Alberta’s telecommunications industry – lean from restructuring yet rich in new infrastructure – is expecting significant growth over the next two years, especially in the wireless sector, say companies and analysts.
Bell West Inc., which “invaded” Western Canada a couple of years ago to challenge incumbent Telus Corp., now claims at least 10 per cent of the business wired telecom market and aims to double this share in three years.
“We’re not after a bit part,” says Randy Reynolds, president and CEO of Bell West. “We’re after a pretty significant part of the market out here.”
For its part, Telus continues its national expansion eastward into Bell’s backyard in Ontario and Quebec.
“What we’re seeing is for every dollar that we lose in the West, we gain two or three in the East,” says Shea Patsula, Telus’s director of customer marketing in Western Canada.
The battle of the “big boys,” largely over corporate services contracts, is heating up.
But they and other competitors in Alberta, including Rogers AT&T, Microcell Telecommunications and smaller players, are betting heavily on the industry’s wireless sector for rapid growth and long-awaited revenue.
How well wireless performs over the next couple of years will depend as much on kids keeping in touch, as it will on corporations improving their productivity.
“The highest penetration in wireless and the highest usage in wireless in Canada are in Alberta, at 41 per cent,” says Paul Healey, president of Bell Mobility, Western Region.
“Among youth right now, wireless use is absolutely exploding,” he says. “The growth is dramatic to the point where young people who are 9, 10, 11, are all adding wireless devices.”
In the last couple of years, Bell, Telus, Rogers AT&T and Microcell have built new wireless-transmission networks in Alberta that are fast enough to support the two-way text messaging and games driving the expanding youth consumer market.
In Europe, text messaging is a $12-billion US market. The Canadian market could grow to about $400 million by 2007 from less than $100 million today, according to market research firm Yankee Group.
Alberta’s faster wireless networks can also carry much more data more efficiently for businesses.
“We’re just starting to see wireless data really starting to take off,” says John MacDonald, vice-president, Alberta, for Telus Mobility. The penetration of wireless services in Canada is expected to grow to about 60 per cent in 2005 from about 40 per cent now, he says.
“I think what you’ll see in the next year or two is just huge growth in wireless data . . . Everybody that’s got a notebook computer, which is substantial, will be going wireless within the next year or two.”
Major wireless players in Alberta still make 95 to 97 per cent of their revenue from voice communications, while only two or three per cent comes from data transmission, says Barb Richardson, director of SpringBank Tech Ventures, an Alberta-based venture capital company.
So the potential to grow the data side by adding new applications is enormous, she says. “If companies started selling that many more wireless applications to consumers, that would spur on a whole new industry of wireless companies who develop content or sold devices.”
Helped by Alberta’s strong economy and increasing population, telecom’s wired sector also continues its steady growth – albeit not in double digits like four years ago.
“Wired is going very well. We are on plan for our first year of operation,” says Reynolds of Bell West. In the last six months of 2002, the “new kid on the block” signed more than $100 million worth of major contracts, including with coveted Alberta clients such as CP Rail, Mark’s Work Wearhouse and Forzani’s.
Bell West is also growing its data transmission and related business applications on the wired side, Reynolds adds. “We’re over 50 per cent in data and emerging services, and we’re under 50 per cent in voice (communications). And that’s a significant change over the past year.”
From a global perspective, the restructuring, downsizing and refinancing shocks that left the telecom industry reeling over the past two years are nearing an end, Reynolds says. “That will give us a little more of a stable industry going forward.”
Telecom equipment providers, especially in the wired sector, are still struggling in the face of overbuilt networks and reduced capital spending on infrastructure, says Patsula of Telus. “What I’m seeing is what I consider more conservative business decision making. Businesses are more focused on what their core business is.”
John Riddell, senior telecom analyst at Angus TeleManagement Group in Ontario, says the sales of switches for corporate telecom networks in the U.S. have declined about 25 per cent from their peak three years ago. “For the equipment suppliers, such as Nortel, this is a desperate situation,” he says.
Wireless equipment providers also have had to lower their expectations, although not nearly as much as in the wired sector. Richardson says Nortel still exports about $3 billion a year in products from its Calgary manufacturing plant. “Alberta actually has a large infrastructure to support wireless companies,” she adds.
Calgary has identified wireless as one of the city’s top five industry clusters for investment and growth. Emerging companies have access to a new wireless laboratory test facility where they can prove their new technology before taking it to market.
“We’re starting to see a lot of the second-generation wireless companies coming out of Calgary now,” Richardson says.
Patsula says that Telus’s business customers continue to expand their telecom capabilities. However, firms want proven solutions that enhance their core business, such as improving connections with suppliers or customers, and they’re looking for quicker returns on their telecom investments.“You just don’t see the customers having the big capital expenditures they might have had a few years back,” Patsula says.
Riddell says there are now three strong competitors delivering a broad range of services in Alberta: Telus, Rogers AT&T and Bell West. Microcell is still a player in wireless voice communications, “although its ability to set the pace in pricing has withered,” he adds.
Shaw Cable is also a prominent player in an Alberta landscape of converging services, where cable companies are considering delivering phone services while phone companies are looking at providing television programming.
Telecom players still face some big challenges over the next two to three years, Riddell says.
The wireless sector is growing, but use of the new networks for higher-speed data services isn’t happening as quickly as companies had hoped, he says. “There are a lot of possibilities for wireless that have not been worked through yet.”
Another challenge, even for start-up companies with great technology, is the lack of early investors willing to take a risk, says SpringBank Tech Ventures’ Richardson.
However, companies and investors are sensing that things are starting to turn around, she adds.
“Some of these start-up companies are going to start succeeding. “We’re going to see some interesting things start to come out of this industry.”