Telecom: Bell and Telus join the smartphone revolution

A bad bet on technology left Bell and Telus under-equipped for the smartphone revolution. But they’re finally catching up.

Has the balance of power been restored in Canada’s wireless telecommunications market? In early October, Bell and Telus announced that they’d nearly completed a major upgrade of their wireless networks. Simultaneously, both revealed they would offer the iPhone, Apple’s fantastically popular wireless device, starting in November. This amputates a long-standing leg-up for their largest mutual competitor, Rogers Wireless, which — thanks to its move to more advanced network technology years earlier — has so far dominated the market for so-called smartphones, the summit of pocket gadgetry. In the process, Rogers has been earning more revenue, on average, from each wireless customer than either of its two major rivals.

Where did Bell and Telus go wrong? “Rogers chose well, and Bell and Telus chose poorly — that’s the glib answer,” says Iain Grant, managing director of Seaboard Research, a consultancy. Back in the 1990s, Bell and Telus adopted a technology known as Code Division Multiple Access (CDMA), while Rogers (which owns Canadian Business) went with another standard called Global System for Mobile Communications (GSM). For reasons that were not initially obvious, history turned against CDMA. “When all of the new handset manufacturers came out with the latest and greatest equipment, it came out for GSM first,” Grant explains. “Everything was always happening in the CDMA world second, or third, or not at all.”

This disadvantage became acute as consumers fell in love with smartphones. These snazzy devices are to traditional “talk and text” cellphones what PCs were to pocket calculators; the latest iPhone model, the 3GS, boasts a compass, an ability to shoot and edit video, and can run tens of thousands of downloadable software applications. Bell and Telus, with their CDMA legacy, couldn’t offer what Rogers could. The worst blow came in July 2008 when Rogers became the exclusive seller of the iPhone in Canada. (Since then, the iPhone has already captured 30% of the smartphone market.) Meanwhile, Rogers also pulled away from competitors in the data bandwidth it could offer business customers.

So Bell and Telus bit the bullet. In October 2008, they announced they would jointly upgrade their networks. Their co-operative effort would both hasten and cheapen the build. And with the network nearly complete, they were able to break Rogers’ iPhone monopoly.

Despite its popularity, the iPhone won’t turn things around overnight. True, it will help Bell and Telus retain existing customers. But many who crave an iPhone likely already have one. And with handset subsidies reportedly high, many providers are earning thin margins. “The iPhone is really the tip of the iceberg for Bell and Telus,” says Kevin Restivo, an analyst with International Data Corp. “You’ll likely see them introduce a whole new range of smartphones, which will allow them to capture a much faster-growing segment of the market.”