sit this one out jethro tull thick as a brick album coverIn a recent article in the Calgary Sun, author Steve Tilley wrote a short summary of Canada's sorry state of the wireless industry. He notes that greater competition is coming next year, when the winner of this month's auction of 700 MHz spectrum in Canada will be able to start up a new national wireless network. But next year is a long way off. Should you care? You bet.

Right now the 3 major cellphone providers in Canada are making strategic moves to lessen the damage to their bottom line at the arrival next year's new entrant. And those moves are not being made with the best interests of you, the consumer, in mind. They're being made with the intent of protecting today's outrageous wireless industry profits.

Rogers' annual revenue last year was $5.5 Billion, of which nearly half, or $2.6 Billion, was profit. That is, out of your $40 monthly cellular bill, nearly $20 of it goes right in the pocket of Ted Rogers and other Rogers shareholders. It's a profit margin unheard of in any other Canadian industry.

So, what's the strategy? The 3 majors have established a certain level of rates and services that they offer to Canadians. And Canadians have grown accustomed to paying these rates, even if they don't like them. But the majors are actually calculating that many people don't mind these rates, because they don't realize how much lower rates are elsewhere in the world. In the US they're about half of what they are here, and in Europe they're a further half lower for some services.

So the majors are going to try to lock in as many people as possible for as long as possible at today's rates. Just like the banks will offer you a ten-year fixed-rate mortgage when they know rates are about to fall, so too are Canada's cellular majors going to offer you the chance to lock in for three years. Of course, they won't put it like that.

The majors are rushing to complete their high-speed 3G networks. They want you to see fancy new phones that run on the high-speed networks, and they'll offer attractive subsidies on those new phones... when you sign up for a three-year term, of course. Or else they'll try to flat-out refuse to sell you the phones at any price except with a 3-year contract. Nowhere else in the world are such long contracts the norm. In the US, the longest contract is generally only 2 years, and in many countries long contracts are just not allowed. But this is Canada, where the federal government has agreed to step aside and not regulate the terms and conditions of cellular service.

Some consumers in Canada, of course, aren't about to fall for those shiny new baubles. They are already on month-to-month contracts in expectation of increasing competition, or are on prepaid plans. These customers are highly mobile, thanks to cellular-number portability being introduced last year. So the second leg of the cellular majors' strategy is to compete for the business of these 'mobile' customers. But they won't compete in a way that risks upsetting the high-priced apple cart that most of their customers are tied to. So each of the three majors has set up a discount brand offering the prospect of lower prices. Of course, if you look carefully, those lower prices aren't actually so low, or so appealing. Koodo, Solo, and Fido are all playing variations of the same game.

For instance, Solo Mobile (a wholly owned subsidiary of Bell) is trumpeting "No system access fee!". When you read closely, that promise is only for the life of your initial contract term with them, and not to exceed twelve months. They're playing a game of bait and switch. Lure you with a low sticker price, then hope you don't notice a few months down the road when your bill suddenly jumps 35%.

Koodo (owned by Telus), for its part, boasts about its low $15 rate. But when you compare its rates to others', you'll see that they charge extra for voice mail and call display. Suddenly your $15 rate is 67% higher, i.e. $25/month. Not so appealing now, is it?

And then there's Fido, once a competitor of Rogers but sold off in a moment of short-term greed by its former directors. Fido pretends to have better features and prices than Rogers but charges you $5/month for the privilege of using the entirety of the network that it owns and operates. And if you want to use that new smartphone to access the mobile internet, you'll find that a) they will refuse to allow you do that unless you sign a three-year data contract, and b) their version of the internet includes only a few WAP sites, not the full internet.

Big change is coming to Canada's wireless industry (we hope). You can bet that the three majors are not standing up to cheer the arrival of a new entrant. In fact, they've been trying to restrict the entry of new players by asking for restrictions on the terms of the auction of the 700 MHz spectrum, and thus make it too unappealing for foreign players to bother with. After all, our market is so small as to be very interesting to big global players.

One possibility is that Telus could build a GSM network to compete with Rogers. Why would they do this? To get a piece of the $500 Million per year roaming revenue extracted by Rogers from foreign visitors, since it's the only GSM provider in Canada at the moment, and most of the rest of the world uses GSM, not the CDMA of Bell, Telus, and a few US networks. Telus would need to put this network in place before the 2010 Olympics bring a flood of foreigners to our soil (we hope), but they'd only need to start with a small west-coast presence, so that's not much use to the rest of the country and wouldn't serve to drive down prices very much, if at all.

Maybe our best hope is for the Conservative government to be thrown out in the next election, but don't count on that helping anything since it was the former Liberal government that set the stage for today's situation: Canada has the lowest cellular penetration rate of virtually all major industrialized countries (currently about 67%, compared to 80% in the US and over 90% in most European countries).

In the meantime, what can you do? Recall the lyrics of John Anderson of Jethro Tull, who sang "I really don't mind if I sit this one out" in his classic Thick as a Brick. Sit on the sidelines, save your money, and wait for real competition to arrive in the next year or so. And if you must have the mobile internet in the meanwhile, buy a WiFi-enabled Apple iPod Touch (or similar device like the Nokia n810) and do your browsing at a hot-spot-equipped coffee shop.