Communications Inc. already maintains a slight speed advantage. Rogers, analysts say, could easily flip the switch and offer the same kinds of speeds as Vidéotron if it finds the competitive need to do so.

"The gear does not cost that much and is relatively easy to do," said Iain Grant, president of the SeaBoard Group telecommunications consultancy.

Verizon a fibre pioneer

Bell is facing the same technological network disadvantage that all phone companies competing with cable companies are seeing. One solution being tried by phone provider Verizon Communications Inc. in the United States is the rollout of a "FiOS" network that connects fibre directly to customers' homes, providing them with a fat pipe over which they can get internet, television and phone service.

Internet speeds over FiOS are more than five times faster than those offered by Verizon's rival cable companies, which means that a number of potential new services such as video teleconferencing are also possible.

The company's four-year, $23 billion US investment — a cost of about $4,000 US per home connected — was initially criticized as risky, but the venture is starting to pay off with more than 1.4 million customers signed up. Verizon, which says it has brought the per-home connection cost down to $760 US, is also starting to win over previously pessimistic observers.

Bell has been taking a different route by rolling out fibre to streetside cabinets, which is cheaper but also doesn't provide as great a speed boost as Verizon's approach. At the U.S. company's per-connection price, analysts say Bell can't afford to not adopt a fibre-to-the-home strategy.

"Verizon's FiOS is the model to emulate," said Lawrence Surtees, senior telecommunications analyst for research firm IDC Canada. "It costs a company about $450 to acquire a new wireless subscriber... for twice that you can give every customer a fibre drop and the potential to deliver a whole plethora of services you couldn't even imagine before."

Fibre-to-the-home is not the only option, however. Bell could entirely shift its focus from wired internet access and deploy WiMax technology, which has the potential of delivering high speeds over long distances through a wireless connection.

"They could look at substitution with mobile broadband as opposed to beating their heads against the wall by putting fibre to every house," said Johanne Lemay of telecommunications consultancy Lemay-Yates Associates.

Cellphone revenue is low

On the cellphone side, Bell has seen Rogers take a commanding lead of the market and is in danger of losing second place to the other big market player, Telus Corp. Not only is Bell lagging its rivals in the number of new subscribers being signed up, it is also getting considerably less of its revenue from its wireless business. While Rogers saw wireless account for more than 50 per cent of its 2007 revenue and Telus more than 40 per cent, Bell's take was only about 25 per cent.

That indicates Bell is still too focused on its old home phone business and not geared up enough for mobile, which is clearly the future of the company since it's the only area where customers are being added at a decent pace, Surtees said.

"You're not getting as much money from the growth engine and they're more dependent on the legacy wirelines business," he said. "To paraphrase Martha Stewart, that can't be a good thing. Wireless is the future of the franchise, period, end of story."

'It's atrocious and pathetic customer service.'—IDC Canada telecommunications analyst Lawrence Surtees

Bell and Telus in October announced they would jointly build a new cellphone network to work in conjunction with their existing infrastructure. The new network will be based on the high-speed packet access (HSPA) technology that Rogers and most cellphone carriers in the world use, and will give Bell and Telus the ability to offer hot devices such as Apple Inc.'s iPhone by 2010.

Analysts believe that without the crushing mountain of debt that a privatization would have brought on, Bell should either accelerate the new network, ditch Telus and build it alone, or both.

"If you've got the cash, you don't necessarily have to make the same choices as you did before," Grant said. "You probably want to look at Telus as a competitor. Why would you want to give them a leg up in central Ontario when it's relatively easy to serve [Western Canada] without Telus?"

Building networks, however, could end up being the easy part of Bell's ordeal. The difficulty for the company, analysts say, will be addressing a third part of the business it has neglected — customer service. New chief executive officer George Cope, who took over from outgoing CEO Michael Sabia earlier this year, identified customer service as one of the key areas the company needed to improve.

Investing in state-of-the-art networks is one thing, Surtees said, but getting customers who hate the company to come back is another.

"It's atrocious and pathetic customer service. It hit bottom under Sabia and very little has changed," he said. "I know students who have been in tears trying to deal with Bell over erroneous bills. They're leaving money on the table either through greedy wireless plans or pricing that isn't in touch with the market .… The world is starting to pass them by."