YOUR PHONE AWAY FROM PHONE

WESTERN CANADA TELECOMMUNICATIONS COUNCIL
ANNUAL MEETING – APRIL 19. 1985

Peter Newman called the award of the national cellular mobile telephone licenses to Cantel the most important granting of a license since the CPR. Peter’s aim is of course to sell maga zines and he may be given to overstatement from time to time. My job as Chairman of Cantel Inc. is to sell Canadians on the concept that you no longer need to be at the end of a wire to make a telephone call.

We have called this concept your Phone Away From Phone.

Before I give you an overview of the implement ation of this new service in Canada, let me quickly assure you that I am not deserting the hard wired world. After years of promoting the wonders of the Wired City let’s just say that I am now hedging my bets.

I know that it will relieve the minds of both Gordon MacFarlane and Ted Rogers when I say that there is still some future left in running wires and cables around cities. However, we are people on the move. The incredible success of the Sony Walkman, portable TV’s (the Watchman), and even the short range cordless phones is an indication that people are ready to be in touch wherever they may be.

The Dick Tracy wrist radio is not quite with us, but we are not far away.

How Cantel Came To Be

Cantel was originally a consortium of the Belzberg’s, through First City; Telemedia, one of Canada’s largest independent broadcasters and publisher of TV Guide; and Rogers Telecommuni cations Inc., the family company which also controls Rogers Cablesystems Inc. I was asked on behalf of this group to stickhandle the application through the DOC. There was plenty of competition including CNCP, Motorola, Selkirk Communications and others.

When Cantel was selected in December 1983 I thought my job was over. I should have known better because there was really no Cantel organiz ation other than individuals loaned to the project from the three initial companies, and wall to wall consultants. I was asked to stay on and set up the organization that could meet our launch date of July 1st, 1985.

The Department of Communications wisely took the approach of licensing only one company to provide this service nationally, while also providing half the frequencies to the telephone companies serving each province. This avoided the incredible proliferation of companies that we have witnessed in the United States where eventually franchises were chosen by lot.

This is not to indicate that we have nothing to learn from our American friends. In fact, In January of this year we were pleased to welcome Ameritech Mobile Communications Inc. as a partner in the Cantel group. Ameritech as you may know were responsible for the original AMPS trial in Chicago and now run the largest single cellular system in North America in Chicago, Detroit, Milwaukee and elsewhere.

I mentioned July 1st as the start up date. One of our first tasks was to convince the Department of Communications that if what they wanted was a truly competitive situation then it would be unfair to allow the telephone companies a head start. The telephone companies had of course known for perhaps two years before this that they would be provided half the frequencies. We did not know until the award date that we would even have the opportunity to compete.

The DOC agreed and ruled that no organization could start the service before July 1st, 1985, or six months after a suitable interconnect agree ment had been signed between Cantel and the tele phone company. They further ruled that at least Bell had to establish a separate arm’s length subsidiary to provide this service. B.C. Tel has elected to do the same.

With that general background, then, I can describe what Cantel has been doing to get ready for July 1st.

Cellular Technology

I will assume that most of you are familiar with the technology. Very briefly, the key to a cellular system is in the network design allowing the newly allocated frequencies to be reused in non-adjacent antenna sites called cells. As the load increases, the number of radio channels in each cell site can be increased to a maximum of forty-five, but then the cell sites can be split, the tower height and power lowered, and hence additional channels can be allocated to the area in need.

For example, Ameritech in Chicago started with eighteen cells and as the demand increased has now doubled this number.

The technology is evolutionary rather than revolutionary. The major breakthroughs are in the sophisticated computer programs allowing the system to monitor the signal strength as a mobile moves through the service area, and to switch the call from one cell to another with out the change being perceptible to the user. The switch time is approximately 800 milliseconds and might be heard only as a short click.

The system is FM quality providing in most areas at least as good quality service as one would expect on a land line phone.

I’ll come back to the technology but for a moment let’s look at the national coverage.

Cantel’s National Coverage

The original licenses were granted for twenty-three metropolitan areas across Canada. Cantel was also given the right, however, to apply for any areas it wished to serve.

From the start our approach has been to look at corridors rather than just cities. It is our belief that initially most installations will be in cars or other vehicles and hence our coverage must be where people drive.

Cantel has the right to arrange for its own long distance service by leasing facilities from CNCP, Telecom Canada, Telesat, or whatever may be appro priate, or by building our own facilities as long as the call being handled has a mobile phone as the initiator or receiver of the call.

By condition of license we have undertaken to build the initial twenty-three cities within eighteen months of July 1st, 1985. We will start in Toronto, Hamilton, Oshawa and the surrounding areas, as well as in Montreal on that date. Ottawa will follow shortly with Vancouver being brought on stream in March 1986.

We would expect that the initial capital outlay from the development of this system would be in the area of $180 million, this being financed by approximately $50 million in equity and the rest with normal bank financing.

The Cantel Network

Using Toronto as an example, we designed our cell location in conjunction with Compucon. Obviously the cells must be located to provide not only complete area coverage but also coverage with sufficient capability td handle portables or transportables as well as mobiles.

Once the cell sites have been selected in general a choice must be made between a building-mounted antenna and a stand alone cell. The antenna height would not usually exceed 150 feet, bearing in mind that a taller antenna would defeat the cellular approach of low powered, short distance transmission. The average cell site initially might only cover an area 8-10 kilometres in diameter.

If a building site is selected, the radio channel equipment will of course be located in or near the building. However, we anticipate a large number of stand alones sites. The antenna will either be monopoles or guyed structures depending on the location and zoning requirements. The cell sites have been designed to be completely mobile. We chose to use sea going containers especially fitted to contain the radio channel equipment, power, air conditioning and other requirements. These can be delivered to the site on a flatbed truck or even by helicopter if required.

While it would be possible for us to lease hard wired facilities from the telephone companies to back haul the signals from the cell sites to our central switch, we have chosen instead to use microwave.

In Montreal our switch is located at our head office on Cote de Liesse. This means we had to be particularly careful of the cell site location so that we could get microwave shots, bearing in mind that no further antennas are allowed on the mountain.

We would expect Vancouver will present Its own challenges.

Our switch in Toronto is located at the foot of the CN Tower and we have used the tower for microwave connections to the cell sites. By and large the frequencies are 2 GHz.

The connection from the switch site at the CN Tower to Bell Canada is a fibre optic link. The entire network is digital in design, although we cannot of course guarantee that all circuits used when we interconnect to the telephone network will be digital.

The supplier of the cell site equipment and the switches is Ericsson acting as a sub-contractor to NovAtel Communications of Calgary. The actual switch in each of Montreal and Toronto is the AXE 10, one of the world’s most highly regarded telephone switches.

The Phones Themselves

One of the advantages of the new 800MHz system is that it is a North American standard. The fact that there are now essentially an infinite number of radio channels that could be made avail able in a mature cellular system means that there is incentive for many companies to manufacture the telephones and transceivers.

As one of Cantel’s aims is to use Canadian developed and manufactured equipment wherever possible, one of the Cantel suppliers will be NovAtel with their 2882 mobile system. This will be a Cantel branded product. However, Cantel will support a number of other suppliers as Cantel recommended products, e.g. NEC, Panasonic and Mobira. Mobira is a particularly attractive product because they have a sophisticated trans portable capable of being used either in a vehicle or being carried wherever required. This is a full 3 watt unit unlike the briefcase portables that usually operate at about .8 of a watt.

The Cantel system will of course support any manufacturer’s equipment and in the years to come we expect the portables will be a major part of our business.

Marketing Cellular

One of the biggest challenges we face is the public education process. While people have used hard wired phones for nearly a century, mobile phones have always been considered a rich man’s device. In fact, the experience in the most successful cellular system in the Nordic countries is that by and large it is small businessmen who are the main users. In Canada’s most success ful mobile system located in Alberta, it is users in the oil business that gave it its great boost. I might add that by associating ourselves with Ericsson, NovAtel and Ameritech, Cantel has direct links to the three most successful mobile tele phone operations in the world.

However, back to our marketing approach. As a national company Cantel is setting up Cantel

Service Centres who are authorized dealers. As a national company a Cantel subscriber should be able to step off the plane In any city in Canada and use his or her portable. He or she should also be able to get one stop service wherever he or she may be.

In fact, the one stop shop is the backbone of Cantel’s marketing approach. A CSC will provide a broad range of mobile phone products, arrange for the DOC license, install the equipment, provide a lease if that is what the customer wants, and service the equipment including any interface with the manufacturer under warranty.

The CSC’s are independent businessmen who put up a substantial amount of money to become one of our authorized dealers. We in turn provide full franchise support for the CSC including modular displays, architect’s layouts, and a complete set of support material and required training.

These marketing binders provide the CSC’s with everything they need to know about products, installation and, of great importance, how to sell.

Cantel does not believe there is significant pent up demand in Canada for mobile telephone products. Therefore Cantel must be extremely aggressive in developing the market.

We have developed a sophisticated lead tracking and generation system that is centralized on our Datapoint equipment in Toronto. Each CSC has a computer terminal which not only provides the work order linkage for new customers, inventory control and other matters, but enables Cantel to forward qualified leads to the CSC.

Our belief is that vertical marketing is the only approach that will in the long run develop the market correctly. Cantel has developed specific marketing programs with full support to not only show the CSC how to market to real estate agents, insurance brokers, plumbing and heating firms or others, but then pinpoints for the dealers exactly who should be called on in their territories. This sophisticated computer marketing program is the cornerstone of Cantel’s market development.

The Datapoint equipment, incidentally, is not our primary billing equipment. This is an IBM 4300 Series system installed in Toronto. We believe that the billing system, however, is every bit as much a marketing tool as anything else. It is second only to the service quality itself in creating customer satisfaction.

Cost

If this new concept of your phone away from a phone is going to be successful it must be sold initially as a productivity improvement device. Initially the cost will be too high for general personal use.

We expect to put phones on the market at around $2,500. It is our belief that this price will drop to around $500 over the next five or six years.

The cost components would therefore be the purchase of the unit or its lease at perhaps $70-$80 per month. Next there is a basic monthly fee of $15 similar to the basic fee for a regular telephone.

Then there is a cellular usage charge which is where Cantel makes its profit. This is for connecting your mobile call to the regular tele phone network. This charge is on a sliding scale of:

– 500 per minute for the first 130 minutes;

– 350 per minute for the next 170 minutes;

– 250 per minute for all additional minutes.

Finally, there would be whatever charge would normally be made for long distance calls.

We would expect that based on experience in the U.S. the average user will probably expend between $200 and $250 per month, including the lease of the unit. This is only $7-$10 per working day, or less than many people pay to park their cars.

Leading to the Launch

Our public marketing launch has already begun. Young & Rubicam, our advertising firm, and Burson-Marsteller, our public relations and direct marketing specialists, have actively begun the public awareness campaign. The first two ads run nationally in the Globe & Mail, Time, The Financial Post and elsewhere each won the Ad of the Week award. Although these were not lead generating ads the response so far has been quite staggering. However, we are in this business for the long haul. Our approach is not only to sell clients on this new approach to staying in touch but to ensure that they are genuinely happy with the service and see it as a major improvement in their productivity and lifestyle.

Over the next fifteen years, i.e. to the year 2000, we would expect to the see that a portable in every pocket and a pager in every purse will become a reality.

Cantel’s approach in developing its system has always been to use local expertise in the develop ment of its network. We look forward in the very near future to working with many of you in developing the Cantel system in British Columbia.