BUSINESS

The next phone war

Canada’s cellular industry braces for competition

PAUL KAIHLA January 8 1996
BUSINESS

The next phone war

Canada’s cellular industry braces for competition

PAUL KAIHLA January 8 1996

The next phone war

Canada’s cellular industry braces for competition

BUSINESS

When Lauri Kivinen's daughter was born last summer, he announced the birth to friends and family with an electronic post-

card. Using the keypad of his mobile phone, he typed the message, “It’s a girl.” He pushed a few buttons, and within seconds, the text appeared on the screens of loved ones’ cell phones. “No one called me,” says Kivinen. “Everyone just sent nice messages back to my phone.” In the world of cellular communications, that ability is called “short

message service.” Kivinen has access to it because of the advanced level of wireless technology in his native Finland, where he works for The Nokia Group, the world’s second largest maker of cell phones.

But soon, that and many other hightech features will be coming to Canada, as a result of last month’s federal decision giving four companies the right to market a new generation of cellular technology called PCS, or personal communications services. Indeed, widespread hype and optimism surrounded Industry Minister John Manley’s Dec. 18 announcement of PCS licences for Pickering, Ont.-based Clearnet PCS Inc., Montreal-based Microcell Telecommunications Inc., Torontobased Rogers Cantel Mobile Communications Inc. and Mobility Personacom Canada Ltd., a division of a consortium owned by Canada’s major phone companies. “This is the biggest development in wireless

communications since cell phones were introduced,” declared Clearnet vice-president Robert McFarlane.

The PCS era also represents a huge gamble for companies such as McFarlane’s. Canada currently has two national cell phone networks: Rogers Cantel Inc. and Mobility Canada. But because their wireless networks are approaching capacity in some parts of the country, they plan to use PCS to augment their current services, enabling the industry to expand far beyond its existing 2.5 million customers. “It will just be another product for consumers to choose from alongside our current products,” says Leonard Katz, Cantel’s vice-president of government and inter-carrier relations. Clearnet and Microcell, on the other hand, will have to build national networks almost from scratch. That costly task includes the construction of transmission towers, base stations to relay signals, and switching sites, in addition to engineering and marketing services. Clearnet

says it plans to invest up to $500 million over the next three years, while Microcell officials talk of investing $1.2 billion over five years.

Those sorts of figures have already given rise to skepticism about the financial viability of PCS, at least in the short term. In a recent speech in Toronto to investment dealers, Cantel’s controlling shareholder, Ted Rogers, predicted that the new entrants will not be able to compete because of the high costs of building national networks and enticing consumers with subsidized, possibly

even free, phones. “With these sorts of economics, it is no wonder a prominent money manager summarized most independent PCS business plans as, and I quote, ‘the mindless destruction of capital,’ ” Rogers said. He added that PCS phones will not offer consumers any new features that are not already possible with digital cellular phones.

Indeed, the key distinction in mobile phone technology is not between cellular and PCS but between analog and digital. Phones that use the analog method of transmission have weaker signals and poorer sound quality. Digital phones are clearer and can even transmit data by fax and e-mail when linked to a home or laptop computer. But many digital features that are common in Europe—such as short messaging—are not yet available in Canada because 90 per cent of cellular customers use analog phones, and because both Cantel and Mobility Canada still rely on analog technology in some service areas.

Boosters of PCS point out that the new systems will have advantages even over fully digital cellular networks. PCS systems operate at very high frequencies, cramming more calls into the same bandwidth. That means extra capacity. Clearnet’s McFarlane says that his firm will be able to handle up to 10 million subscribers. As well, PCS phone transmissions are fully encrypted, protecting calls from eavesdroppers. Scanners can easily monitor analog cellular calls, and while digital scanners are not commercially available, such devices could theoretically listen in to transmissions on current digital systems. Another advantage of PCS is that it will have built-in extras such as short messaging. “If you like hockey, you could subscribe to a service that will send you the latest scores every hour with short messaging, no matter where you are,” says Microcell vice-president Claude Brisson. He adds that his company

plans to go “on line” with a PCS system in a major Canadian city by the end of the year.

But perhaps the most welcome aspect of PCS is that the phones use long-lasting, small batteries. “Cellular users, and I’m one of them, tend to turn off their phones or run out of battery power,” says Brisson. “With PCS, we’ll be reachable at all times.” Citing forecasts that PCS airtime will ultimately be much cheaper than current cellular charges, PCS proponents say that many consumers will ultimately scrap the hard-wired phones in their homes and rely solely on PCS. ‘We will see people going totally wireless almost immediately,” says Brisson. “The home phone will become redundant.” He and his competitors are gambling hundreds of millions of dollars on that prediction, even while others caution that nothing is ever certain in the volatile marketplace of telecommunications and consumer electronics.

PAUL KAIHLA