03/15/2012 02:47 EDT | Updated 05/15/2012 05:12 EDT

Rural Canadian cellphone users won't get faster networks soon; prices uncertain

MONTREAL - Canadians living in rural areas will have better cellphone reception once a federal auction of radio waves takes place, but analysts say it could be more expensive and take years before the improved service is launched.

SeaBoard Group analyst Iain Grant said Tuesday that he doesn't expect next-generation networks in rural Canada to come on stream until around 2015 and rural Canadians could end up paying more.

"They're the ones who are going to pay for this network expansion," Grant said.

"Cellphone bills for urban Canadians have already gone down. So all of those wonderful benefits we've said of competition have come already to urban Canada. Rural Canada hasn't seen any of that yet."

Ottawa has moved to level the wireless playing field by placing limits on the coming wireless spectrum auction and lifting foreign investment limits on small telecom firms in an effort to boost competition.

Wireless carriers like Rogers (TSX:RCI.B), Bell (TSX:BCE), Telus (TSX:T) and new players like Wind Mobile, Public Mobile, Mobilicity and Videotron (TSX:QBR.B) will be bidding on the 700-megahertz spectrum in 2013. It's known as the "beachfront" property of the radio waves to build out next-generation networks.

The spectrum up for auction has the ability to allow cellphone calls in elevators, deep in underground parking lots and in tunnels in big cities, and in basements and attics in suburban areas. It also provides better and more affordable coverage in rural Canada because fewer cellphone towers are needed to provide coverage.

Carriers that are using two blocks of spectrum — radio waves over which cellphone networks travel — will have to provide wireless services to 90 per cent of their coverage areas within five years, and to 97 per cent of their coverage areas within seven years.

Analyst Brahm Eiley said coverage of rural Canada should expand over time.

"Is this going to happen tomorrow? Chances are — no," said Eiley, of the Convergence Consulting Group in Toronto.

"But over time, chances are yes because it's part of the mandate."

Grant noted that Rogers, Bell and Telus have the ability to bring next-generation Long-Term Evolution (LTE) technology, ideal for the 700-megahertz spectrum, further into Canadian communities.

"Without having competition, the price that those communities may have to pay for that service may not, shall we say, be world leading unless there's a competitor out there who can offer it for less money."

Richard Walker, a spokesman for federal Industry Minister Christian Paradis, said in an email comment that the Conservative government believes that "more coverage, connectivity and competition is great for rural Canadians."

Analyst Mark Goldberg said the easing of foreign ownership restrictions for the smaller wireless players will likely result in some consolidation in the industry.

"It will result in a little bit of contraction in the amount of choice available to Canadians in the bigger urban centres who have had up to six different wireless networks and 30 or 40 wireless brands available to them," said Goldberg of Toronto area Mark Goldberg and Associates.

Anthony Lacavera, chairman and CEO of Wind Mobile, said he also expects consolidation among the new wireless companies before the spectrum auction.

Otherwise, it will be difficult to compete against Rogers, Bell and Telus and offer a comparable network using LTE network technology in rural Canada, he said.

"They've given me a tiny piece of beachfront front real estate," he said.

Although Lacavera is pleased with the decision to lift the foreign ownership limits, he said the cap system for the auction handicaps the smaller companies because there isn't enough of the valuable 700 MHz spectrum available to bid on.

"It's not enough to build a nice hotel on. I can create a walkway to the beach, but I can't build a hotel on the beachfront."

Goldberg also said since the auction isn't until next year, it will take about a year-and-half for the first services to come on stream to consumers.

Antenna tower-sharing and roaming policies will also be changed, and a certain portion of the spectrum will be set aside for public-safety services such as firefighters and police.

The caps will limit how much spectrum each company can bid for. The changes to the auction rules will let at least four companies obtain spectrum in each of Canada's 14 licence areas.

Note to readers: This is a corrected story. A previous version gave an incorrect timeline for the expansion of rural services.