Telecom: Handicapped by handsets

Canada's new wireless carriers are having trouble finding cool phones that will run on their advanced wireless spectrum.

The first year of existence for Canada’s new wireless carriers was punctuated by the expected teething pains, including patchy networks, customer-service hiccups and disputes with the big guys. But ultimately, the greatest competitive disadvantage that Wind, Mobilicity and Videotron faced against Bell, Rogers and Telus was where it mattered the most: the phones they could offer to attract customers.

The problem is that these providers rolled out networks using licenses won in a government auction for so-called advanced wireless spectrum. Almost no other carriers are using that AWS frequency, which means few handsets are being made for it. So while the Big Three had their choices of hot smartphones — such as the BlackBerry Torch and Apple’s iPhone — the smaller new entrants were left with slim pickings, sometimes from low-rent Chinese manufacturers no one had ever heard of.

Whether things will get any better in 2011 is up for debate. While rumours heat up of Apple releasing a new iPhone that will work on U.S. carrier Verizon and its code division multiple access (CDMA) network, analysts don’t believe an AWS version is in the cards. Aside from CDMA, Apple must also concern itself with the emerging long term evolution (LTE) standard that a number of large carriers are experimenting with, thereby making AWS a low priority.

Indeed, Verizon — with its 93 million subscribers — is a lucrative customer for any handset maker, a far cry from the roughly half a million shared by Wind, Mobilicity and Videotron. “There’s far more opportunity for Apple [with CDMA and LTE], at least in the short term,” says Kevin Restivo, senior mobility analyst for research firm IDC. “It’s because of the whole addressable market that we’re talking about.”

Apple would not comment on whether an AWS iPhone is in the works. Thus far, the new carriers have tied their handset fortunes to T-Mobile, which uses AWS and is the fourth-largest U.S. provider, with 34 million subscribers. T-Mobile has managed to land some hot handsets, including the Google Nexus One and the recently announced Nexus S from Samsung, but it too faces the issue of much bigger competitors.

Apple’s rivals, however, insist that T-Mobile is big enough to warrant their attention. “It’s something we take very seriously and have a lot of good business in,” says Martin Fichter, vice-president of portfolio and planning for HTC, which built the Nexus One. “I don’t see a big rollout of that spectrum elsewhere but it already has critical mass. It’s big enough for us. We’re selling millions of units in that spectrum.”

One other potential bright spot on the horizon for AWS carriers is the arrival of so-called pentaband phones, which have chip sets that can run on five different frequencies rather than the four that many smartphones currently accommodate. Pentaband chips, which started arriving in a handful of devices in the second half of 2010, give manufacturers the option to add an extra frequency, such as AWS. Indeed, the iPhone 4 is actually a pentaband phone, although Apple chose to add frequencies popular in Asia, rather than AWS, to boost sales there.

“This is really good news for us. It really widens the span of handsets we can purchase,” says Mobilicity president and chief executive officer Dave Dobbin. Mexico, Brazil and Argentina also recently concluded AWS auctions, so big carriers there may soon start boosting demand for compatible phones, Dobbin says. Of course, there is the possibility those carriers may just sit on those licenses, as AT&T and Verizon have done in the United States and Bell, Rogers and Telus have done in Canada. These carriers aren’t talking about their AWS plans.