Wireless coalition needed post-spectrum auction

With the Canadian wireless spectrum auction entering only its second week, the prospects for a fourth national cell phone service provider have dimmed considerably.

The collection of wireless upstarts trying to outbid and elbow each other out of the way like Breckin Meyer and Cuba Gooding Jr. in the 2001 comedy Rat Race are making it increasingly expensive for all parties to purchase spectrum, which a company needs to offer cell phone service. This means it’ll be much harder in a post-auction environment for any one company to challenge Bell, Rogers and Telus for national wireless supremacy despite the best efforts of Michael Binder and Len St. Aubin of Industry Canada.

The first problem is that the proceeds from the spectrum auction have already surpassed most expectations, meaning it’ll be far more expensive for one company to go it alone on the national wireless front. This weakens the business case to become a standalone fourth national wireless service provider – credit is far more expensive and scarce. Second, customer acquisition costs will be extraordinary for all new wireless companies (as will retention efforts for that matter) once infrastructure build out is done. One need only look at Fido, which was bought by Rogers Wireless three years ago, for proof.

This assumes the a collection of competitors still try to go it alone if and when the spectrum necessary for national wireless service is bought.

The likes of Shaw, MTS Allstream and all other comers east of Manitoba need to team up post-auction if a fourth national player is to thrive (For now, we all know the parties aren’t communicating during the auction of course. Nor are the incumbents). MTS, which still wants to become a national wireless carrier, despite the fact its alliance fell apart before the auction began, seems to be the most likely candidate to lead the charge.

Wireless telecom services is a game of scale – the more expansive the network, the more valuable it is to customers which means greater revenue potential for the provider. Telecom services is a national competition now, making it necessary for the wireless wanna bes to form a coalition of sorts, a la Sprint in the United States.

Terms and conditions between partners will be critical to the success of any post-auction wireless alliance. Why? In a word – control. The phrase ‘it’s as difficult as herding cats’ has become a cliche in ICT circles for a reason. One party needs to head up the coalition.

This seems unlikely given that each of Shaw, Videotron and MTS is used to getting its own way. To forge a ‘go it alone’ strategy will in the end only hamper each provider’s business case. Forget about the mandated roaming and tower sharing – negotiating those deals with Rogers is going to be a logistical nightmare. Ted will not go quietly into the night.

The larger bidders for wireless spectrum, such as Videotron or even Globalive, can likely go it alone as most of the companies have relatively deep and broad packages of services to sell to consumers. But a much stronger alternative will emerge if a ‘coalition of competitors’ is formed. I suspect the largest competitors post-auction will figure this out only after some expensive lessons.

[tags] Rogers, Bell, Telus, Shaw Communications, Globalive, Videotron [/tags]