Canadian wireless startup takes maverick approach

Wed Aug 24, 2011 10:52am EDT

Related Topics

* "Orphan" airwaves means limited handset catalogue

* Cheap airwaves enable low-cost wireless service model

* Public Mobile's bet relies on Sprint move to cash in

By Alastair Sharp

TORONTO, Aug 24 (Reuters) - When the Canadian government auctioned off wireless airwaves in 2008, most carriers had no interest in bidding for the so-called G band - "orphan" frequencies used nowhere else in the world.

Most handset makers don't bother making phones that are G band compatible, meaning any bidder would have a very limited selection of handsets to offer customers.

It was a drawback that scared away all but Public Mobile. The small upstart took a gamble in buying G band rights on the cheap with an eye to launching a no-frills service for cost-conscious customers in Toronto and Montreal.

"Most people looked at it and said, 'It's not really useful for much of anything'," said Bruce Kirby, the head of strategy and business development at Public.

Public spent only about C$52 million ($52.5 million) to take the prize, out of a total C$4.2 billion raised in the auction.

Most of the money came from bids from big established operators such as BCE's (BCE.TO) Bell Canada and Rogers Communications (RCIb.TO), and to a lesser extent from Globalive's Wind Mobile and Mobilicity, two other newcomers to the country's telecom sector.

For Public, the low cost of the G band rights was a decided benefit. But, looking ahead, its investment may pay even bigger dividends if Sprint Nextel (S.N), which owns the same frequency in the United States, decides to use the spectrum for the first time.

"Sprint will determine the future of the G band," said Philip Marshall, an analyst at Tolaga Research.

The third-largest U.S. wireless company currently makes no use of the G band, but that could change when it announces a network overhaul in October. [ID:nN06204149]

Sprint's scale would likely prompt more equipment makers to incorporate G band into their cellphones, giving Public a chance to expand its own catalogue of compatible devices.

If Sprint goes further and uses the G band to launch a network using an emerging high-speed technology known as long-term evolution (LTE), Public's Canadian spectrum would become instantly attractive to Bell, Rogers and others with LTE plans of their own.

Unlike other new entrants who bought spectrum that the auction rules put off limits to established players, Public is free to sell its G band rights to the highest bidder.

A Sprint spokesman declined to comment on its pending announcement, but said it had spectrum licenses across a range of frequencies.

CONFIDENCE

With or without Sprint, Public believes it is the only new entrant in Canada's lucrative cellular industry that can sustain its low-cost pre-paid plans, thanks to minimal upfront costs and capital expenditure still less than C$200 million.

"We're the only people who can offer a C$15 unlimited product and make money," said Sal Tirabassi, a partner in venture capital firm M/C Partners, which backs Public and other small telecom operations in North and South America.

"The fact that no one else bid on that (spectrum) was just incredible," he said.

Other upstarts bought airwaves across more of Canada but also paid more for spectrum in the same regions. In populous southern Ontario, for example, Mobilicity paid C$131 million and Wind Mobile paid C$279 million.

"We're still not profitable ... but we'll get there far ahead of anyone else," Public's Kirby said in reference to Wind Mobile and Mobilicity.

Still, Public is taking a gamble. Sprint has yet to make a decision on G band spectrum in the big U.S. market, and Public alone lacks influence on phone makers. Currently it can offer only a small selection of handsets made by the likes of Japan's Kyocera (6971.T) and China's ZTE (000063.SZ), which is also building Public's network.

Kirby says Public was content with its market niche and never intended to attract customers seeking the latest iPhone (AAPL.O) or high-end BlackBerry RIM.TO smartphones.

He said the company is testing three or four new handsets, possibly low-end phones running Google's (GOOG.O) Android software it can sell for less than C$200 without a subsidy.

($1=$0.99 Canadian) (Reporting by Alastair Sharp; editing by Frank McGurty and Rob Wilson)

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