Overview
All the current major wireless players have committed themselves to LTE (Long Term Evolution) – or more commonly 4G. The interim (2009-2012) has emerged as the critical point of inflection for the Canadian wireless industry with new spectrum auctions opening up new competitors and some key competitive advantages being negated with a unified operating technology. This article is the first part of a two-part analysis of the evolving competitive environment, the challenges emerging from this period and hypothesis of how the shakeout would impact the current leaders of the industry.

This issue is a detailed analysis of the historical evidences of competitive actions between the key major wireless players. For the purpose of our analysis, we have limited our consideration to Bell, Rogers, and Telus¹ as the key current players as they have the breadth & competitive presence from a pan-Canada perspective.

As we analyze and unearth the competitive actions of the three key players the competitive intent and the drive to establish competitive strongholds emerge. The key question that emerges from the analysis is whether such competitive strongholds would be sustainable in the emerging competitive landscape?

Although viewed as accommodative competition, the Canadian wireless Industry has seen intense rivalry in the recent years. An analysis of the rivalry and the changing dynamic of the industry sheds light onto the challenges faced by the major players in this industry within Canada: Bell, Rogers, and Telus.

Historic analysis of competitive actions
Although mobile telephony as a service has been available in Canada since 1985, it was only after 1994 that there was an explosion in the subscription base. The current domain leaders became active a little later.

Our frame for the analysis of interactions and competitive actions of the three key industry players is the period starting from 2002. Competitive actions of the three key players can be analyzed from three distinct perspectives:

• Evolving market shares
• Historic competitive actions
• Dominance of lucrative pies

Evolving market shares
The Canadian wireless domain has been witnessing strong rivalry to dominate key segments. To help us understand the competitive actions and the resultant market shares, a segmentation approach that captures the drivers of dominance of the three key players is proposed. This approach identifies competitive actions in the following two key dimensions – the need to dominate distinct geographic markets in terms of wireless subscriber base and the need to acquire and retain key customer revenue (ARPU or average revenue per user) based segments.

While the geographic segments are easy to understand as Rogers and Telus started out in Ontario and British Columbia respectively and there are capital commitments and other entry barriers in increasing reach across the geographies, the ARPU based segmentation is more of an ex-poste analysis of their competitive intent.

Evolving shares in the major geographies
A quick analysis of the market share movement between 2002 and 2007 in the geographies where Bell, Rogers, and Telus have had major presence in does not reveal significant differences. But, a closer observation points to the increasing dominance of Rogers in three of the four key geographic regions considered. While Bell has had some success in improving its shares in Western Canada, it has consistently lost share in all the other markets.

 (Saskatchewan was not included for the purposes of this analysis)

The share gains and erosion experienced by the three players bring out a key signal; Telus and Rogers, both regional players no longer have the same ambitions. Key actions that have point to this strategic intent and outcome include the tussle to acquire Microcell and various acquisitions and forays over the period.

Evolving revenue based segment shares
Market segmentation on the basis of revenues gives us a pan Canada perspective on how the three major players have evolved historically. What is quickly evident though is that Bell has lost customer base almost uniformly across both the segments. We also see Rogers’ efforts at growing its high ARPU business bearing fruit with huge improvement in shares at the expense of both Bell and Telus. The low ARPU, higher volume business is crucial in terms of subscription numbers and sees stiff tussle between the three players. Bell still manages to control with its myriad of alliances, joint ventures and its own price fighter brand (Solo). The overall historic trend however has been revenue retention and content based revenue generation strategies among existing customer bases.

What started off as a quest to increase subscriber base has evolved into a race to acquire content and gain revenue share through content and competing with alternate media / data sources including the internet. The smart phone revolution, which has caused a dichotomy in the market segments, has also opened a new channel to deliver content made possible through 3G (HSDPA and EVDO networks).

Historic Competitive Actions
When we analyze the key competitive actions of the three major players over time, the relative competitive intensity and tensions to dominate /safeguard a strong market dominance begins to unravel.

Most of the actions can be grouped into the following themes:

• Actions to improve customer familiarity and brand strength
• Capital investments to increase reach
• Actions to actively acquire new customers
• Actions to improve revenue retention of existing customer base

Competing for geographic dominance – Historic analysis
A brief analysis of such actions reveals the competitive rivalry between the players. Most of such competitive actions occur in British Columbia and Alberta and the intense actions are centered on Telus and Bell engaging in actions to achieve market dominance. Bell and Telus account for 75% of all competitive actions in the wireless domain in Alberta and British Columbia. The market share movement between 2002 and 2007 reveals the success Bell has had in improving its penetration in Western Canada. A common operating technology (CDMA) made switching costs lower for both Telus and Bell customers.

In the rest of the markets, Telus is the most active competitive player in terms of actions to engage a non-dominant market including Quebec (dominated by Bell) and Ontario (dominated by Rogers). Most of Telus’ actions are centered on building a stronger network and increasing customer familiarity. Rogers’ key actions have been in he Mergers & Alliance sphere. Rogers’ acquired Microcell and tied up with videotron (Quebec) to increase its shares in most markets.

Historic competition in different consumer groups
The verdict on the competitive actions to dominate lucrative customer segments is not out as yet, but the competitive strategy of Telus and Rogers is now more clearly articulated.

While Telus has pursued the path of seeking dominance in the B2B area through dominance of verticals and a consulting based solution selling strategy, Rogers has emerged as the more customer focused player occupying the mind space of high revenue customers and utilizing its brand portfolio to the best in presenting unique value proposition to the distinct low revenue and high revenue markets. Bell on the other hand, has made strategic forays in all key segments and focus areas. It has strong stakes in the B2B space, strong shares in the low ARPU businesses and key investments in content development.

The evolving granularity of segmentation in customer groups
The most significant result of competitive actions has been the granular segmentation of the customer base on a variety of factors.

The three major players have through development of specific applications, strategic acquisitions and alliances created competitive niches that enable them to capture lucrative customer pies.

Bell has been the most active in creating such niches except when Telus launched the first SME focused wireless solution and when Rogers’ forayed into business roaming (powered by its global GSM based roaming advantage) and entertainment content.

Bell however has not been able to sustain the initiative in most of the micro segments. While Telus adopted specialized consulting based on industry verticals as the key differentiating strategy and built up powerful presence in such verticals through various actions including acquisitions (e.g. Healthcare acquisition of Emergis).

Heavy capital investments have so far been the most important signals from the three major players to display their intent to dominate the pies.

What makes their intent significant is their strategic analysis of the future competitive landscape and positioning themselves to maximize their returns from such markets.

Understanding the competitive intent and initiative
The incumbent industry leaders’ competitive intent is evident from both their explicit actions and from their implicit signals. As we decompose key competitive actions, the following critical actions uncover from them.

The emergence of price fighter brands
The spectrum auctions brought with it intent from many new entrants to compete in the Canadian wireless space. Globalive communications and Videotron have emerged as the largest buyers of spectrum among the new buyers along with Shaw communications.

While Bell established Solo in 2005 and has since led the low ARPU business, Telus and Rogers entered the segment in 2008. Koodo’s (Telus’ price fighter) launch and Rogers’ response through the repositioning of Fido clearly indicate their intent to contest the low ARPU business. This will be an interesting space to monitor as the new players do possess the capability to engage in a long competitive tussle to carve out a profitable pie.

Establishing industry verticals
The other significant initiative is in the business solutions arena where creation of industry verticals specific solutions has created numerous unique competitive niches. Telus current dominates most of these niches and has displayed its intent and commitment to these segments through series of acquisitions and new product initiatives. This solution space will continue to be keenly contested.

Conclusion
A brief analysis of historic competitive actions reveals to us the competitive intensity in key segments & the competitive intent of the key players. While Telus is poised to extend its dominance of the business solutions segment, Rogers leads the consumer high ARPU segments and Bell the low ARPU segments. Telus and Rogers no longer have regional leadership ambitions, but have strong pan-Canadian leadership goals. This sets the context for the next part of the two part series on the impending shakeouts as the three major players continue their journey towards LTE.

Sridhar Parthasarathy is a principal at Surje & Company, based in our Toronto office.