Competition squeezing telecom profits: Report

Phone, Internet and cable prices will only be able to go up slightly this year as more wireless competitors enter the market and costs of new technology is increasing, says the Conference Board of Canada. As a result, profits will be squeezed.

“It’s going to be tough for companies as price (increases) are limited, noted Maxim Armstrong, an economist at the board, which on Monday released its twice-a-year outlook on the country’s telecommunications and computer industries.

“Overall, it’s going to be who can manage their costs and their profits and offer what people want.”

Telecom prices have been fairly stable since 2008, he said in an interview.

But, he said, “we don’t expect prices to stay flat” this year. “Once the new entrants are in the (telecom carriers) will face input price inflation, salary inflation … so everyone’s going to have to increase their prices.”

On the other hand, those increases won’t be big – in fact, the report says, they’ll be below the rate of inflation.

Those new entrants include Wind Mobile, which launched in December and now operates in Toronto, Ottawa, Calgary, Edmonton and Vancouver; Public Mobile, which operates in Toronto and, starting June 25, in Montreal; and Mobilicity, which had its debut last month in Toronto and promises to open stores in Calgary, Edmonton and Vancouver.

Before the summer ends, Quebec cableco Videotron Ltee. will have its new network running across the province. Two major cablecos, Shaw Communications and Bragg Communications, will open their new wireless networks.

Meanwhile, despite what it says is healthy demand, because of competition telecom industry the board believes revenues will grow by an average of 3.6 per cent between now and 2014.

Telus Corp. spokesman Shawn Hall agreed there’s a potential for price increases at his company. But, he added, cost control remains a priority at the Vancouver-based phone company.

Otherwise, he said, the board’s predictions are in line with Telus’ financial guidance for the year.

The Conference Board is a business think tank reports on business and economic trends.

Iain Grant, managing director of the SeaBoard Group, a telecommunications consulting group, thought the report only scratched the surface. “The report shows the weakness of looking only at macro trends and trying to understand the dynamics within an industry,” he wrote in an email interview.

In a more competitive market one can pretty safely assume that price increases are less likely, and costs always rise,” he said

“But that isn’t the entire story. Smart phones, they (the board) admit, are changing the game. We believe, though, that the real impact has yet to be felt.  A more nuanced analysis would show that the main thrust of the new competition is at the lower end of the ARPU (average revenue per user) continuum, but the smart phone phenomenon is giving an updraft to the higher end of the ARPU continuum.  If your $100 users are adding $30/month data plans (and text plans, and and) but your $40 users are migrating to a competitive $30 plan, the carriers are going to weather this tempest pretty well, especially given that the smart phone users are growing briskly  and will be 40 to 50 per cent of the user base in short order.

“As for profits, well, increased revenues, but much tighter cost controls, this would suggest that profits may well increase, and not subside.” BCE Inc.’s Bell Canada and Telus shared construction of a new $ 1billlion HSPA+ wireless network, he said, but that was last year. “Reap the rewards they shall going forward,” Grant said.

Bell and Telus are also investing heavily in laying fibre optic to neighborhood nodes or direct to premises to meet the challenge of cablecos like Shaw, Videotron and Rogers Communications Inc, are upgrading their networks to achieve Internet speeds of 50 Mbps and higher.

As for the economy overall, that will help the telecom and other industries, the report says. It predicts 268,000 more jobs this year and aother 428,000 next year, which will more than offset the job losses in the recession. Consumer spending is expected to grow at a “healthy” pace over the medium term, the report predicts, tempered by rising debt levels. Most businesses, it says “are now firmly in recovery mode.”

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