Letter from Canada

Canadians like to think of themselves as leaders in telecommunications. After all, Gugliemo Marconi, the first to receive a trans-Atlantic wireless signal, and Alexander Graham Bell, the inventor of the telephone, are considered native sons. It doesn't matter that Marconi was actually Italian and did much of his research in England, or that Bell was born in Scotland; their discoveries took place in Canada, thus our claim to their successes.

One of the industry's two major players today actually bears Bell's name. Bell Canada Enterprises started delivering phone services in 1880.

Bell's major competitor, Rogers Communications, had its beginnings at the other end of the telecommunications spectrum, in 1925, when Edward S Rogers Sr invented the alternating current (AC) radio tube, allowing radios to be powered by ordinary household current.

Bell and Rogers have clashed on a number of occasions - the competitive prices and bundled services they offer are testament to this. And the battle heated up this autumn with Rogers' purchase of the smaller cellular provider Microcell Telecommunications Inc.

Rogers outbid Canada's number-two phone company Telus Corporation to purchase Microcell for C$35 a share, or C$1.4bn. 'The combination of Rogers Wireless and Microcell creates Canada's largest wireless provider, serving approximately 5.5m customers and positions us as an even stronger competitor,' said President and CEO, Ted Rogers. The company claims it will now offer the maximum coverage from coast to coast and the largest international roaming coverage of any Canadian wireless provider.

The Microcell purchase was finalised just weeks after Rogers bought AT&T Wireless Inc's stake in Rogers Wireless for approximately $1.8bn, bringing the parent corporation's ownership of Rogers Wireless to 89.3%.

These bold moves are difficult to beat, but Bell did its best, by announcing 'a Canadian first' with its launch of a phone-to-phone video messaging service at the time Rogers was completing its AT&T purchase and embroiled in negotiations and regulatory approvals concerning Microcell. Now Bell's cellphone users can capture and send digital video footage. Not to be outdone, Rogers launched its own video messaging service the day after finalising the Microcell deal.

Who will come out on top of this wireless war? It's difficult to say. Statistics Canada reports that a growing number of Canadian households are replacing their landline phones with wireless services. Figures for the second quarter of 2004 show the number of subscribers to wireless communications had increased 12% in the previous year.

Currently, there are 14m cellular phones in circulation in Canada, bringing in about C$8bn in annual revenues, says Kaan Yigit, President of Solutions Research Group, a technology market research firm. This represents about 47% penetration of the total population of just over 30m people. 'Unlike many European countries, which have higher rates of cellular penetration, there is room for growth in Canada,' Yigit says. 'We are predicting that there will be double-digit growth - in the range of 10% to 12% - in the next three years. The market should hit about C$10bn by the end of 2006.'

Not surprisingly, it's the younger generation who are likely to increase their use of wireless communications. Solutions Research Group estimates that the revenues from 12 to 24-year-olds will grow two to 2.5 times faster than the overall market. It would seem there is plenty of room in the Canadian wireless market.

Still, Rogers took on a significant debt load in its quest to increase its wireless reach. Dominion Bond Rating Service Ltd calculates that these recent purchases have increased Rogers' debt by C$3bn, bringing its total consolidated debt to C$8.4bn.

And it isn't finished yet. Rogers trod on another area of Bell's turf in October by offering residential long-distance phone services, but only to customers who subscribe to its cable television, internet, and cellular phone service bundles. And it plans to introduce digital voice-over-cable telephone services in 2005.

Meanwhile, Bell announced in September an overhaul of its ExpressVu satellite television services, saying that television delivery to multiple TVs in a single home would soon be available.

Canadians see this competition as a win-win situation. According to Solutions Research Group, 75% of Canadians believe their phone company would do as good a job or better than cable companies in offering television services. An identical proportion says that their cable company would be as good or better than the phone company in offering telephone services.

Two companies that began at either end of an industry have essentially met in the middle, swords drawn. And it doesn't look as if the battle will be over any time soon.

Alison Arnot is a freelance writer and editor in Ottawa.