Regional wireless firms could muddy Canada market

By Wojtek Dabrowski - Analysis

TORONTO (Reuters) - Canada's established wireless companies should ready themselves for the possibility of at least one new national competitor following the spectrum auction that kicks off next month, but the arrival of several smaller and nimbler regional players is also likely, analysts say.

In all, 27 companies have been listed by Industry Canada as qualified bidders in the auction that starts May 27. Of those, the potential new entrants are a varied bunch.

They range from Manitoba Telecom Services (MBT.TO), which has anchored a consortium that plans a national rollout of service, to media and publishing group Quebecor Inc (QBRa.TO)(QBRb.TO), which is expected to initially target its home province of Quebec or possibly partner with another entity for a national venture.

Then, there is Shaw Communications Inc (SJRb.TO), Canada's No. 2 cable and satellite TV company, which has cautioned its participation in the auction doesn't necessarily mean it will build a network at all. Those comments came despite the fact it deposited C$400 million ($392 million) ahead of the bidding.

"Given the assumed presence of the regional (cable companies), regional new entrants are highly likely," National Bank Financial analyst Greg MacDonald said. "However, if the MTS consortium acquires spectrum this will also create at least one new national competitor."

BCE Inc (BCE.TO), Telus Corp (T.TO) and Rogers Communications Inc (RCIb.TO) -- the current market leaders -- are no doubt preparing to handle an increase in competition after the auction wraps up.

Recently, the three got a dose of good news when the auction's list of qualified bidders revealed that no U.S. carriers intend to participate, thus far, which would have further muddied the field.

But what could still prove threatening to the incumbents is a well-capitalized domestic newcomer willing to take initial losses to build a subscriber base via aggressive promotions.

"You can't just sit and let the new entrant come out and just give away BlackBerrys with no contract," said MacDougall, MacDougall & MacTier analyst Troy Crandall.

HAVE TO RESPOND IN KIND

The incumbents will have to respond with promotions of their own, which would raise marketing costs and pressure margins. Fortunately for them, it doesn't look like the potential newcomers have enough funding at present, Crandall said.

"I don't think the new entrants have enough money behind them at this point to come out with a really, really aggressive campaign at the beginning," he said.

It's difficult to predict the strategies of the new entrants because they each have specific advantages and hurdles they face in coming to market.

Quebecor's Videotron unit, for example, is well known in Quebec, which will let it save on marketing up front.

"Even though they're technically going to be a new carrier, everybody knows them so they've already got a pre-established brand name as well," Crandall said. "They're not starting from scratch in that way."