globeinvestor.com

Breaking News from The Globe and Mail

CATHERINE McLEAN

Sunday, February 26, 2006

Word in the wireless business is there's a ghost loose in the industry.

The market is abuzz with speculation the federal government may recommend creating a fourth national wireless carrier. It's seen as a way for Ottawa to stimulate competition — the percentage of Canadians with cellphone service lags the United States and other countries.

A current telecom policy review, led by a three-member panel, could be the platform to bring a fourth wireless player to the market, observers say. But they caution that such a development would take a few years to have an impact.

Wireless executives at a conference last week say there's no need.

“If you go back to the beginning of what was the genesis of that panel, it was really all about wireline competition,” John Gossling, vice-president of financial operations at Rogers Communications Inc., said in a wireless panel at the RBC Dominion Securities Inc. Communications, Media and Technology Conference in Whistler, B.C. He was responding to a question about the rumour, which he referred to as a “ghost.”

“Wireless is very competitive,” he explained, later adding that “it seems very odd that this would get on the agenda.”

Robert Odendaal, president of Bell Mobility, doesn't see a problem that needs to be addressed. “Encouraging yet another facilities-based operator to come in to invest lots more in capital and infrastructure ultimately, in my view, will just get passed down to the consumer because no rational businessman is going to do it unless they can recover it,” he told the conference.

Rogers Wireless, along with Bell Mobility Inc. and Telus Corp. are the country's national wireless operators. There are also smaller regional providers, along with resellers such as Virgin Mobile Canada, that use other carriers' networks.

The industry has experienced high growth rates, and believes it will experience further growth because just over half of Canadians have cellphones. Moreover, the wireless executives said last week they expect customers' monthly bills will keep rising in coming years as they spend more on data services, such as ring tones or TV.

Concerns regarding a possible uptick in competition have weighed on wireless stocks recently. Observers say next year's introduction of portable wireless numbers, which the federal communications regulator has forced the carriers to speed up, could lead to higher customer turnover rates.

In a note to clients last week, National Bank Financial analyst Greg MacDonald said worries about regulatory risks are “overdone.”

“In our view, the business case for a new entrant, other than a cableco like Shaw or Vidéotron, is questionable,” he wrote. “Even in this case, changes to the Telecom Act would take time and may be delayed by a minority government. Meanwhile, wireless results will continue to be strong.”

The recent speculation appears tied to Ottawa's review of the telecom sector, which is looking at a wide range of topics. The report was scheduled for the end of 2005, but the federal election delayed it.

A spokesman for Industry Canada declined to comment except to say that the panel is expected to release the report in coming weeks.

Merrill Lynch analyst Glen Campbell wrote in a note earlier this month that the policy review doesn't “explicitly” address wireless competition. However, he believes the new government leaves the door open to regulatory changes, including more wireless competition, although he says it's not likely.

Wireless spectrum, for example, could be set aside for a new entrant, analysts say.

John Watson, president of consumer solutions at Telus, said it's not an opportune time for a fourth carrier to break into the market.

“I would think not because of what we've gotten in terms of penetration,” he explained at the conference. “I think that there may be new industries and new opportunities that one would better put their capital into than a fourth player in this industry.”

© The Globe and Mail