Canadian telco ponders switch to GSM

Telus move would shake up the Canadian cellular industry

Telecom New Zealand is not alone in trying to reverse out of a "CDMA cul de sac".

Canadian telco Telus is looking at the pros and cons of abandoning its CDMA wireless network and moving to the more internationally common GSM standard, a senior company executive has confirmed, a move that would shake up the Canadian cellular industry.

The confirmation, which came this month at a press conference in Calgary following Telus' annual general meeting, poured more fuel on rumours that have been burning for some time that the Vancouver-based company will make the shift.

"Sure we're analysing the options," Robert McFarlane, Telus' executive vice-president and chief operating officer, told reporters. "We're taking time to do it prudently." But, he added, no decision had been made yet.

The move would be especially timely now, say industry analysts, with an auction for new wireless spectrum only weeks away and most new entrants expected to go for GSM. Shifting to GSM could help Telus prevent new providers from taking away customers in a pre-emptive strike.

Also, the 2010 Vancouver Winter Olympics are not that far off. Rogers Communications is the only spectrum holder in Canada on the GSM standard, so it reaps millions every year on international roaming fees it charges handset users who make calls in GSM-only countries. Those fees would soar in an Olympic year.

GSM also offers faster wireless speeds, which users crave for music, video and game downloads.

Telus, Bell and MTS-Allstream are on the less common CDMA standard.

McFarlane noted that in the US, CDMA providers Verizon and Sprint will abandon the standard. Verizon is looking at a 4G technology called LTE, but McFarlane pointed out that's several years away. Sprint announced this month it's next-generation wireless network will be built around WiMax.

Those technologies will converge in five or six years, said McFarlane, so the question for Telus is whether it waits or adapts GSM in the interim. He gave the impression Telus isn't in a rush, but Iain Grant, managing director of the Montreal telecommunications consultancy SeaBoard Group disagrees.

"It is inevitable" Telus will jumps GSM, he said in an interview, "and if they want to do it they ought to do it soon."

"To compete with Rogers, [Telus] has to do something other than CDMA," he said. And the choices are either GSM or WiMax. Coincidentally — or not — a week ago Rogers CEO Ted Rogers mused in a call with financial analysts on the possibility of Bell or Telus switching standards, suggesting it would be impossible because he wouldn't give permission to roam.

"Without being able to roam on Rogers is that a practical alternative?" he asked. If they tried they would spend "billions of dollars and get themselves in a hell of a mess".

However, in a just-released analysis, SeaBoard believes the cost of building a new wireless network today could be as low as C$500 million (NZ$648 million). That's almost as much as Rogers pulls in on roaming fees, Grant said. If Telus could get half of that, it could pay for a new GSM network in 11 months.

Switching networks isn't cheap. Not only does transmission gear have to be changed, but users need new handsets. Presumably an operator making the move would also have to offer free low-end phones or discounts to holders of expensive handsets. However, Grant said Telus could run two networks with different brands: the existing CDMA service for consumers and a GSM service for businesses willing to pay more.

Australia's Telstra has also recently switched to GSM.

As for the possibility of Bell switching to GSM, Grant has his doubts. At the moment, with a consortium lead by the Ontario Teachers' Pension Plan paying billions to privatise the telco, it's in the middle of shifting owners. Once that's completed, perhaps this summer, any extra cash the telco has will go to paying off the debt, Grant added.

Also at the Telus meeting, the company said in the first quarter of the year it scored revenue of C$2.35 billion, a 6.6% increase from a year ago. It was helped by a 10% growth in wireless revenue and 19% growth in wireline data revenue. Net income in the first quarter was C$291 million.

Wireless data revenue increased C$51 million or 53% in the quarter over the same period a year ago. It added 88,400 new wireless subscribers during the three months.

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