Wireless Competition Will Be Different This Time

I'm a little late to this story so if you have followed it I'm sure you've read one of more of the many articles about the coming of increased wireless competition in Canada. The reason I'm lagging is I didn't feel I had much to add, though now I see there is some confusion since the various commentators' conclusions span the range from: it'll be great to same old, same old, and everything in between. So just who is likely to win? Will it be consumers, the new entrants, the incumbents, the arms suppliers (equipment vendors), or perhaps everyone?

We know what happened last time. New entrants like Clearnet and Microcell were eventually acquired by the incumbents, which reduced the wireless competition to the former status quo. There were many reasons for this, though in the end it came down to a simple business decision: the companies' stockholders (or bond holders) decided their best financial outcome was to sell rather than remain independent. It was the right decision for them, notwithstanding the dismay of consumers who found their competitive options halved.

Without getting into gory details, I have come up with a list of things that are different this time around. Not necessarily good or bad, just different. I won't pretend the list is complete, and I am not going to even try to quantify the effects of each. Here it is:

• Number Portability: Reduces the friction of switching between service providers. We should expect to see a continuation of obstacles to smoothly-executed number moves, by both new entrants and the incumbents.
• More Than Telephony: Cell phones used to be all about telephony pricing plans and coverage. This time it'll be more than a price war over calling plans. Expect to see data, services and device promotions by the new entrants that will appeal to consumer and business users alike.
• Vendor Financing: This was very prevalent in the 90s by the major vendors, including Lucent, Ericsson and Nortel. That just won't happen this time. The new operators won't be able to share their capital-expenditure risk with this group of companies.
• Investor Financing: Expect to see the bulk of the capital raised coming from equity investors and high-interest bearing bonds. In combination with the lack of vendor financing, the cost of capital will be higher. One consequence is that the new entrants' senior management will be more accountable since those investors will have much greater control. In other words, management will have to perform or they'll be rapidly replaced.
• Crippled Competition: Incumbents like Rogers, Bell and Telus are not as cash rich from telephony (and cable TV) profits as before. Years of direct competition between cable and telcos have whittled margins, forcing them to cut costs. They are less able to sustain price wars than before. While this will fail to drive service prices more than a moderate amount, it will mean the new entrants will slow down the cash burn, and perhaps become cash flow positive in a few years.
• Walled Gardens: The incumbents' stranglehold on what services and devices users can access will be very evident to their users once the new entrants open their data networks and permit new and innovative devices. Expect to see more LiMo, Android and even Symbian devices (maybe even iPhone) available on these new networks, combined with unrestricted internet access and phone applications. Back in the 90s the new entrants used much the same set of phones as the incumbents, but they were higher cost since they could not order the same quantities from the manufacturers. The incumbents will likely be slow to change their service and device strategies, which will give a temporary advantage to the new operators.
• Bundling: The incumbents can bundle like they never have before - wired phone, wireless phone, broadband, TV and long distance. The new entrants have ... mobile wireless. This will increase friction of switching, and may make the new entrants' effective pricing more expensive. They need to find ways to co-market with other companies to at least partially restore the competitive balance. In the present environment good partners will be hard to find.
  

I don't know if an increased number of wireless competitors will be sustainable, which can be difficult in a market the size of Canada. All I know is that the competitive landscape will almost certainly evolve quite differently than it did in the 1990s because the environment is so different.