COMING OFF A SUCCESSFUL free trial that saw 43,000 subscribers sign up for its OneZone WiFi service in downtown Toronto, Toronto Hydro Telecom moved to a subscription-based service in late April. Toronto Hydro Telecom president David Dobbin (pictured below) spoke to Cartt.ca contributor Linda Stuart about OneZone, the upcoming wireless spectrum auction, and the competitiveness of Canada’s mobile communications industry.
Linda Stuart: The OneZone service has been offering subscription-based services for a couple of months now. How has uptake on the subscription service gone so far?
David Dobbin: Better than we expected. We originally projected a 10% month-over-month conversion rate from free to paid services, and we’re experiencing about 22%.
LS: Do you have a number of paid subscribers at this point that you can share with me?
DD: No, we’re in quiet period. I can’t release it. Toronto Hydro Corp. has about $1 billion worth of bonds on the market, and we’re subject to FCC guidelines. So we can’t talk about financial periods at the end or beginning of a quarter.
LS: Any usage statistics that you can share?
DD: I can tell you that we’re surprised at the breakdown of subscribers. Forty per cent of subscribers are signing up for monthly service. Another almost 40% are signing up for daily, and the rest are signing up for hourly. The interesting phenomenon we’re seeing is people who bought monthly in the first month are coming back and renewing.
LS: Can you give me a ballpark figure on renewals?
DD: We’re not sure on the percentage. We just know it’s happening.
LS: During the free trial and the rollout of the WiFi network itself, did you encounter any unexpected problems along the way? And if so, how did that affect the rollout of the service and customer uptake?
DD: Did we encounter problems? Oy vey. First off, no, it did not affect the timing of the rollout. We said we were going to have it done before December 31, and we did.
The first problem that we had was a problem around power. We had thought all the streetlights had 24×7 power to them. We discovered there were vast tracts of downtown Toronto that were wired in serial fashion, so there’s one light at the end of the street with a photo cell, and all the other lights are tied into that one light. This is a problem, because you only have power half of the time. We contemplated marketing a nocturnal WiFi network, but we didn’t think there would be good takeup on that, so we had to figure out a different solution. So we actually ended up running new power cables through the streetlights, to the light and the WiFi supply. We actually retrofitted the street lights in downtown Toronto.
The second big problem we had was related to electromagnetic frequency radiation. There is a small group of people who believe their health is negatively impacted by electromagnetic frequency radiation. We figured the cell phone guys had battled this battle years ago and it was over. It definitely was not. Toronto Board of Health came to us and they wanted us to stop deployment completely until they had assured themselves that there was no harmful effect on human health. So we actually did have to stop building, and we had to do a pile of measurements, radio frequency measurement, radiation measurement, to make sure that we were in fact below the City of Toronto’s acceptable limits, which we are. We broadcast at 1/3,000th of the strength of a cellular telephone tower, so it’s not an issue, at least according to today’s science.
The third problem was around security and authentication. I always ask people this question: “You ever view kiddie porn?” If I ask 100 people that, 100 people say no. But if you look at the statistics, one of them is lying. If you build a wide open WiFi network, with no security and authentication, you would effectively turn your city into a haven for child pornographers. This was a real concern, and we didn’t even think of it. For our free trial, we were going to build a big wide open WiFi network and let everybody on it, just like they do in Fredericton and other cities. When we announced the launch for it, within half an hour, the Toronto Police were on the phone, saying, “Hey guys, we want a little chat with you.” We hadn’t even thought of it, and they were absolutely right. So we actually had to develop an authentication system from the ground up. And we did, and it worked well, and the police were happy with it.
LS: The Cleanfeed Project, which blocks access to certain Web sites and offers parental controls, is that another way that you could have dealt with that particular issue?
DD: No, we believe in Net neutrality. We’re very strong believers in Net neutrality. So we don’t rate, limit, or restrict our users in any way, shape, or form. But if the police have a legitimate concern about the content or the consumption of any particular user and can substantiate that concern with a subpoena, we want to be able to give them whatever information they require.
LS: In terms of the existing state of your WiFi network, are there any dark spots still or any network stability or availability issues that you might still be dealing with at this point?
DD: Well, there are two answers to that question. First answer is yes, there are always dark spots that we’re trying to deal with, particularly on the inside of buildings. Depending on the construction of the building, they can actually become a dark spot. The building I love to use as an example is the Royal Bank Plaza. The windows on that building are gold, and that’s real gold. The building is a Faraday cage, which means radio signals just don’t go in. So that was a problem. Buildings with really thick limestone walls, with no windows, they’re a problem. So we’re working to augment our coverage in those areas. We have teams of engineers rolling around downtown, constantly tweaking and optimizing the network.
However, all that being said, in December, there was a consulting firm called Novarum Consulting that came up and did an independent evaluation of our wireless network. They’ve been going around North America, testing out wireless networks. They’ve tested in 14 cities, tested 41 different wireless networks. And our network came up as the fastest wireless network in North America. They tested it all over downtown, and on average, we were the fastest.
LS: Do you have expansion plans for the boundaries of OneZone?
DD: What we promised our board is that we would commercialize it for six months, let it run for six months, charging subscriptions. If we achieve the business plan that we laid out, then we’ll expand it. If it doesn’t achieve it, we won’t.
LS: In May, you submitted comments to Industry Canada as part of the consultation on the Advanced Wireless Services spectrum auction next year. What is Toronto Hydro Telecom’s interest in the spectrum auction?
DD: We have two main interests in it. Number one, and this is important, we believe just from a very basic level, the Canadian mobile market isn’t as competitive as other mobile markets in the world, from two standpoints: from applications and pricing. Penetration is the lowest in the developed world. We believe new competitors will help to drive that up. In a world where productivity is becoming increasingly important, Canada’s productivity is sliding. Wireless is a key enabler to productivity. So we think more competition is a good thing and it drives productivity. For example, in South Korea, you can buy from SK Telecom a cellular-equipped tracking device for fish. You attach it to a fishing line, and when you fish, the device goes in the water and it communicates with your mobile phone and tells you where the fish are in the water. Now, that seems like a really stupid thing, but at least they’ve got it. Competition drives innovation. So that’s the first one.
Second, remember our bread is really buttered on our fibre optic business, and 40% of that business is wholesale, selling to other carriers. The more carriers there are, the better.
LS: On the first point, you mentioned Canada’s mobile market is not as competitive as it should be. Where do you get your market research from? Which studies, because there seem to be so many conflicting reports out there that people use for their own means?
DD: If you look at the FCC’s Eleventh Annual Report to Congress on competition in the mobile communications industry, it states that Canadians pay on average 11 cents per minute for a cellular telephone minute, Americans pay 7 cents, and in Hong Kong they pay 4 cents. That’s the FCC, these are no dummies. If you look at the CRTC’s own penetration data, you can see that in eight out of 10 Canadian provinces, the phone company’s cellular carrier has, according to merger enforcement guidelines, dominant market position. That’s greater than 70 per cent.
People can make the numbers dance whatever way they want, and that’s why you get all these conflicting numbers. But if you actually look at what the CEOs of the major wireless carriers are saying, that’s what is important. And what they say at investor conferences is very different than what they say to the regulator. For example, at last year’s Canadian Telecom Summit, (Telus president and CEO) Darren Entwistle got up at a luncheon and made a keynote speech. He put up a slide that said Telus has the highest average revenue per user in the industry. Then he said they’ve also had 14 quarters of ARPU growth, 14 quarters where the average revenue per user is growing, in a row. What that says to me is the prices are high and they’re going higher. This is what they’re saying at investor conferences. Now, they turn around to the regulator and they say the prices are the lowest in the world. The ARPUs are high, and their response to that is that they’re selling the users more service. Well okay, so cellular carriers in Hong Kong aren’t selling users more services? I can buy a fish finder in Korea, right?! In Germany, I can use my mobile as my desktop phone! Sorry, I get a little fired up.
LS: Back to the spectrum auction, is Toronto Hydro Telecom actually looking for a regional spectrum licence in Toronto or Southern Ontario?
DD: Don’t know.
LS: Are you looking to group together with other utility telcos? Some market observers have suggested that different utility telcos across the province or country might…
DD: No, no, we work on our own.
LS: So no consortium to run a joint venture wireless company in the works? That’s not a possibility that you’re considering?
DD: With other u-telcos? No.
LS: So in giving your comments to Industry Canada, it was merely to give your perspective on the market and not that you’re planning to bid on a spectrum licence?
DD: First, I can’t say whether I’d bid until I know the rules. But I do want to leave the option for my shareholder open.
LS: Is it on the wholesale side that you would be more interested, selling spectrum to others?
DD: No, what I’m saying is we might be able to build a cellular network across Ontario. But I can’t bid unless I know the rules. I want to leave the option open to be able to. I don’t know if we’re going to, but I want to have the option.
LS: In the fall, Industry Canada plans to announce the rules for next year’s AWS spectrum auction. What is Toronto Hydro Telecom’s position on some of the more contentious issues being discussed, such as spectrum set-asides, spectrum caps…?
DD: We believe there should be set-asides for new entrants; 50MHz of the spectrum being auctioned should be set aside. We believe there should be two blocks set aside for national networks. We believe the 1675MHz band left fallow by this auction should be made available to regional competitors on an exclusive basis. We believe that tower sharing should be mandated, roaming should be mandated, resale should be mandated, and interoperability—the networks should all interoperate. I should be able to take my cell phone and go to whatever network I want.
LS: In terms of new spectrum opening up in the 2GHz range, are there new services that you can envision being made possible by that, looking forward?
DD: How about true 3G? How about HSPIA cellular service with broadband feeds at 15Mbps on your cell phone? The technology is out there. What do the folks of Durban, South Africa have that the citizens of Winnipeg, Man., don’t? A 3G cellular network. What do the good people of Tanzania have that the people of Calgary, Alta., don’t? A 3G cellular network.
LS: Next year’s spectrum auction aside, what’s the next step for Toronto Hydro Telecom? You mentioned the six-month commercialization of the OneZone service, so that’s just “wait and see how it goes”?
DD: Wait and see how it goes.
LS: In terms of the other aspects of your business, apart from the WiFi service?
DD: That’s where we spend 95% of our time, on the fibre side of our business. We’re continuing to grow that business. We’re constructing a new metro network in Mississauga, Ont., this year. We’re building 140 kilometres of fibre in Mississauga.
We’ve just added a new switched wavelength platform to the network. We’re actually the first carrier in North America to deploy a switched wavelength platform. So that means we’re able to deliver optical lambdas to customers in the same way that the other guys deliver T1. It’s fast, works great, and it’s ultra, ultra high bandwidth.
We’re building a 30,000-square-foot data centre, which will be done in August. That’s going to be a brand new data centre space in Toronto.
We’ve launched a number of new products, such as a bulk storage product and a disaster recovery product. We can actually completely mirror a customer’s operating environment in our data centre. So if a customer’s building burnt down, we can have them up within 15 minutes, with all of their servers and all of their data exactly as they were in their own data centre, for a fraction of the cost of maintaining their own secondary infrastructure.
Next year, we’re going to be building out north of the city. We’re expanding our network, it’s going great. In the last two years, we’ve almost doubled the size of this business.
