Twisting the facts on Canada’s wireless industry

Interview with Rob Bruce: Part IWith the deadline on comments to Industry Canada's spectrum auction consultation paper fast approaching, it should come as no surprise that potential new entrants have ratcheted up criticism of the country's wireless sector. According to Rob Bruce, president of Rogers Wireless, there is a direct correlation between the auction and the criticism. "What a coincidence. We march towards the spectrum auction and the misinformation about the industry is at an all-time high," he told Report on Wireless in a wide ranging interview prior the Canadian Wireless Telecommunications Association's Advanced Wireless Services Spectrum Auction Forum. "I don't believe in coincidences."Recent reports such as the SeaBoard Group's don't look at the whole picture, or they choose to selectively pick figures, said Bruce, who says they're twisting the facts. "I think the important part is the story gets told and a lot of the stuff that came out SeaBoard and elsewhere gets debunked and positioned for what it is, which is lobbying," he added. Report on Wireless: Given the capital required to get into the wireless business, it would appear difficult for a new player to enter unless it had some deep pockets.Rob Bruce: And make the investment over time because really that money for us has been spent over more than 15 years. Companies looking for discounted spectrum or set asides are starting down a funny path because to get into the business over time, it's going to be an expensive prospect. We labour over every tower we build because of the cost and we're awfully careful about how we go about it. It's a significant investment and in Canada we have such huge geography it just magnifies the investment. The other thing that I think a lot of people don't know is the coverage per pop in Canada stands very tall relative to the US. You can tell when you go the US that that's the case just based on the differences of the quality of the coverage. RoW: Why do you think some organizations and critics continue to pan the competitiveness of the industry? RB: I think they're paid by people who want inexpensive spectrum and digital roaming. They would like to get into our business and they see it as being a really attractive business to get into. I think the facts get twisted a lot and selected, so people don't want to tell the full story because it is actually a really good story, and some of it didn't come out in recent speeches about where we are in terms 3G and 3G offerings. Some of the presentations have almost made it seem like there was no 3G in Canada, yet we've had 3G for four years and EvDO has been around for almost two years now. The HSDPA service that we've launched is exciting and application-rich already, so I think there is some selective choosing of facts. I think sometimes the facts are taken out of context. RoW: They say high prices are one of the primary reasons. Can you comment?RB: There are so many different facets to pricing. There's the price of the handset and the implicit subsidy. How quickly you handset-upgrade your customers is really an inherent element of cost. There's the pricing of the basic service and people are always tempted to fall into the trap of taking what is the dollar amount, divide it by the number of minutes and that's the cost to the end user. But the reality is many subscribers don't use those huge buckets. They're not really paying that price, they're paying quite a different price because they're dividing by a different number. I think all those things are neglected in the process that goes into making the comparison. So there's enough complexity that people can selectively choose something that they think tells the story without telling the whole story. RoW: Do you think some people confuse ARPU with price?RB: I hadn't really thought of it that way. The way we offer wireless services in Canada is we offer the ability to get in for a relatively inexpensive price, and even SeaBoard couldn't ignore the facts that that end of the market is really well represented. You think about the thesis: if we are under-penetrated and we need to accelerate, wouldn't it make the most sense to put the sharpest pricing at the low end? Our pricing is relatively à la carte so a new subscriber can get in inexpensively and then they can layer on the additional services that they want. Imagine not having a wireless phone and you need to spend up to $65 or $70 US to get into the game, it's bit of a sticker shock approach. Almost 90% of new customers are loading on plans with a monthly service fee (MSF) of $40 or less, which I think tells quite a different story than the story that SeaBoard and others tell. RoW: What is the percentage of subscribers on plans as described by the SeaBoard?RB: Half of our base gives us less than $50 per month. So those big bucket plans in the US are relatively irrelevant for half of our customers, and I'm talking ARPU not MSF. But more compelling I think is over 90% of our customers coming on rate plans have $40 MSFs or lower, so all in with SAF (system access fee) and everything, they're in for under $50. I think the efforts of SeaBoard and others are all in an effort to discredit the industry, an industry that's really grindingly competitive. I grew up in the soft drink wars and in packaged goods where life was a daily competitive flat out cut throat grind and this is much wilder than that ever was. Simultaneously we have court battles going on claims, we have massive pricing actions in different parts of the country. Maybe that doesn't get out as it could, maybe we should be doing what the soft drink business did and celebrating the cellular wars. RoW: There appears to be more pricing competition since number portability came into force and even in the weeks leading up to it. I have admittedly criticized the industry in the past for offering relatively homogenous type pricing for basic plans. Can you explain the increased pricing competition? RB: Can I tell you why it's homogenous? Because everybody is big and well armed. For example, Telus has increased the size of email buckets on BlackBerry by eight times. It's worth north of a couple hundred million dollars of re-price in the industry. But neither Bell nor Rogers could sit on the sidelines without moving or closing the gap instantly on the price. But those discussions never get had, the customer just sees the changes and they disappear into the backdrop of a competitive business. RoW: As you just said, perhaps the industry hasn't been proactive enough to talk about the competitiveness of the sector particularly to the general public.RB: The irony is the homogeneity that you talk about exists because the industry is so competitive and not because it's not competitive. If it wasn't competitive, arguably we could support vastly different prices. RoW: Do you think the auction rules the way they've been proposed are fair?RB: I think fundamentally that the companies should enter on a level playing field with the companies that are already there. The companies that are looking to get in largely are well-funded, well-financed telecommunications companies with deep pockets. I don't understand why the government or shareholders should take a nickel less from them than they would from anybody else for the spectrum and why they should be entitled to digital roaming and other things. It's an interesting business, an expensive and challenging business to get into, and there will be some dollars that find their way in that direction and they just have to be dollars that compete on the same basis. I think people quickly forget that Ted Rogers had to mortgage his house at a couple of points to make sure that he could keep it together as he was working to build what is now a great communications company. In those days there were no handouts and no freebees, and the rules weren't particularly favourable or helpful. I think the other piece that people are quick to forget is the $20 billion aggregate investment in the wireless industry hasn't even come close to paying out. We've done a good job of carrying the interest on it for a long time, but there is still a lot of it to be paid back. So I think it's ironic people point to the growing returns, yet we just turned the corner and started to become cash flow positive in the passed couple of years.RoW: Rogers has already said it's going to shut its analog network down. Do you think at that point that digital roaming might be strongly encouraged by Industry Canada?RB: Right now we have three good networks in Canada and three companies which have paid heavily to build those networks. I'm not sure what we need digital roaming for. RoW: What happens to small players such as TBay Tel in Thunder Bay or regional new entrants? Now TBay Tel negotiated agreements, commercially acceptable to both parties, but it had no choice but to negotiate these, so the terms are not necessarily what they would like them to be.RB: Whatever kind of roaming agreements get struck they have to be struck pretty carefully or otherwise we have companies putting up one stick and becoming national carriers at the extreme of it. So how do we balance on the roaming front? I'm not going to tell you that I know exactly what the answer is. There's some that would be really harmful. RoW: Part of this auction includes the 1670-1675 MHz band which is currently being used in the US for mobile TV. Rogers has indicated in the past that it would consider migrating its mobile TV service to this band. Any comments?RB: I don't think I'm going to declare Rogers' position today. But what I will say is Ted Rogers has cut his teeth on convergence. We really believe that the wireless phone is going to be a key medium going forward, and an awful bigger share of the content and information that flows that to Canadians is going to come through that fourth screen. We'll continue to invest to make sure we're well positioned both in terms of content and connectivity and make the appropriate investments to make sure that we're a big part of that world.Part II of Report on Wireless' interview with Rob Bruce will appear tomorrow afternoon.

Twisting the facts on Canada’s wireless industry

News | May 1, 2007

Interview with Rob Bruce: Part I

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