NORTH AMERICAN CELLULAR CONFERENCE

TORONTO, ONTARIO. JUNE 21, 1990

THE MOBILE COMMUNICATIONS REVOLUTION

Cellular in Canada is just coming to its fifth anniversary. It has to be labelled a Canadian success story.

The other day I looked at the original projections made by Cantel as to where our company would be at the end of five years in terms of number of subscribers. The figure was 104,000. The actual number of subscribers by the end of June will be well over 225,000.

This means an industry total of about 450,000.

This is not just a Canadian phenomena. Around the world cellular has been receiving a similar reception. At the end of December, there were about 7.2 million cellular subscribers and I expect that has already grown by close to another 2 million in mid-1990.

The reason for this is an increasing world demand not only for more communications but for mobility. The concept of calling a person rather than a place has gained worldwide acceptance.

When people start to speculate about whether this is a temporary phenomena or something really fundamental in the way people communicate we need to look at people’s lifestyles. In an interesting article in Telecommunications Policy of February, 1990, Jarratt and Coates point out that cellular has fundamentally changed the way people handle transactions. This can be anything from asking for a date to buying a house. Spontaneous transactions become easier.

One can call ahead to check that theatre tickets are available before you spend money parking the car. You can respond to talk shows on the radio. You can use the phone for the traditional calls advising that you will be a few minutes late and that you are caught in traffic.

Cellular phones are being increasingly sold for safety reasons.

The point is that even in five years they have gone far beyond the place where productivity improvement for a business is the only reason for obtaining a phone. For those who have used the instruments being without one now makes a person feel totally out of touch, which indeed they are.

I mention this because I am often asked if I think that the growth in cellular usage will flatten out at some point. It obviously shows no sign of so doing. But I believe that mobile communications is so intertwined with our lifestyle that downturns in the economy or even the occasionally forecast market saturation will not be a factor in the field.

A recent projection done not by us but by a European group projected there would be over 1 billion telephones in the world (out of a population of about 5.5 billion) by the year 2000. This alone is a remarkable statistic given the low penetration today. However, of interest to us is that over half these phones will be mobile.

The Evolution of Cellular

The concept of cellular telephony has been known for at least 2 0 years. It was devised to overcome a problem of frequency limitation. I will not repeat the now well known technological breakthroughs allowing the re-use of frequency in non-adjacent cells to lever up the availability of channels in limited spectrum space. The important point, however, is that the right to use a portion of that spectrum is an extremely important advantage to any communications company.

Canada has followed the traditional approach of the United States and the United Kingdom in granting half the cellular frequency to a wireline company serving an area and the other half to a non-wireline company. The difference in Canada is that the federal Department of Communications chose to grant the non-wireline frequency to just one company which could then provide the service anywhere it wished. That company was Cantel. We then compete against the existing telephone company or its subsidiary that serves a particular region.

The CRTC then helped this situation by granting a very sensible base of regulation (or in some cases non-regulation) for this new competitive industry. In CRTC 84-10 the Commission stated that while it had the right to rate regulate it would forebear such regulation on the assumption that the market forces would provide the necessary self regulation. This indeed has been the case.

That same decision however also allowed the Canadian cellular carriers to carry their own long distance traffic. This is a significant advantage over the U.S. companies.

Further, by granting a national cellular licence and by granting major regional licences to the existing telephone companies, e.g. an entire province, this encouraged the cellular companies in Canada to build corridors rather than just in metropolitan areas. The resulting service opportunities and the coverage of the population has been quite phenomenal.

There is a hitch. Until the Supreme Court decision on the AGT/CNCP case, the CRTC did not have regulatory authority in all provinces. In fact, more accurately it only had such authority in Quebec, Ontario and British Columbia. In the other areas Cantel had to negotiate individual interconnect agreements with each of the companies serving the local area. In some cases this was as local as a municipality, e.g. Thunder Bay, Edmonton or other municipally owned and operated systems.

Fortunately with the new decision I believe that the CRTC’s authority will be extended to all provinces. At the moment, those provinces who own their own telephone companies enjoy crown immunity. This will likely disappear very shortly in Alberta when AGT is privatized and when the new Communications Bill is passed this will presumably disappear in Saskatchewan and Manitoba.

From a regulatory standpoint this will finally mean uniform provision of services across the country.

Whether for reasons of a good regulatory background or whether the cellular companies can take some modest credit, the result has been a penetration in Canada that is higher than the penetration in the United States even though our American counterparts started some 22 months earlier than we did. According to the Cellular Investor of May 24, at the end of the first quarter the average of the top 29 cellular companies in North America was 1.09% penetration. This includes both BCE Mobile and Cantel who are averaging about 1.14% each. If you looked at all the companies including those in the Rural Service Areas (RSA’s) our penetration would be substantially greater than in the United States.

Toronto is one of the most densely covered areas anywhere in the world. It is a challenge to cover an area with many tall buildings plus a variety of expressways. It is quite a different situation from London, England, for example and has required some pioneering technology.

So cellular in Canada has evolved rapidly from being a useful tool for small businesses to being a broadly accepted way of being in touch. However, as you can see, the penetration rates are still infinitesimal. Projections of penetrations in the 10-15% range are now being discussed as more realistic than the 6-7% penetration rates thought possible even a couple of years ago.

Part of the reason for this is of course the decline in the price of the equipment. Radio Shack, for example, offers a good quality in car phone for $399. Five years ago such in car phones were in the $2,500-3,000 range.

It is interesting, however, that cellular has evolved away from being an ‘in the car’ phenomena. Now in our major cities nearly half our sales are accounted for by portables of one form or another. I mention this because it is now important to look at how the mobile field is evolving as opposed to just cellular.

The Move To Mobility

One factor that differentiates the Canadian companies from their American counterparts is that because we are allowed to build anywhere and because we can carry our own long distance traffic, we have tended to put in our own microwave or fibre systems connecting the cell sites to the switches. While this has led to a somewhat higher capital cost, it has substantially reduced the operating costs.

However, of more importance, once such an infrastructure is in place then it makes sense to add other types of mobile communications to that network.

Paging is one example of this. The DOC recently granted national paging frequencies which will allow a company like Cantel to provide not only a nationwide paging service but as we happen to have one of the U.S. compatible frequencies also to offer a North America wide service.

But there are other types of applications that are not exactly cellular but can use the same infrastructure. For example, there are many applications that require only the transmission of data. To tie up an entire cellular voice channel simply to send a notice such as ‘go to stand six’ to a taxi cab is very wasteful of that scarce frequency. We have developed a system called Mobitex Data Radio which uses a single channel to carry intermixed data messages for a variety of users. One could consider these as small packets of information each with its own address and routed to the appropriate recipient by the network. Fortunately we were able to get additional frequencies for this new network. This should prove a boon to truckers, emergency vehicles or even more static applications such as an inventory stocktaker in a warehouse using a hand held terminal device.

Ultimately it would be our expectation to offer mobile services to all Canadians. By the time we complete our current build which will be in about three years from now, we will cover well over 85% of the population of Canada. To reach the rest of the population we would expect to be an agent for the mobile satellite coverage provided by Telesat Mobile Inc. They will be putting in orbit a satellite called MSAT which will provide a way of reaching remote communities that would never be appropriate for cellular coverage. The cost of an MSAT voice transmission will be substantially greater than cellular transmission. It will likely also be subject to some blockage from high buildings or hills. It would not therefore be a competitor to cellular in urban areas or busy corridors. It would, however, be a boon to those in northern or other remote communities.

The Future Of Mobile Communications

There will be some immediate improvements to the ability to use spectrum effectively. We are all aware of the planned conversion in the early 90’s from analogue to digital signals. This should provide a substantial increase in the ability to use a single frequency for multiple voice transmission providing an increase in usage initially of perhaps 3 to 4 times and ultimately perhaps 7 or 8 times over the current analogue circuitry. I will not go into this further as I believe it is being covered by another speaker.

We all have our views, however, of how cellular like technology will evolve beyond even this. My own view is that cellular will continue to evolve to ever smaller cells. These will ultimately cover only a block or so in an urban area or even the floor of a building. This micro-cell technology will be particularly useful in serving the growing portable market.

There are other technologies such as CT-2 or a cordless telephone designed initially in the United Kingdom to replace an inadequate coin box telephone system. However, as originally conceived these devices are one way transmission only and will operate only within perhaps 100 metres of a base station. They were intended to operate in train stations, airports or shopping centres for the purpose of making calls.

The utility of these devices can be expanded by incorporating a paging device so at least people would know they had received a call and could return it when they were close to a base station.

However, the original concept has expanded to something known as the Personal Communications Networks (PCN) where full two way communication is envisaged. This would require the proliferation of small base stations over urban areas or throughout buildings. There are advantages to these systems and we view them as very complimentary to the cellular system. Cellular was designed for mobile communications, e.g. moving at 2 0 miles per hour or more. As a result, the cellular systems have very sophisticated high speed hand-off capabilities. This is not required if someone is essentially moving around an office or standing still on a street corner. Anything that would free up additional cellular capacity for mobile use could be very helpful to our industry.

Cantel and others have already been granted experimental licences in Canada to test some of these new concepts.

After The Year 2000

The final result of all this would be assigning telephone numbers to individuals rather than to telephone units. The mechanics for this are already being worked out by some of the international telecommunications bodies. This would truly complete the evolution from calling places to calling people.

Ultimately this implies that the mobile communications industry of which we are a major part in Canada will become the telecommunications method of the future.