Bell, Telus buzz about iPhone upgrading – Chris Sorensen, Toronto Star June 26, 2009

Bell Canada and Telus are two key players in the Canadian telecommunications marketplace and have joined forces to roll out a joint $1 billion (CAD) upgrade of their wireless networks as early as this fall, months ahead of schedule, that will allow them to support a range of GSM-based devices including Apple Inc.’s iPhone, which is currently only available from Rogers Communications Inc., another key player in the market.

The buzz among telecommunications insiders is that both Bell and Telus have negotiated deals with Apple for access to their popular iPhone technology. The popularity of Apple’s iPhone strengthens their bargaining position so it is likely that Bell and Telus will be paying a premium for the access. Apple will also dictate the way iPhone subscriber accounts can be activated and the price for the iPhone ($199 CAD for the 16 Gigabyte 3G S model).

The iPhone is a cell phone, iPod and mobile web browser all rolled into one, which partially explains its popularity. The iPhone first went on sale in Canada in July 2008 through Rogers Communications which currently operates the countries only GSM (Global Systems for Mobile) network. A Rogers spokesperson said that Rogers had sold more than 385,000 iPhones during the second half of last year.

Bell and Telus officials say that their proposal to overlay a High Speed Packet Access (HSPA) network on their existing Code Division Multiple Access (CDMA) networks would give them the technical ability to support the device. Bell and Telus are heavily invested in CDMA technology. Telecommunications carriers chose either GSM or CDMA technology when deploying mobile networks. Bell and Telus chose CDMA as did a majority of carriers in North America. Rogers Communications chose GSM. HSPA is the technology that enables Rogers Communications to support the iPhone on their GSM networks. The integration of HSPA with CDMA will allow Bell and Telus to support the iPhone.

Jim Johannsson, a spokesperson for Telus, said they are forecsting an HSPA launch in early 2010 which coincides with the start of the Winter Olympic Games in Vancouver. The Games are expected to be a significant source of roaming revenue for carriers offering networks with HSPA technology.

One of the key advantages for carriers who chose GSM networks over CDMA is the ability to offer iPhones to subscribers. This ability is enabled by the compatibility of the HSPA technology, which iPhones use, with their GSM networks. This project will see Bell and Telus integrate HSPA with their CDMA networks, negating that advantage.

Apple sold one million of its latest iPhone 3G S model in the first threee days after its June 19^th launch world wide, demonstrating how popular it has become. There are drawbacks for carriers who offer the iPhone however. Carriers are obliged to eat about $400 on each iPhone due to Apple’s requirement that the carrier offer subsidies to consumers who purchase the iPhone and service from the carrier. Carriers can still make a profit from the phone though. Subscribers pay about $100 a month to carriers for both voice and data services compared to $70 for a cellular phone. This allows carriers to recoup their $400 in a little over 13 months.

Problems occur for carriers though, when Apple introduces a new iPhone model, such as the new 3G S model. The carrier is forced to decide on whether to allow the customer a free upgrade and eat the cost of the new model, or force customers to complete the contract for their existing model. Rogers is currently allowing customers to upgrade to the 3G S model after one year without paying the full price.

Bell and Telus have decided to increase the opportunities for their network upgrade projects by sharing the work and costs required to integrate HSPA technology with their CDMA networks, and deploy HSPA. In addition to the savings to be realized by the joint venture, they will also be able to realize additional revenue by launching the upgraded networks in time for the Olympic Winter Games in Vancouver.