This will finally be the year that products, services and even companies come together to create true opportunities with convergence in Canada's $33-billion telecommunications sector, industry experts say.
"Convergence is definitely a hot topic right now," says Michael Lee, chief strategy officer for Rogers Communications Inc. in Toronto. "People have gotten overexcited about the opportunities in the past, but customers weren't quite there yet. This year, I think you're going to see lots of things happen."
Lee says things are different this year for the often-anticipated convergence because of several key factors: The number of Canadians using broadband Internet access has gone up, networks have become faster and costs have gone down due to several technologies being able to use the same platform.
The convergence trend may have even started already with two major announcements.
The world's largest telecommunications equipment manufacturer, Alcatel SA of France, announced a plan earlier this month to buy U.S.-based Lucent Technologies in a $13.4-billion US stock swap. The move may put merger pressure on Canadian telecom companies such as Nortel Networks Corp.
Late last month, Rogers teamed up with Bell Canada to announce its long-awaited wireless broadband service in 20 urban markets across the country. The traditional rivals will use the jointly owned Inukshuk network structure to offer competing voice, video and Internet services to five million consumers in those cities.
Officials say a special modem will allow customers to connect to their wireless high-speed Internet service anywhere within the coverage area. The portable modem is expected to be attractive to business travellers since it will make Internet access easier when they are in other cities.
Analysts say it explains why Bell and Rogers were quiet when Toronto Hydro officials announced their plans earlier in March to offer Wi-Fi service throughout the city, beginning with the downtown core.
The plan will also help Bell and Rogers gain more of a foothold in Western Canada. By 2008, they hope to roll out the service so it is available to more than two-thirds of Canadians in 45 cities, as well as 100 rural areas that are currently without any service.
Tony Olvet, vice-president of the communications practice for IDC Canada, says: "It really shows the strength and clout of those two providers in the marketplace ... Obviously Telus has the same or at least similar infrastructure in Western Canada. For the smaller players like Shaw, it might be a different story. They might be more concerned."
In the Toronto area, consumers will have Telus EVDO on offer, a Wi-FI service from Toronto Hydro Wireless, and now the Inukshuk service to choose from. Consumers in Western Canada will have the EVDO and Inukshuk service.
"That will mean more competition, more choice and better service all around for the consumer. It's too early to tell, but I expect when the market matures you may see some of these players drop out. That's not going to happen for another few years at least, though," says Olvet.
Peter Bissonnette, president of Calgary-based Shaw Communications Inc., was travelling on business and was not available for comment, while CEO Jim Shaw was on vacation. The company has been following a trend in the telecommunications business recently by selling its "home phone" product as part of a triple-play bundle of services: Internet, telephone and cable.
Shaw was embroiled in controversy earlier this year when it was accused by voice-over-Internet protocol (VoIP) provider Vonage Canada Inc. of needlessly charging some of Vonage's customers an enhanced service fee.
"Contrary to Vonage's claim, Shaw does not provide an Internet telephony service in direct competition with Vonage or any other Internet phone provider," Jim Shaw announced in a press release. "Shaw's digital phone service is a carrier-grade, primary line, local and long-distance residential telephone service that uses a managed IP network."
The trouble is, the initials IP in the term IP network commonly stand for Internet protocol. That could lead some consumers to think the Shaw product was at least similar to an Internet telephony service.
Senior officials at Vonage declined interview requests from Business Edge, saying the company was preparing for an initial public offering in the U.S. The company originally filed to go public in the U.S. two months ago, but the U.S. Securities and Exchange Commission hasn't received any amended registration statements yet.
Companies that go outside what the public sees as their core competency need to be careful, warns Michael Raynor, co-author with Clayton Christensen of The Innovator's Solution: Creating and Sustaining Successful Growth.
"Goldilocks had it right with not wanting things too hot or too cold," Raynor, of Mississauga, Ont., said in an interview. "The trick is to innovate in the right ways. Some companies don't understand strategic risks. Some you will avoid and some you will just have to accept as the price of admission."
Asked which Canadian telecom companies have been the most successful in implementing innovation, Raynor shrugged his shoulders. "That would mean I know all the answers and I don't. Companies have to look at all the information that's available to them at that time. The results will eventually show if that's successful."
At a recent Deloitte & Touche conference in Toronto, Bell New Ventures president Ron Close said there are lots of Canadian markets "ripe for disruption."
The conference was held to discuss part of a Deloitte report called The Trillion Dollar Challenge: Principles for Profitable Convergence.
Bell has been trying for several years to convert from being a traditional telephone carrier to a broader telecommunications company that includes services such as VoIP and Internet access. During a question-and-answer session at the conference, Close said there was no definitive "ah-hah" moment when executives decided to move away from its core legacy services.
"It's been a gradual process," he said. "I think that any major change like that needs to be implemented slowly. There are still lots of opportunities and lots of big honking markets out there ripe for disruption."
Close said Bell New Ventures is looking at five new platforms. One is in development and the others are in the early business-case stage. He declined to provide further details, but did say there are also high risks involved with doing nothing.
Olvet agrees that several factors are coming together this year for widescale convergence. But, he says, companies also need to emphasize "soft skills" such as training, along with technology.
"If you want to have customer satisfaction levels go up or even maintain them at their current level, then we need to understand what they want," he says. "A lot of this technology is not just plug and play."
Olvet says there are lots of profits to be made, but they won't come naturally.
Another key question is whether users will pay for all the extra features. Olvet says telecom players might need to look toward an advertising-based model to help increase their profits. Before downloading a favourite TV show or video, for example, users might have to watch a 10-second commercial.
Jim Johannsson, an Edmonton-based product development manager at Telus Corp., calls the new ideas he's seen mind-boggling. "You wouldn't believe some of the things that are going to be coming out over the next year," he says.
Telus, Western Canada's largest telecommunications carrier, has sales centres set up in several major Canadian cities where prospective clients can go through a mock living room or corporate board room to see how the latest products are being used in real-life situations, Johannsson says.
Text messaging and downloadable ringtones are becoming the fastest secondary revenue source for the carriers, says Andrew Black, president of Virgin Mobile Canada, which uses Bell Mobility's infrastructure to deliver its service.
"Text messaging has been really growing in Canada ever since we got behind it last year," Black says.
He declines to discuss revenue figures for Virgin Canada, however. "We're still a startup company and as such it will be at least a few more years before we will show a profit," he says. "As a private company, we have the luxury of not having to disclose those numbers and we don't."
One of the most common multifunctional products available in the consumer telecommunications market is the cellphone, which has gone from simply being used to make calls to having the ability to also serve as cameras and music players, as well as being able to play videos, send e-mail and text messages.
Rogers' Lee agrees that the multifunctionality might be difficult for some customers to work with. "That's OK, though," he says. "Not everyone will want to use all of the features in any device. For example, there are still a lot of our customers out there that use a computer only for e-mail, but they still get a lot of enjoyment out of that. Then you have the other end of the spectrum with teenagers. We can't design anything too complex for them. They will figure it out in no time."
(David Hatton can be reached at hatton@businessedge.ca)
