October 10, 2008 / 4:19 PM / 9 years ago

UPDATE 3-Telus, BCE to team up on network upgrade

(Adds closing stock prices)

By Susan Taylor and Wojtek Dabrowski

OTTAWA/TORONTO, Oct 10 (Reuters) - Telus Corp (T.TO), Canada’s No. 2 phone company, said on Friday it will build a next-generation wireless network with Canada’s biggest telecom company, BCE Inc (BCE.TO), as they fight for market share with rival Rogers Communications Inc (RCIb.TO).

The upgrade to high-speed packet access (HSPA) technology, which will be completed in early 2010, will allow Telus and BCE’s Bell Canada unit to offer services on a wider range of cellphones and smartphones.

It is considered a transitional step before the advent of so-called “fourth-generation” technology, which allows for much faster data-transmission speeds on mobile phones. The technology lets users freely use data-intensive applications like watching movies and playing media-rich games.

“This will enable a smoother transition to a fourth-generation wireless network, using long-term evolution technology,” Telus CEO Darren Entwistle said in a conference call with analysts.

The pact with BCE — traditionally a big Telus rival — will lower the costs of the network deployment for both companies as well as “significantly improving the economics of the investment,” Entwistle said.

Aside from Rogers, Telus and Bell also face potential competition from new sector entrants following a wireless spectrum auction that wrapped up this summer. Privately held Globalive Communications acquired spectrum across the country and plans to roll out service next year.

Some analysts have raised the possibility that the crisis gripping world credit markets could make network rollouts more difficult because of tight financing conditions.

However, Globalive said it is undeterred by such concerns. Telus and BCE, meanwhile, are trying to ease the burden by partnering on a deployment.

The deal between the two was long expected by analysts and investors. Vancouver, British Columbia-based Telus said initial capital costs for the network overhaul are part of its unchanged 2008 spending forecast of C$1.9 billion ($1.6 billion).

    In 2009, Telus expects to spend C$750 million on all wireless capital expenses, including the overlay.

    “This move is ultimately good for the company (Telus) as it will add support for future average revenue per user as HSPA smartphones get developed and wireless data becomes a bigger part of overall revenue. In addition, it aligns Telus with larger carriers like Verizon in its path to 4G services,” National Bank analyst Greg MacDonald said in a note.

    “However, there will be near-term operating costs associated with the move, which we believe will have a negative impact on margins by between 200-400 basis points in the near term, or up to 80 Canadian cents per share,” MacDonald said.

    Nokia Siemens Networks and Huawei [HWT.UL] will provide equipment for the project.

    The network sharing announcement between Telus and Montreal-based Bell also advances arrangements the companies have had since 2001. Financial details were not disclosed.

    Telus shares fell C$1.21 to C$35 on the Toronto Stock Exchange amid a broad selloff. BCE fell C$1 to C$33. ($1=$1.19 Canadian)

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