Competition will trump telecom price increases

CANADA’S TELECOM INDUSTRY AS A WHOLE WILL GROW AT A MODEST PACE OVER THE NEXT FOUR YEARS, but according to the Conference Board, significant shifts in market share will occur within segments of the industry.

“Fierce competitive pressures in growing segments of the telecommunications industry will limit price increases. This increasing competition benefits consumers but will constrain profit growth for telecommunications companies,” said Michael Burt, Associate Director, Industrial Outlook. The number of wired phone lines is steadily declining, but increasing demand for wireless services will sustain overall growth in the industry.

The May 2008 spectrum auction for wireless services will bring new competitors into the market, which will limit the industry’s ability to raise prices. Prices are forecast to grow at less than one per cent annually through 2011.

In addition to weak pricing power for the industry, rising costs will be another factor limiting profitability. For example, labour shortages in the IT sector are driving wage increases. As a result, after posting double-digit profit growth in each of the past two years, industry profits are expected to grow by just 1.1 per cent in 2008, to $6.8 billion. Profits will remain flat in 2009 and will grow modestly each year between 2010 and 2012.

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